December 2023 Al-Monitor Trend Report 

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The curtain has closed at COP28 in Dubai after delivering a historic global agreement to “transition away” from fossil fuels, but the UAE continues pumping out dealmaking shaping the path to a post-oil future. On Dec. 18, Chinese electric vehicle maker Nio announced a $2.2 billion investment from Abu Dhabi-backed fund CYVN, the same day that Dubai-based decarbonization company Positive Zero revealed it could receive up to $400 million from BlackRock, the world’s largest asset manager. 

Still, that came as Abu Dhabi's state oil giant ADNOC on Dec. 20 revealed a 15-year agreement to deliver at least 1 million metric tons a year of liquefied natural gas to a subsidiary of China's ENN Natural Gas. Expect more of the same going forward. This juxtaposition only underlines how the UAE and other petrostates in the Middle East are simultaneously seeking to capitalize on the clean energy transition, while leaning on fossil fuel profits as long as they can to finance economic diversification drives.   

This strategy has been a key storyline during a year bookended by the Middle East hosting back-to-back UN climate summits — putting the region at the center of the climate discussion at a critical moment, while only upping scrutiny on the perilous gambit that regional energy exporters are pursuing as they work to influence a fossil fuel phase out to their own benefit. That culminated when the UAE hosted COP28 between Nov. 29 to Dec. 12, with Al-Monitor's Jack Dutton on hand reporting as global decision makers descended on Dubai to wrangle over the next steps in collective climate action. The UN climate summit delivered on dealmaking, with the oil-rich UAE presiding over a breakthrough that could loosen the fossil fuel industry’s grip on the global economy. 

Ultimately, the Middle East will be remembered for the role it played in this make-or-break moment for climate action and 2024 is shaping up to be another busy year on this front — just without the COP28 spotlight drawing global attention to the region. Against that backdrop, Al-Monitor is tracking the trajectory of the Middle East’s clean energy transition and how it will impact regional economies and investment. Below, we dig into essential storylines emerging in this moment.  

What a historic and controversial COP28 means for the Middle East    

• Heading into the summit, anticipation centered on the contentious debate around the “phase out” versus “phase down” of fossil fuels, with achieving consensus at COP28 expected to be a test of the UAE’s diplomatic skills, particularly with the Gaza war upending regional calm, as outlined in a memo by Kate Dourian.      

• That came amid well-documented controversy surrounding the summit, headlined by an energy executive — ADNOC’s CEO Sultan Al Jaber — serving as COP28’s president alongside the oil industry's official participation. That was only underlined by a bombshell BBC report on Nov. 26 detailing a leaked document alleging the UAE planned to use COP28 to make oil deals.     

• Regardless, the fossil fuel debate set up a clash with regional implications. Many oil and gas producers argue that now isn’t the time to phase out of fossil fuels. Instead of reducing production, they propose using carbon capture and storage technologies to manage their emissions. The UAE and Saudi Arabia have repeatedly advocated carbon capture and storage technologies. That came as the IEA warned on Nov. 23 that large carbon capture targets alone weren’t enough to help the world meet net zero goals.         

• Saudi Arabia led the charge against any strong language against fossil fuels at COP28, in opposition to a global coalition pushing to loosen the energy industry’s grip. The UAE faced heavy pressure between the warring sides, raising the specter COP28 could end with no deal — a disaster for Emirati climate diplomacy. Still, as predicted in a memo by Karim Elgendy, COP28 was always likely to end in compromise.      

• A middle ground emerged: COP28’s final day delivered a landmark agreement, with nearly 200 countries agreeing to “transition away” from fossil fuels in order to achieve net-zero emissions by 2050. That marked the first time in the 28-year history of COP summits that all fossil fuels were mentioned in an accord.       

• Still, critics said the agreement contained many loopholes, with former US Vice President Al Gore noting that decision was “the bare minimum” and that the “influence of petrostates is still evident in the half measures and loopholes included in the final agreement." Although Saudi Arabia signed on, the kingdom’s energy minister said the deal won't stop the world's top oil exporter from selling its crude oil.       

