Oil-producing countries need to come to terms with the energy transition, according to the Paris-headquartered International Energy Agency (IEA).
The IEA said that countries in the Middle East and North Africa, such as Iraq — where French giant TotalEnergies last week signed deals worth $27 billion to build multiple oil, gas and solar projects — are particularly exposed to global warming.
Not only are they experiencing ever more extreme heatwaves but an accelerated global shift to clean energy could rapidly shrink their revenues from fossil fuel extraction.
That is why international efforts aimed at reaching net-zero emissions must engage with these countries to help them diversify their economies and their energy sources, according to an opinion article by Iraq's Deputy Prime Minister & Finance Minister Ali Allawi and IEA executive director Fatih Birol.
In the Middle East and North Africa, global warming is not a distant threat “but an already painful reality". Rising temperatures are exacerbating water shortages.
In Iraq, temperatures are estimated to be rising as much as seven times faster than the global average, said the co-authors.
“Countries in this region are said to not only be uniquely affected by global temperature rises - their centrality to global oil and gas markets makes their economies particularly vulnerable to the transition away from fossil fuels and towards cleaner energy sources.
“To stand a chance of limiting the worst effects of climate change, the world needs to fundamentally change the way it produces and consumes energy, burning less coal, oil and natural gas.”
The IEA’s recent global roadmap to net zero by 2050 shows global demand for oil would need to decline from more than 90 million barrels per day to less than 25 million bpd by 2050.
This would result in a 75% plunge in net revenues for oil-producing economies, many of which are dominated by a public sector that relies on oil exports and the revenues they produce.
“An energy transition that fails to engage with fossil fuel-producing countries and their needs could have profound implications for regional and international security and the stability of global energy markets.
"If oil revenues start to decline before producer countries have successfully diversified their economies, livelihoods will be lost and poverty rates will increase.
“In a region with one of the youngest and fastest-growing populations in the world, economic hardship and increasing unemployment risk creating broader unrest and instability,” they said.
Redressing this will require policies and investments that enable oil and gas-producing countries such as Iraq to channel capital and labour into productive industries for the future and stimulate the private sector.
This was one of the key motivations behind Iraq’s recent white paper for economic reform, which seeks to fundamentally alter the nature of the Iraqi economy, allowing the private sector to play a larger role, reducing the country’s reliance on hydrocarbon exports and committing to an economic renewal focused on environmentally sound policies and technologies.
The energy sector could play a role here by making use of the region’s vast potential for producing and supplying clean energy, according to Birol and Allawi.
The co-authors added that the decarbonisation strategies of different countries will be shaped by their individual circumstances.
“In Iraq, oil and gas production accounts for as much as 40% of total greenhouse gas emissions, before any of this is even burned to fuel cars or produce electricity," they said.
"This makes the country’s recent commitment to curbing gas flaring — an unnecessary and harmful practice where natural gas from oil wells is burned into the air — all the more important."