The concept of energy security has taken center stage in recent years. The war in Ukraine, in particular, has highlighted its importance and showcased the vulnerability of Europe’s energy system. With roughly 45% of the EU’s gas imports coming from Russia prior to the conflict, the disruption triggered widespread inflation both regionally and globally, driving up food prices and pushing inflation to record highs. [1] Russia was also affected, with studies suggesting EU and United States sanctions have cost the country more than $100 billion in export earnings on crude oil and petroleum exports since 2022. [2]
In contrast, energy security is often overlooked in Gulf states, who enjoy some of the highest oil production rates per capita in the world because of their abundant oil reserves (30% of the global total) and relatively small populations. [3] Their exceptionally low production costs have secured their market share and ensured steady global demand the past decades, reducing concerns over peak supply. [4]
In a world rapidly transitioning to cleaner energy and stricter climate policies, however, the ability to maintain an export-driven model is increasingly uncertain. According to Kuwait University’s Haila Al-Mekaimi: “For the Gulf Cooperation Council [GCC], energy security is not just about ensuring a domestic supply but also about safeguarding export.” [5]
Fossil Fuels as the Backbone to the Economy
The narrative associated with fossil fuels has changed in recent decades, with globalist institutions highlighting the negative effects of such energy on the environment. Climate change could pose numerous challenges for the world, with the Middle East being particularly vulnerable to the effects, considering that a 1.5C increase in global average temperatures would see a 4C rise in temperatures in the region. [6]
Despite these risks, fossil fuels have underpinned the region’s development. Oil exports account for roughly 70% of government revenue and 75% of total exports in GCC countries. [7] Water security in the Gulf largely depends on fossil-fueled desalination plants, which now account for 40% of global capacity. Revenues from oil and gas also support energy-intensive cooling systems in response to extreme heat. Likewise, they enable food imports; countries such as Qatar, Bahrain, and the United Arab Emirates importing 80-90% of their food. [8]
This export-based paradigm also supports national security. GCC military spending, for example, has historically tracked oil prices, and is significantly related to oil revenues. This raises critical questions about what happens if oil prices decline or if export volumes falter. [9]
Recognizing the risk, Gulf states have made efforts to diversify. Economic Diversification Index (EDI) scores have improved across the years, particularly for the UAE, but unevenly across the region.[10] Many have expanded renewable energy capacity, but marginal progress has been made in shifting final energy consumption away from oil and gas; less than 1% of total energy consumption in the region came from renewables in 2021. [11]
Meanwhile, energy demand is projected to rise steadily due to population growth, expanding desalination needs. [12] Without fossil fuel revenues to support these demands, the socio-economic security of the region could be at risk. Countries such as the UAE and Saudi Arabia have recognized these challenges and are taking proactive steps through ambitious national strategies. Saudi Arabia’s Vision 2030 seeks to diversify their economy, enhance energy efficiency, and develop sustainable industries that reduce dependence on hydrocarbons. Similarly, the UAE has introduced forward-looking initiatives such as We the UAE 2031 and the Energy Demand Management Program, which aim to double GDP by 2031, increase non-oil export revenues, and improve water and energy efficiency by 42–45% by 2050. [13]
Global Energy Shifts and Policies
Governments worldwide have begun stepping up efforts to address the perception of climate change and mitigate the economic risks associated with it. One major policy shift is the EU’s Carbon Border Adjustment Mechanism (CBAM), which will impose a carbon tax on imported emissions-intensive goods such as steel, aluminum, and fertilizers starting 2026. This is designed to level the playing field for European producers considering their exposure to the EU Emissions Trading Scheme, and prevent “carbon leakage,” in which firms relocate production to regions with looser climate regulations. [14]
Gulf countries are major exporters of these very products, particularly aluminum, which is highly energy-intensive and reliant on fossil-fueled electricity. The UAE (8%) and Bahrain (3%) together account for around 11% of EU aluminum imports. [15] Thanks to fossil fuel revenues and subsidized electricity, Gulf producers have been globally competitive, but as carbon taxes proliferate, these advantages may diminish [16].
Many GCC countries have shifted their focus from Europe to Asia, so the impact of CBAM may not be as significant as other exporters to the EU. If highly exposed countries seek to similarly divert their exports away from the EU, this could increase competition with the GCC. [17] The introduction of CBAM could also encourage other countries to adopt or expand their own carbon border taxes. The United Kingdom, for example, plans to launch its own CBAM in 2027, just one year after the EU’s. The global proliferation of such measures could significantly affect the Gulf’s export competitiveness in carbon-intensive sectors.
