The success of COP28 in Dubai, UAE, is facing immense pressure due to the aftermath of the Hamas terrorist attack on Israel and the ongoing Israeli conflict with Gaza. This not only diverted media attention from the 2023 gathering but also threatens to further fragment the global climate discussion. Currently, power dynamics are being established to discuss the role of hydrocarbons in the future energy mix or as a cornerstone of the energy transition. The existing tension between mainstream Western countries and the rest of the world is intensifying, not only because of differences in energy transition strategies but also due to the struggle between pro-Israel and anti-Israeli factions. Undoubtedly, the ongoing conflict between Hamas and Israel is overshadowing global cooperation. The potential for a regional war looms as hostilities by Hezbollah and other Iranian-backed groups increase. Meanwhile, the mishandling of critical information regarding casualties in Gaza and the responsible parties is stoking unrest in the Arab world. Arab governments, especially Egypt, Saudi Arabia, Jordan, and the UAE, must manage the emotional backlash within their borders while contending with mounting pressure from both Western and Eastern powers to declare their official stances. The repercussions of all these developments will be evident in discussions and governmental meetings in Dubai in the coming weeks.
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The dream of de-escalation in the Middle East, the profound impact of the existing Abraham Accords, and the potential rapprochement between Iran and Saudi Arabia have been significantly shaken, though not irreparably shattered. In the West, even issues like climate change and global warming have taken a back seat for the moment. The looming threat of a regional war involving Iran poses a more immediate concern for Arab leaders and the global economy than the anticipated conflict between Western environmental activists, NGOs, and proponents of hydrocarbon-based energy. The necessity of an energy transition is still acknowledged, as all global stakeholders remain convinced that fossil fuels (excluding hydrocarbons as a whole) must be replaced by green energy or nuclear options. However, this entire energy transition discourse has been relegated to page 28 of newspapers, as regional stability and security of energy supply to global markets take precedence.
The economic significance of the Hamas-Israel conflict is relatively minor when considering the role of the Israeli and Gaza economies in global economic growth or GDP. Yet, the emotional impact is already substantial, causing concern among Western investors and operators regarding their current operations in the region, with future investments already put on hold unofficially. A regional war or further destabilization of Arab governments, however, poses a much more significant threat to global economic growth and the security of energy supply. It is not just the supply of oil and gas that is at risk; a war could potentially disrupt major maritime transport routes, such as the Strait of Hormuz, Bab El Mandab, or the Suez Canal. When considering the debilitating effects of the Ever Given incident, a regional war would dwarf its impact.
Another casualty of the ongoing conflict is multilateral climate cooperation. In light of the tensions in the Arab world and cultural conflicts in the Western world, the prospects for reaching agreements following the Hamas-Israel war are dwindling. In the event of a regional war, no agreements will likely be reached, as Western financiers grow disinterested, Western governments become apprehensive about commitments, and the rest of the world seeks to turn it into a global crisis pitting the West against the Global South.
The overarching issue that will come to the forefront is the cost of the energy transition and greening of the economy. With a new crisis in the Middle East, which is a major producer of green hydrogen, green ammonia, and electricity, ongoing instability will inevitably lead to higher costs across the board. Simultaneously, hydrocarbon producers, including Western countries like the USA, Canada, the UK, Norway, and others, will grapple with increased oil and gas costs and substantial windfalls in the future. The heightened instability in the Arab region, potentially with support from the Global South, will further strain already tenuous geopolitical relations.
Without the leadership of the UAE, one of the primary advocates of the Abraham Accords, facing substantial pressure from public sentiment, the ability to promote a unified agenda for COP28 is diminishing. With just a month remaining before COP28, the voices and political positions of Arab countries and OPEC will be pivotal. Increased Arab involvement in the conflict may stabilize regimes, but it could hinder COP28 and future investments. A clearer divide between the OECD and the Global South, with Arab countries already leaning away from confronting Russia and China, is in the making. Global commitments will remain elusive as long as Hamas remains a significant player. Even without the Hamas incident on October 11, Russia's conflict in Ukraine and China's tensions with Taiwan would have presented major obstacles to overcome. Global warming and the energy transition are intertwined with geopolitics, rather than being mere natural phenomena or social constructs.
By Cyril Widdershoven for Oilprice.com
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The notions of total global energy transition and net zero emissions are myths. How could there be total energy transition when renewables on their own are incapable of satisfying global demand for electricity? And how could there be net-zero emissions when even a partial energy transition couldn’t succeed without major contributions from natural gas, coal and nuclear energy?
As for peak oil demand which the IEA projects by 2030, it is also a myth. It is based on the flawed assumption that EVs will displace a large percentage of crude oil demand by 2030. This isn’t going to happen now or even by 2075. Global oil demand will continue to grow well into the future albeit at a slightly decelerating rate because of government legislations and to some extent the impact of EVs. How else could a world population projected to rise from 8.0 billion currently to 9.7 billion by 2050 and a global economy expected to grow from $174 trillion now based on purchasing power parity (PPP) to $245 trillion by 2050 be fed and supported respectively? OPEC+ which is the most authoritative and informative about the global oil market projects that global demand will rise to 116.0 million barrels a day (mbd) between 2022 and 2045.
There is no doubt that the Hamas-Israel conflict will cast shadow over the success of COP28. It is because of fears that the conflict could widen into a regional war leading to an energy disruption.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
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