Challenges in Economic Diversification in the MENA Countries

Economic diversification has been a continuous topic of debate in the MENA economies. However, of late a sense of urgency has arisen around it due to two factors; rapid structural changes in global oil markets and structural shifts in oil trade flows, and, assertions around ‘peak demand’ with the world on the brink of another energy transition. This brings up several questions. How soon can we expect the energy transition to occur? And, what kind of economic future should these countries be planning for? The paper argues that peak oil demand scenarios are entirely dependent upon the assumptions underpinning them – a single peak is not a certainty, particularly when taking into account rebound effects. Although an energy transition may be in progress, it is difficult to assume that the transition will result in a sudden and sharp discontinuity in oil demand.  The diversification strategy adopted by oil exporting countries will be conditioned by the speed of the transition, during which the oil sector will continue to play a key role in these economies. At the same time, oil producers will need to be far more strategic in their use of the oil sector to diversify their economies. In a more competitive world, oil policy will also continue to matter; cooperation between producers will be imperative, yet challenging.

By: Bassam Fattouh , Anupama Sen

Categories:

Oil , Oil & Middle East Programme

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