Momentum is building across the Gulf for countries to begin developing their own carbon policies. In the UAE, the Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects, which came into effect in May 2025, mandates all entities to measure, track, and manage their carbon emissions, a signal of the country’s commitment to more comprehensive climate policies in the years ahead. [17]
In parallel, energy demand patterns are shifting.China, where over 20% of GCC oil and gas exports go, is trying to reduce its dependency on oil with a strong push towards renewables. In the first five months of 2025 alone, it installed 198 gigawatts of solar and 46 GW of wind capacity, figures that could generate as much electricity as Indonesia or Turkey. Renewables have now overtaken coal as the main source of final energy in China’s industrial sector, and while petroleum remains dominant in transport, electric vehicle adoption is accelerating rapidly, driven by strong government incentives, falling battery costs, and a growing consumer appetite for cleaner alternatives. [18]
According to the International Monetary Fund, oil use in transportation, the largest component of global oil demand, could be replaced by electric alternatives within the next 10–15 years. [19] OPEC forecasts Indian oil consumption rising from 5.6 mb/d to 13.7 mb/d by 2050, which might absorb some of the lost demand, but the overall global direction remains uncertain. The International Energy Association, for example, sees oil demand peaking at 105.6 mb/d in 2029, while BP projects an even earlier peak due to the faster growth of renewables. [20] This makes hedging on a long-term oil future risky without sourcing alternative export revenue streams.
The UAE has recognized the importance of this transition, as reflected in its First Long-Term Strategy (LTS). The strategy emphasizes investments in carbon capture and storage (CCS), the expansion of renewable energy projects both domestically and abroad, and ambitious targets for the Abu Dhabi National Oil Company (ADNOC) to achieve net-zero emissions by 2045. Together, these measures reinforce the UAE’s position as a reliable, low-carbon energy supplier and strengthen the resilience of its oil and gas exports in an increasingly net-zero–aligned global economy. [21]
A Shift to Renewable Exports?
To mitigate this risk and support diversification goals, the Gulf is investing heavily in clean energy and capacity. One strategy is to lead in hydrogen exports, a fuel seen as key to decarbonizing hard-to-abate sectors like steel, shipping, and fertilizers. With abundant solar potential and existing fertilizer infrastructure, Gulf states are well-positioned to compete. [22]
However, the industry has been facing issues recently with securing long-term offtakers proving challenging. For example, the UAE’s Masdar recently delayed its green hydrogen target of one million tonnes from 2030 to within the next decade due to a lack of sufficient demand. [22] Similar issues have hit European players such as Shell, Equinor, and Repsol, all of whom have scaled back green hydrogen projects due to a weakened global market. [23]
Overall, significant strides and targets are being set. The UAE aims to produce 1.4 million tonnes of hydrogen annually by 2031 and reach net zero by 2050. Saudi Arabia is investing in mega-projects like NEOM’s $8.4 billion hydrogen plant, targeting 4 million tonnes of hydrogen output by 2030. Oman, through its Hydrom initiative, plans to attract $30 billion in hydrogen investments and become a leading exporter by the 2030s. Yet unlike oil and gas, hydrogen is a conversion industry, not an extraction one, and therefore offers much lower economic rent. Moreover, the hydrogen market is expected to be more fragmented and competitive, limiting the potential for Gulf countries to dominate or replicate their historical fossil fuel advantage. [24]
Clearly, the challenges ahead are immense. The Gulf must confront climate risks, maintain fiscal stability amid volatile oil markets, and adapt to an evolving global policy landscape. Diversification strategies have taken center stage across the region, with Oman, Saudi Arabia, and the UAE advancing comprehensive national visions that aim to reduce oil and gas dependence. However, achieving these ambitions will require visionary leadership, institutional coordination, technological innovation, and a strategic redefinition of what energy security means in the 21st century.
Disclaimer:
The views and opinions expressed in the INSIGHTS publication series are those of the individual contributors and do not necessarily reflect the official policy or position of Rabdan Security & Defense Institute, its affiliated organizations, or any government entity. The content published is intended for informational purposes and reflects the personal perspectives of the authors on various security and defence-related topics.
