Case Study: Post-Oil Era: How UAE is Prepping For It

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Case Study: Post-Oil Era: How UAE is Prepping For It

Source: Boston University

The UAE is known for being in an oil-rich region and historically relying on oil exports as a significant part of its economy. This reliance on oil is now slowly changing in preparation for the post-oil world. Multiple government programs and private sector investments are behind this transition, which is all working towards emissions targets for the coming decades.

16 November 2021 – by Eric Koons

Can we say that post-oil era is the future of UAE? But how would the post-oil economy look like? Nestled in a small corner of the Arabian Peninsula, the UAE is one of the world’s energy powerhouses. While ranking 116th in size, the country is also the world’s 8th largest producer of crude oil. Oil production is a major industry in UAE and it’s economic growth is dependent on it. Welcoming post-oil era will be a challenge for it’s economic growth but the global economy is going there.

Recently, the UAE has aimed to reduce their dependency on oil to prepare for a post-oil era. It began in 2016 when the country announced its cut to oil-related economic activity from 30% of GDP to 20% by 2021. This put the UAE on a path to transitioning away from fossil fuels and towards economic diversification and post-oil economy. It’s also good for climate change.

What Expedited the Shift Away from Oil Production and Oil Supply?

Spurred by the crash in oil prices that began in 2014, the UAE realised how vulnerable it was in a fluctuating global market and how much it’s economic growth is dependent on oil production. With all its economic activity centered around oil, it was setting itself up for enormous challenges. World’s sensitivity about climate change also pushed UAE towards economic diversification.

In 2014 crude oil saw a significant drop in price, which was a serious economic risk of oil producing nations and a push for Post-oil era.
Source: BBC

Rise and Fall in Oil Demand

Oil demand rises and falls and it is expected to increase in the post-pandemic era. Oil and natural gas is inherently a cyclical market that has seen regular booms and busts over the last 150 years. When oil prices crash, the UAE is left to pick up the pieces and is forced to regenerate its economic progress, a scenario that is best avoided.

While the 2014 crash had a significant negative impact on the UAE’s economy, it came with a silver lining in the form of a wake-up call. The fluctuation in oil prices and natural gas prices, coupled with the realisation that fossil fuel resources are finite, spurred a shift in the economic thinking of the oil-rich nation. To ensure long-term prosperity, in the coming decades, they would need to ease their reliance on crude oil and they also have to adopt energy efficiency. Saudi government has also planned to reduce it’s oil dependency.

UAE’s Diversified Post-Oil Economic Strategy

Instead of having all of its economic eggs in one basket, the UAE is now spreading out its activities. The country is investing in sectors that hold promise in a post-oil era. These sectors include technology, health, education, renewable energy and transportation.

The government also set up a national fund to help smooth the transition away from crude oil. The fund, named The Sandooq Al Watan, is dedicated to boosting social entrepreneurship and equipping UAE’s youth with the tools needed to succeed and thrive in the post-oil era.

This fund is focused heavily on the technology sector with goals to teach Emirati children how to code, support Emirati researchers and high-tech startups, and support small and mid-sized enterprises that encourage positive social impacts.

The Alternative Economic Driver to Crude Oil – in the Post-Oil Era

Although the UAE is reducing its oil production, they have no plans to relinquish their status as a global energy leader. Instead, the country is positioning itself in becoming a renewable energy production leader. The UAE wants renewables to be responsible for 44% of its energy mix by 2050. This involves a USD 163 billion investment into renewable and clean energy technology in the coming decades, with solar playing a significant part.

The UAE's goal is to source 50% of its energy from nuclear and clean energy by 2050.
Source:  Gulf News

The Mohammed bin Rashid Al Maktoum Solar Park, which is in phase four of its development, has a capacity of 1,000 MW. By 2030, this capacity is aimed to rise to 5,000 MW and will offset 6.5 million tonnes of carbon emissions.

However, renewable energy is not the only economic replacement that is receiving investment. Over 50% of foreign direct investment in Dubai in the first half of 2020 went to technology projects. No longer solely reliant on the oil industry, the UAE is fast becoming a global leader across sectors.

The UAE is a Role Model For Fossil Fuel Reliant Nations

While other countries state their intentions to move away from fossil fuels, the UAE puts its money where its mouth is and adopted economic diversification. They have realised that the global shift away from crude oil is not only necessary but inevitable.

Other nations in Asia and worldwide should be looking to follow the UAE’s lead. Playing catch-up when the post-oil era dawns will leave economies floundering and scrambling to jump on the bandwagon. While it is not too late, the longer countries wait, the more challenging the transition will become.

by Eric Koons

Eric is a passionate environmental advocate that believes renewable energy is a key piece in meeting the world’s growing energy demands. He received an environmental science degree from the University of California and has worked to promote environmentally and socially sustainable practices since. Eric’s expertise extends across the environmental field, yet he maintains a strong focus on renewable energy. His work has been featured by leading environmental organizations, such as World Resources Institute and Hitachi ABB Power Grids.

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