The Middle East is a diverse region whose strategic potential due to its energy resources and geographic locations make it a hotspot for great powers. Over the past months, Middle Eastern countries have been taking advantage of the energy crisis unleashed by the war in Ukraine, keeping oil and gas supply at constant levels while increasing their prices to constrain offtake.

The energy crisis has led to major geopolitical movements in the MENA region which contains almost half of all global oil reserves. This has been crucial in a scenario where advances in the development of renewable energy sources have been set aside and the security of fossil fuels sources has been placed at the top of governments’ agendas. 

Due to oil and gas shortages from Russian energy sources, Gulf countries hold major bargaining power in international markets, using energy supply for their own political and economic enrichment. However, this situation has not brought concurrent benefits at the national level. For hydrocarbon economies, the role that oil has played has been detrimental to efficient policymaking and democracy. Because of oil monopolisation and rent, authoritarian modes of governance from ruling parties have prevailed and public budgets have been mainly devoted to the fossils sector, neglecting policies to benefit labour, social welfare and healthcare. Such an oil curse fundamentally altered the relationship between political and economic spheres, and undermined prospects for democratic social contracts and rule-of-law-based governance systems.

This situation has hindered the development of real economic policies, tax revisions and transparent banking systems. Strong dependence on oil-derived incomes have made Middle Eastern economies over-dependent on the energy sector. For instance, Saudi Arabia was the 18th largest economy regarding nominal GDP in 2022, and the world’s largest exporter of crude petroleum ($95.7B, over 60% of global exports), according to the Observatory of Economic Complexity. However, the Economist Intelligence Unit Democracy Index placed Saudi Arabia amongst one of the most extreme authoritarian regimes (score 2.0-3.0).

The monopolisation of oil markets has also led to the growth of new elite classes which undermine institutional ruling and governance in MENA nations. The development of a real national entrepreneurial class is unlikely, given overprotective economic directives and the prevalence of rent-seeking behaviours by such elites that aim to preserve their own power.

Moving away from the national sphere, authoritarian regimes have developed a more assertive realpolitik at the international level. A clear example has been Qatar, whose liquefaction and regasification capacity has developed a substantial, attractive portfolio for national oil companies. This has given the state greater leverage over such companies, allowing the country to pursue ambitious foreign policy goals such as its response to the Gulf blockade and monopolising shipping trade routes that have benefitted its economy.

Yet, the energy momentum gained due to the war in Ukraine is finite. As such, MENA crude exporters are accelerating their shift towards new markets such as Asia, where fossil fuels still have a plurality share in the energy mix.

As oil demand reached its peak in Western markets, it is widely assumed that MENA oil-producing countries will be negatively affected by such a Western-spearheaded energy transition, and hence their energy-based strategic geopolitical advantage will fade away. Indeed, as the energy transition and climate change are increasingly becoming a top priority in government’s agendas, it is expected that oil demand will decline, and the pattern will shift across geographies, with strategic geopolitical implications. Alongside a decline in fossil fuel consumption, demand for gas and ethane is expected to grow. The new energy mix will also include other types of renewable energies and clean technologies, such as green hydrogen. This is why the upcoming global energy transition could help reduce the political benefits that some countries possess from the export of their hydrocarbons. As with coal from the 1960s onwards, oil will continue to be consumed but its economic and geopolitical value will decrease progressively.

While the erosion of the geopolitical status oil holds in the Middle East region is imminent, its strategic loss remains relative and should be construed with nuance. The ongoing Ukraine crisis has provided the opportunity for Gulf countries to recover from the COVID-19 pandemic’s economic deficits and save time to work on developing fields such as unconventional gas development. Qatar, for instance, has been designing plans to decarbonise the gas value chain and strengthen the role it plays in the transition phase at national and international levels. It remains to be seen whether 2023 will continue this trajectory for the countries of the Gulf Cooperation Council, and the rate at which they will continue to decarbonise.