Bibliography
[1] A. Papunen, “Economic impact of Russia’s war on Ukraine: European Council response,” Feb. 2024. Available: https://www.europarl.europa.eu/RegData/etudes/BRIE/2024/757783/EPRS_BRI(2024)757783_EN.pdf
[2] B. Hilgenstock, “What effects have energy sanctions had on Russia’s ability to wage war? - Economics Observatory,” Economics Observatory, Aug. 07, 2025. https://www.economicsobservatory.com/what-effects-have-energy-sanctions-had-on-russias-ability-to-wage-war
[3] D. F. Schneider, “The Significance of Hydrocarbons to Gulf States and Their Citizens,” Gulf International Forum, Mar. 25, 2025. https://gulfif.org/the-significance-of-hydrocarbons-to-gulf-states-and-their-citizens/
[4] E. Clowes, “Where does the world’s oil come from and what’s the impact of an attack in the Middle East?,” Sky News, Sep. 16, 2019. https://news.sky.com/story/where-does-the-worlds-oil-come-from-and-where-does-it-end-up-11811325
[5] H. Al-Mekaimi, “The Impact of Energy Security on Inter-Relations between the Gulf Cooperation Council Countries,” Therestjournal.com, 2025. https://therestjournal.com/2025/01/30/the-impact-of-energy-security-on-inter-relations-between-the-gulf-cooperation-council-countries/
[6] F. Wehrey, “Climate Change and Vulnerability in the Middle East,” carnegieendowment.org, Jul. 06, 2023. https://carnegieendowment.org/posts/2023/07/climate-change-and-vulnerability-in-the-middle-east?lang=en
[7] T. Ben Hassen, “The GCC Economies in the Wake of COVID-19: Toward Post-Oil Sustainable Knowledge-Based Economies?,” Sustainability, vol. 14, no. 18, p. 11251, Sep. 2022, doi: https://doi.org/10.3390/su141811251
[8] A. Al-Sarihi, “Energy Transition in the Gulf: Best Practices and Limitations,” Carnegie Endowment for International Peace, 2025. https://carnegieendowment.org/research/2025/04/energy-transition-in-the-gulf-best-practices-and-limitations?lang=en
[9] S. Matallah, “Dynamics of Military Spending in the GCC Countries: A Deeper Insight into the Role of Oil Revenues, Geopolitical Risks, Enmities, and Alliances,” Journal of the Knowledge Economy, Sep. 2024, doi: https://doi.org/10.1007/s13132-024-02319-8
[10] A. H. Ali and M. Abdalla, “Energy transitions era: geopolitical characteristics and connotations in the Arab Gulf States,” Sustainable Futures, vol. 10, p. 100808, Jun. 2025, doi: https://doi.org/10.1016/j.sftr.2025.100808
[11] Gulf Research Center, “GCC Energy & Power Industry,” Gulf Research Center, Apr. 2024. https://www.grc.net/publication/575
[12] IEA, “Electricity demand is surging across the Middle East and North Africa, driven by cooling and desalination needs - News - IEA,” IEA, Sep. 18, 2025. https://www.iea.org/news/electricity-demand-is-surging-across-the-middle-east-and-north-africa-driven-by-cooling-and-desalination-needs
[13] UAE Gov., “About UAE’s energy sector - The Official Portal of the UAE Government,” u.ae, Sep. 05, 2023. https://u.ae/en/information-and-services/environment-and-energy/water-and-energy/about-uae-energy-sector
[14] European Commission, “Carbon Border Adjustment Mechanism,” European Commission, 2025. https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
[15] Strategy&, “GCC Industry: Electricity Reform | Strategy& Middle East,” Strategy&, 2020. https://www.strategyand.pwc.com/m1/en/reports/2020/electricity-pricing-reform.html (accessed Sep. 22, 2025).
[16] KPMG, “Understanding the UAE’ s Climate Change Reduction Law A turning point for business sustainability March 2025 KPMG Middle East,” Mar. 2025. Accessed: Oct. 20, 2025. [Online]. Available: https://assets.kpmg.com/content/dam/kpmgsites/ae/pdf/understanding-the-uae-climate-change-reduction-law.pdf.coredownload.inline.pdf
[17] IMF, “Macroeconomic Exposure to the EU’s Carbon Border Adjustment Mechanism: The Case of the Middle East and Central Asia,” IMF, Sep. 12, 2025. https://www.imf.org/en/Publications/WP/Issues/2025/09/12/Macroeconomic-Exposure-to-the-EUs-Carbon-Border-Adjustment-Mechanism-The-Case-of-the-Middle-570332 (accessed Sep. 22, 2025)
[18] M. Yang et al., “China Energy Transition Review 2025,” Sep. 2025. Available: https://ember-energy.org/app/uploads/2025/09/China-Energy-Transition-Review-2025.pdf
[19] IMF, “Riding the Energy Transition : Oil Beyond 2040,” IMF, May 2017. https://www.imf.org/en/Publications/WP/Issues/2017/05/22/Riding-the-Energy-Transition-Oil-Beyond-2040-44932
[20] OPEC, “OPEC Digital Publications - World Oil Outlook,” Opec.org, Jul. 2025. https://publications.opec.org/woo
[21] UAE Gov, “United Arab Emirates’ Long Term Strategy (LTS) - Climate Change Laws of the World,” Climate-laws.org, 2025. https://climate-laws.org/documents/united-arab-emirates-long-term-strategy-lts_ab0d?id=united-arab-emirates-first-long-term-strategy-lts_09cb (accessed Oct. 20, 2025)
[22] SSG, “Masdar Delays Green Hydrogen Production Goals Post-2030 Amid Rising Challenges | SSG Events,” Ssg.events, Nov. 2024. https://ssg.events/masdar-delays-green-hydrogen-production-goals-post-2030-amid-rising-challenges/ (accessed Sep. 22, 2025)
[23] V. Ratcliffe, “UAE’s Masdar Delays Green Hydrogen Capacity Target Beyond 2030,” Bloomberg.com, Oct. 28, 2024. https://www.bloomberg.com/news/articles/2024-10-28/uae-s-masdar-delays-green-hydrogen-capacity-target-beyond-2030?embedded-checkout=true (accessed Sep. 22, 2025)
[24] IRENA, “Geopolitics of the Energy Transformation The Hydrogen Factor,” 2022. Available: https://www.spr.pe/wp-content/uploads/2022/02/irena-geopolitics-hydrogen-2022.pdf
