The recent drone strike on Saudi Aramco’s Abqaiq oil facility caused Brent crude prices to briefly spike over 20% on anticipated short supply. In the end the outage appears manageable but the market reaction was not surprising, with an estimated 5% of global supply offline. So normal service has resumed but it does remind us of our dependence on the black stuff.
Some commentators have fast forwarded to a future without oil… get rid of oil, aside from the environmental benefits, we’ll get less war, less tyranny, less arms deals… sounds good.
Not least because oil has had a hugely distorting effect on economies in the Middle East. Kingdoms have had access to billions of gallons of light sweet crude through happenstance of geology rather than foresight. The resulting wealth has accrued to elites, with the tacit agreement that the status quo is maintained through services such as the provision of free education and healthcare.
There doesn’t seem to be anything sustainable about all of that. So the expected displacement of oil by renewable sources of energy should be a thing to celebrate. Not so fast, consider the destabilising impact this will have – just consider that the youth is 60% of the Arab population, and they will need to find meaningful employment.
These are currently wealthy countries, for example Saudi Arabia’s debt to GDP is only expected to rise to 25% by 2021. Its budget deficit is forecast by the IMF to rise to 7% of GDP this year. Oil is 12% of GDP for the UAE but for Libya over 50%, Norway’s is only 3%! This is not sustainable, so there is a race to invest and modernise. This will require structural changes to society if there is any hope of delivering the jobs that the population will need to sustain their prosperity.
This is not lost on governments they are investing billions of dollars to deliver a sustainable future; Qatar’s 14 sq km “Education City” on the outskirts of Doha, Saudi Arabia has been investing in its National Science, Technology and Innovation Plan (NSTIP). It is a mammoth task, in a region that has struggled with decades of instability more challenge seems desperately unfair.
These are massive sustainability challenges for the region and the world – highlighted by the blinding glare of technological progress. Solutions such renewable energy and storage solutions are key in addressing our climate challenges, let’s also hope that they lead to a better world for all.