Middle East Shifting Focus Toward Renewable Energy to Boost Economy
The Middle East has relied on the production and distribution of oil for decades to sustain its economy. Now, with GDP projecting a decrease in oil and non-oil growth in the coming years, that production is expected to decline as the Gulf region prepares to invest more in renewable energy sources.
"We reject the false choice between preserving the economy and protecting the environment," said Saudi Crown Prince Mohammed bin Salman, in a prepared statement. "Climate action will enhance competitiveness, spark innovation and create millions of high-quality jobs."
The transition to renewable energy will take time as export income in the Gulf region still heavily relies on fossil fuels. Renewable energy projects have yet to gain enough steam moving forward to support economies in that region; however, countries are beginning to invest more in service sectors such as tourism.
This may come as no surprise as trade credit insurer, Atradius, reports a tight budget of public finance investments for long-term sustainability in the Gulf region. According to data from the International Renewable Energy Agency, the Middle East has been nearly absent in its share of renewable energy (excluding hydropower) compared to the rest of the world.
With the Middle East beginning to invest in more sustainable energy sources, the International Energy Agency predicts the number of cumulative investments in the renewable power sector to rise up to $750 billion by 2040.
Unfortunately, a spike in stranded assets is likely to occur during that time frame with oil and gas reserves remaining untouched in the wake of a renewable energy revolution. Countries that have weaker economic standings may struggle with the challenges and risks that lay ahead. These risks include minimal growth in GDP over the next five years, or low financial buffers due to having only a small percentage of sovereign net foreign assets.
If countries are unable to recover these assets, they may be headed toward sovereign default—when the national government fails to repay principal dues or interest. As a result, the country would face higher interest rates and lower credit ratings in the future.
←Bryan Mason, editorial associate