It is not an exaggeration to state that the six nations constitute the Gulf Cooperative Council (GCC) breathe and live hydrocarbons. Around sixty years ago, the average city in Saudi Arabia, UAE (United Arab Emirates), Kuwait, Bahrain, Qatar, and Oman had a population of only a few thousand people; however, because of the region’s immense oil and gas riches, many cities have turned into world-class metropolises. Saudi Arabia alone controls 16% of the globe’s confirmed oil reserves and is the globe’s second oil producer, accounting for 15% of the global output.
Unfortunately, amid the energy crisis, the GCC’s strong dependence on gas and oil exports has demonstrated to be a key Achilles heel. Last year, the GCC countries, led by Saudi Arabia, put on a brave front and continued to brag about the robustness of their economies, stating that they could endure any scale of shocks. However, evidence suggests that the Gulf economy has been in terrible circumstances due to the low commodity prices and an overdependence on oil and gas. Nearly all GCC countries anticipated severe budget deficits in 2020, with oil prices averaging under $40/bbl.
Despite being the lowest-cost producer, the IMF forecasts that Saudi Arabia’s budgetary breakeven point is $76.10 per barrel of oil, leaving the Kingdom with a massive budget deficit of 11.4 percent of GDP. Other GCC nations have fared no better. The UAE’s financial breakeven oil price is $69.10 per barrel; Kuwait’s is around $61.10 per barrel; and Bahrain and Oman, respectively, require $95.60 and $86.80 per barrel to balance their books.
Only Qatar was able to balance its books at a financial breakeven oil price of $39.90. According to IEA’s Global Energy Review 2021 report, oil prices are likely to continue range-bound in the $70-75/bbl range this year, with global energy usage expected to be only 0.5 percent higher than pre-Covid-19 levels. This is the kind of backdrop that is forcing Gulf countries to rethink their economic strategies and diversify away from oil—and Saudi Arabia is once again leading the way.
Saudi Arabia possesses one of the most comprehensive clean energy layouts: Vision 2030 economic plan of Crown Prince Mohammed bin Salman, which created waves in the oil sector after he told Bloomberg News that Saudi Arabia plans to pump out every drop of oil and will be the last man standing. Saudi Arabia has established a goal in its economic plan to construct 60GW of green energy output by the conclusion of the decade, compared to an installed potential of around 80GW of gas or oil-fired power plants.
Saudi Arabia has only achieved little progress in terms of renewable energy deployment, with only 300MW of the utility-scale solar power in operation and 400MW of wind power under construction. Saudi Arabia has great real estate for green energy generation, with its sun-drenched expanses and consistent Red Sea breezes.