Why the Global Energy Transition Does Not Mean the End of the Petrostate
| Published date | 01 May 2019 |
| Author | Kirsten Westphal,Andreas Goldthau |
| Date | 01 May 2019 |
| DOI | http://doi.org/10.1111/1758-5899.12649 |
Why the Global Energy Transition Does Not
Mean the End of the Petrostate
Andreas Goldthau
Royal Holloway, University of London
Kirsten Westphal
German Institute for International and Security Affairs (SWP)
Abstract
The world going low carbon is believed to put an end to petrostates, and to force incumbent oil producers to diversify their
economies away from fossil fuels. This article challenges this assumption. Whether petrostates are in for the long game or end
up with a ‘panic and pump’strategy, it is argued, is a function of the lifting costs and the social costs of producing oil. What
is more, the low-carbon energy transition may well throw petrostates an additional lifeline, as fast decarbonizing OECD coun-
tries will shed some of their most energy-intensive sectors, including refineries and petrochemicals, which opens up new
export opportunities. Particularly for Middle Eastern petrostates it may therefore be very rational to further specialize in the
high-carbon segment. The policy challenge, therefore, will be twofold: managing a rapidly changing energy system in order to
secure the transformation dividends it will bring, for human security and economic welfare; and balancing the (geo) political
after pains of the incumbent fuels leaving the system.
Petrostates and the low-carbon energy world
The global energy transformation is believed to fundamen-
tally threaten incumbent oil producers. Not only will the Paris
climate targets require a third of all oil reserves to stay in the
ground and leave the balance sheets for good (along with 80
per cent of current coal reserves and half of natural gas)
(McGlade and Ekins, 2015). Global oil output is also projected
to decrease to less than half of today’s level, as cars go electric
and the chemical industry switches to different types of feed-
stock (IEA/IRENA, 2017). This, as observers have widely argued,
spells trouble for petrostates, that is, countries that rely on oil
exports for their main income (Arezki, 2017; Goldthau, 2017;
The Economist, 2018; Van de Graaf and Bradshaw, 2018). And
indeed, petrostates may be seriously impacted by the world
going low carbon. As they typically rely on one dominant
industry –the extractive sector –their economic base is less
resilient to an external shock in the shape of a fundamental
demand slump for their main export product.
To be sure, economic diversification has been high on the
agenda of many oil producing countries. As the International
Energy Agency stresses in its recent report on oil producing
countries, a rapidly changing global energy system creates an
‘imperative for reform [...] even in a relatively benign context’
(IEA, 2018c). Yet, results so far have been mixed at best and
disappointing overall. Attempts by petrostates to wean them-
selves off oil are hampered by the strong path-dependency
characterizing carbon-intensive economies (Friedrichs and
Inderwildi, 2013), and economic monocultures resulting from
a decade-long Dutch Disease (Corden and Neary, 1982). Even
if petrostates embark on a post-oil development pathway, the
domestic political economy and the implicit social contract
may be against them: many oil-rich countries feature authori-
tarian regimes who cannot afford rocking the boat and risking
turmoil, as this would deprive them of the output legitimacy
their rule is built on (Beblawi, 1987; Ross, 2001).
It has been argued that the global low-carbon transition
might also shift producer-consumer relations, and possibly tilt
market power toward oil importers (O’Sullivan et al., 2017). Cou-
ple this with a soft market, due to faltering demand, and the
result is a perilous race for buyers among exporters (Fattouh
and Dale, 2018), with prices coming under significant down-
ward pressure. To be sure, the new ‘geopolitics of renewables’
arising from the ashes of the old energy world might come with
their own and distinct challenges (Scholten, 2018). Petrostates,
for their part however, are not assumed to come out well.
Not all petrostates are alike
The global energy transition will impact oil-rich countries
quite differently depending on geography, geology and eco-
nomically optimal solutions. For instance, McGlade and Ekins
(2015) calculate that reserves becoming unburnable before
2050 without CCS are unevenly distributed, with the Middle
East holding half of unburnable global oil reserves, of which
38 per cent will stay in the ground. Canada’s bitumen
reserves display the highest rate of non-utilization with
75 per cent, whereas the Former Soviet Union and the US fea-
ture among the lowest non-utilization rates with 19 per cent
and of 9 per cent respectively (189).
Global Policy (2019) 10:2 doi: 10.1111/1758-5899.12649 ©2019 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 2 . May 2019 279
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