Saudi Arabia faces climate change dilemma, opportunity, says Baker Institute report

Climate action and the global decarbonization agenda presents both a fundamental strategic dilemma and an opportunity for Saudi Arabia, according to an expert in the Center for Energy Studies at Rice University’s Baker Institute for Public Policy.

Aerial view of Riyadh, Saudi Arabia. Credit: 123RF.com/Rice University

The kingdom’s economy and patronage-driven political system face serious threats from policies aimed at reducing global oil demand, while its arid geography and extreme temperatures render it particularly vulnerable to increased warming, said Jim Krane, the Wallace S. Wilson Fellow for Energy Studies at the Baker Institute.

A research paper by Krane, “Energy Governance in Saudi Arabia: An Assessment of the Kingdom’s Resources, Policies and Climate Approach,” focuses on the domestic side of the energy policy ledger, particularly the climate policy agenda that is beginning to shape Saudi behavior in the energy space.

Saudi Arabia is perhaps the world’s purest example of a petrostate, Krane said. More than 60 percent of its national budget, 75 percent of export revenues and 40 percent of its 2016 gross domestic product are supplied by oil exports.

“Saudi energy policy has long been profligate with resources, based around the notion of providing surplus production to Saudi citizens at heavily subsidized prices. In exchange, Saudis are expected to support the ruling al-Saud family. The formulation is beginning to change,” wrote Krane, whose research explores the geopolitical aspects of energy with a focus on the Middle East and OPEC.

“Over time, climate action poses a transformational threat to Saudi Arabia,” Krane wrote. “The kingdom’s geopolitical stature and strategic power is bound up in its long-held role as the world’s oil supplier of last resort. A reduction in oil’s importance would impose more than just economic damage on Saudi Arabia. Oil’s decline would also restrict the flow of rents that the al-Saud family deploys for political survival. On the other hand, climate action provides opportunities and convenient political cover for energy policy changes in the kingdom, including actions that would bolster the kingdom’s economic and environmental sustainability.”

“Partly due to climate pressure, Saudi Arabia has made a prudent early bet on non-combustion uses for oil, mainly in petrochemicals, a sector that currently accounts for less than 10 percent of oil demand,” Krane said. “Non-combustion uses for crude oil should be less affected by climate action,” he wrote.

Saudi exposure to climate and demand risk could be further reduced by diversifying its overwhelming dependence on oil, he said.

“In that sense, climate action could push the kingdom to take further action in line with the international climate strategy in its own self-interest,” Krane wrote. “Saudi Arabia’s role in climate negotiations may have evolved, but it remains far from amicable. The kingdom’s interests remain tied to internal combustion engines and jet turbines. It is difficult to imagine Saudi policymakers embracing the UNFCCC climate agenda with the enthusiasm of more energy-agnostic countries that meet their fossil fuel needs through imports.”

Krane concluded, “In the end, as the Saudi Nationally Determined Contribution predicts, it may be the developed importing countries that help the kingdom navigate the energy transition through targeted investments that aid the strengthening of a non-oil economy.”

A former journalist who spent six years in the region, Krane is the author of “Energy Kingdoms: Oil and Political Survival in the Persian Gulf,” published this month by Columbia University Press.

Columbia University’s Center on Global Energy Policy will host a launch event for “Energy Kingdoms” in New York Jan. 29, which will include a presentation by Krane and discussion. A live webcast will be available starting at 5 p.m. Central at https://energypolicy.columbia.edu/livestream.

On Jan. 30, Krane will discuss his book at the National Press Club in Washington. A book presentation and discussion is also planned for Feb. 6 at the Baker Institute.