This article will provide a strategic analysis of the position of Saudi Arabia as the greatest oil producer on the world regarding the push for green energy projects throughout the world as the global effort to fight climate change accelerates.
The International Energy Agency, has alerted through various reports for the need of a greater effort to fight climate change in the energy sector and has recently after a meeting with the majority of the representatives of the worlds biggest energy corporations launched a public statement alerting for the fact that the world would need to immediately stop approving new oil field explorations and phase out fuel vehicles in order to avert the worst effects of climate change.
From the Saudi Crown´s perspective, such a policy is unacceptable and unfeasible from the point of view of its Foreign Ministry, and this article intends to analyse the impact that the Saudi government´s oil and energy policies will have and its strategic consequences for the world.
Saudi Arabia correctly defends that the world will continue to need to consume oil and oil related energy products at lest for the next 2 decades and with Saudi Arabia being the country which has managed to sell oil at the lowest price a barrel, beating almost every major arrival.
Additionally Saudi Arabia has joined the United States, Canada, Norway and Qatar on establishing a new plan for the reduction of CO2 emissions in oil drilling exploration with Saudi Arabia’s national oil company- ARAMCO committing to reach a full stop of adding greenhouse gases to the atmosphere from its oil extraction by 2050.
Essentially the Saudi government sees its strategy as an advantage since analysts for the national oil company´s policies have concluded that with climate change awareness getting bigger in most societies, consumers will start discriminating between barrels of oil exploration that is more pollutant and oil exploration that is more eco-friendly, excluding however in their policy the activity that causes more pollution, that is, the burning of fuels.
The Saudi leadership has alerted to the economic turmoil that the world’s economies would feel if the oil industry would decline and suffer lack of investment.
This is obviously neither in the strategic interest of the Saudi government or the states that have a great energy dependence in oil such as China which has reached recently to new energy deals with the Saudi government.
Financing studies that alert to the alleged fact that a rapid transition to renewables and to cleaner electric vehicles would bring economic chaos- a view that has to certain extent been vindicated by the recent turmoil in the global energy has felt amid the supply shortfall and the surge of oil prices that has resulted mainly from the Ukraine war.
Saudi´s Crown Prince, Mohammed Bin Salman as recently asserted this position by publicly saying that “unrealistic policies to reduce emissions by excluding main sources of energy will lead in coming years to unprecedented inflation and an increase in energy prices, and rising unemployment and a worsening of serious social and security problems”.
Saudi Aramco´s has also recently made the public warning that an increased focus on climate is currently undermining investment in oil and gas to the point where it now posed a threat to the worlds energy security, protesting the lack of investment the sector is feeling in comparison with the still needed supply of oil and oil-related products.
In contrast to the lack of investment in oil energy and the reduction of prices, the global investment in clean energy transition has hit 1,1 trillion-dollar value in 2022, equalling for the first time the amount invests in fossil fuel production, according to an analysis form BloombergNEF, with this representing a 31% jump from 2021, although it is only a fraction of what is needed to avert catastrophic global warming.
This economic shift has also been received as a negative sign for the stability of energy markets by other top oil corporations that have recently argued in a similar fashion to Aramco, that have also rushed in recent weeks to argue that more should be invested in fossil fuels due to the worlds central need of them in order to function.
The chief executive of Aramco has also added that the mounting pressure to curb new investment in oil and gas was based on “flawed assumptions” regarding global warming, saying that the global change driving states and markets to support renewable energy technologies is being built on idealism and not in reality, as such technologies simply put are currently not advanced and powerful enough to sustain the increasing energy demand of the world, as they would fail to replace oil and gas “almost overnight”.
It also made the claim that if ESG-driven policies were fully implemented with an automatic bias against any and all conventional energy projects the resulting underinvestment would have serious implications for the affordability and security of energy on the global scale, with Environmental, Social and Governance criteria in investment raising the overall cost of capital for oil and gas projects in a unsustainable manner for the stability of economies world-wide.
It should be taken into account that these comments echo the public comments made by the secretary-general of OPEC which has also made the critical complaint of the lack of financing that the oil and gas sector has received in the last decade, noting that the sector is in need of an additional 500 billion dollars in investment to meet the demands of the global markets, which is directly at odds with what the International Energy Agency has defends, with the IEA advising developed countries to cease their investment in fossil fuels.
It should be added however that investments in oil have been subdued since the 2014 oil price crash and that the nature of the energy markets has proven that investment in oil and gas tend to be cyclical, with the Russian-Ukrainian war having been a paradigm shift event that has added more pressure to the oil sector besides the pressure already being felt as a result of the competition for investment with the renewable energy sector, with solar energy now being cheaper than conventional energy as a result.
Oil consumption has only accelerated in the last years and all the data indicates for both oil and gas projects to continue to grow at least until the 2030´s, which goes well beyond the ESG and UN´s climate goal of reducing oil an fuel related pollution and consumption by 3% every year until reaching net zero emissions by the end of the 2030´s.
Consequently, a more honest and strategically realistic strategic conversation should be had between the ESG and climate organizations, the oil industry and the worlds super-powers- the US, China, India and Russia among others in order to find a strategically moderate middle term solution.
This in both theory and practice is essential for all sides interested in fighting climate change while maintaining global energy security stabilized and avoiding economic crisis since it would not be in anyone’s strategic industry for the global energy markets to suffer and additional blow to the one it is already feeling as a result of the Ukraine war.
Saudi Arabia should be encouraged by the US to maintain a steady flow if investment in renewable energy like its state is currently doing and to put its strategic promises for a more sustainable domestic energy grid into practice since although it has already invested capital, little actual progress has taken place in the country.
It can be safe to say that the oil industry will not go anywhere and that demonizing such countries as Saudi Arabia is also not productive for climate change discussions or for the promotion of sustainability since it would only create a more tense environment for the message of climate change organizations to reach its expected effect which will only be possible with the cooperation of oil-rich countries and oil exploration corporations.
A new understanding of the actual scenario in place should be thus taken into account while simultaneously respecting the fact that the burning fuels and oil related energy production is the main cause of climate change and that Climate Change organizations need to be taken seriously by all actors globally since climate change is a strategic problem that will affect all governments globally.
By The European Institute for International Law and International Relations.
