Oil Demand Forecasts And The Future Of The Middle East – OpEd

World oil consumption has increased by nearly 10 percent over the past decade, reaching 4.5 billion tons last year. (1) This performance was achieved despite a 9 percent drop in 2020 due to the pandemic. Considering that the growth rate in the preceding decade was roughly the same, it is hard to say that global consumption shows signs of slowing.

However, the International Energy Agency (IEA) disagrees. (2) According to its recently published World Energy Outlook 2024 report, (3) global oil consumption will peak in the next 10 years and then start to decline. Moreover, this is the agency’s most optimistic forecast. The report also includes two disaster scenarios for the oil industry: In the first scenario, if governments fulfill their climate commitments to the United Nations, oil consumption will fall by almost 50 percent in just 15 years. In the second, if the world is to achieve net-zero emissions target by 2050, then consumption 15 years from now will be less than half of today’s level.

According to this Paris-based organization, the era of fossil fuels is nearing its end. The momentum behind the transition to clean energy is so strong that global demand for coal, oil, and natural gas has begun to fall rapidly. The agency bases its view on oil mainly on the slowdown in Chinese consumption and the acceleration of electric vehicle sales.

However, the Organization of the Petroleum Exporting Countries (OPEC) forecasts paint a completely different picture. OPEC insists that global oil demand will continue to grow at least until 2050 and that the peak is nowhere in sight. (4) Moreover, it regards the IEA’s forecasts as fantasies (5) that have no connection with reality and even considers them dangerous. (6)

Consequently, it seems highly unlikely that these two organizations will be able to reach an agreement on the future of oil.

However, the question of which side is right is of vital importance for oil-producing countries, especially for those in the Middle East, one of the hottest regions in the world today. Most countries in this region, which hosts the world’s largest oil reserves, have economies heavily dependent on this fuel, with oil exports accounting for a significant portion of both their budgets and national income. For instance, oil revenues contribute around 40 percent to Iraq and Kuwait’s GDP, over 20 percent for Saudi Arabia and Oman, and around 20 percent for Iran, the United Arab Emirates, and Qatar. (7)

Therefore, considering their high levels of dependence on oil, it would not be an exaggeration to say that these countries could face existential challenges if even the most optimistic forecasts of the IEA come true.

Middle Eastern countries, aware of the risks posed to them by the transformation process from fossil fuels to cleaner sources, are taking measures to ease the transition and are making plans to survive in a low-carbon future. To this end, they are trying to take part in all kinds of projects aimed at restructuring supply chains and seeking strategic partnerships amid global power struggles. However, it is difficult to say that all countries in the region are successful in this regard, and they are the ones that should be most concerned about the approaching danger.

It is clear that oil demand estimates are creating significant tension in the Middle East. Now the question is: Which of the two organizations will be proven right? Will it be the IEA, a creation of the Western bloc led by the US following the Arab oil embargo in the 1970s, which is now accused of manipulating the process with analyses tailored to the bloc’s interests? Or will it be the OPEC, an organization established to manage global oil supply and wholly dedicated to the interests of exporting nations?

We can foresee that the increasingly visible energy transition will heighten tensions in the region and that much harder times are coming for the geography. Moreover, if the IEA proves to be right in the forecasting wars, it would not be a prophecy to say that the geopolitical balances in the Middle East will be turned upside down within a few years, leaving those relying on today’s status quo on the losing side.

References:

1.  Energy Institute, 2024. Statistical Review of World Energy 2024. https://www.energyinst.org/statistical-review/home.
2.  International Energy Agency, 2024. Oil Market Report – September 2024, https://www.iea.org/reports/oil-market-report-september-2024.
3.  International Energy Agency, 2024. World Energy Outlook 2024, https://www.iea.org/reports/world-energy-outlook-2024.
4.  OPEC, 2024. 2024 World Oil Outlook 2050 – Foreword, https://publications.opec.org/woo.
5.  OPEC, 2024. 2024 World Oil Outlook 2050 – Foreword, https://publications.opec.org/woo.
6.  OPEC, 2024. OPEC Sec Gen: Peak oil demand not on the horizon, 13 June 2024. https://www.opec.org/opec_web/static_files_project/media/downloads/general/OPEC-SG-peak-oil-demand-not-on-the-horizon.pdf.
7.  World Bank, 2024. Oil rents (% of GDP), https://databank.worldbank.org/source/adjusted-net-savings/Series/NY.GDP.PETR.RT.ZS, Access date: 10.11.2024.