• Elsewhere, COP28 achieved another breakthrough by establishing a Loss and Damage Fund agreement, under which wealthier countries will offer climate financing to poorer countries facing extreme weather (although the $700 million committed represents less than 0.2% of what is needed every year).        

• Over 100 countries also agreed to triple renewable energy capacity by 2030, while around 50 oil and gas companies agreed to cut methane emissions, including Aramco. On Dec. 14, the World Bank announced it would increase its climate financing to the Middle East and North Africa (MENA) to a total of $10 billion by 2025 after providing $6.3 billion to the region over the past three years.   

The takeaway: The UAE delivered. Despite doubts an oil-rich state could produce a breakthrough, the Emiratis rallied consensus around a landmark statement and can now claim credit for setting the global agenda. Ultimately, COP28 could be remembered as a global turning point for climate action, even as the fossil fuel debate overall remains unresolved.   

Looking ahead: As attention shifts to COP29 in Azerbaijan, the tenuous fossil fuel debate is far from finished and Middle East players will remain heavily involved (especially with the 2024 summit being hosted by an OPEC+ member). The direction negotiations take in the next several years will significantly impact energy policies and sector players globally and bolder action will be needed in 2024 and beyond to build on the COP28 accord, as Elgendy’s memo noted. Ultimately, a "transition away” shifts the global narrative, but it alone won’t deter Middle East petrostates from sticking to their current strategies. Expect them to also continue championing carbon capture technology in 2024 amid efforts to maintain the status quo.   

Another factor to watch: Regional climate cooperation. Ahead of COP28, the MENA region was producing much-needed signs of cooperation on climate issues and clean energy, including deals facilitated by Arab-Israeli normalization. The climate summit was expected to produce more progress here, headlined by a trilateral water-for-energy deal between Jordan, Israel and the UAE that was set to see binding agreements at COP28. However, the Gaza war has put that pact on ice (although the climate summit did feature a high-profile visit from Israel’s President Isaac Herzog.

The Gulf’s energy transition continues taking shape 

• Amid pledges pouring out of COP28, the summit produced a key mega-deal aligned with the UAE’s broader national ambitions: state-owned renewable energy firm Masdar inked a $16 billion strategic partnership with Spanish energy giant Iberdrola to evaluate projects in Europe and the United States. Meanwhile, Saudi Arabia’s ACWA Power on Dec. 20 signed an agreement to develop a $4 billion green hydrogen project in Egypt.       

• Such deals cap a busy year of Gulf investments into renewable energy that underpin national goals. All GCC countries except Qatar have pledged to decarbonize domestic economies in coming decades (which crucially doesn’t include the fossil fuels exports). Led by the UAE, Saudi Arabia and Oman, renewables investments have become central to regional economic diversification goals — drives that got a boost after soaring energy prices in 2022 filled state coffers.      

• The region’s ample solar and wind resources have long offered investment potential, but 2023 saw hydrogen plans emerge as a major focus. For instance, Oman aspires to produce 1 million tons of green hydrogen annually by 2030 and roughly 8 million tons by 2050, which could require investments of $140 billion.      

• Ultimately, some believe the Middle East has an opportunity to replicate its role as the world’s 20th century supplier of oil by becoming a leading clean energy supplier, as President Biden’s energy envoy Amos Hochstein said during the Al-Monitor/Semafor Middle East Global Summit in September.      

• Already Gulf states are excelling as key competitors in the global race to build clean energy infrastructure, as Karen Young wrote in a memo earlier in 2023, and there’s an essential connection between developing renewable power to expand generation capacity and the goal of developing related industries and products that are "green" or zero-carbon.      

• There are ambitious targets to increase renewable energy in the power mix across the GCC, but there's a wide gap between installed renewable power and future targets. For instance, one estimate is that GCC renewable energy capacity would need to increase to almost 40-60 gigawatts — a nearly 60-fold rise — by 2030 to meet regional hydrogen targets.       

• Looking closer, Saudi Arabia is in a race against time to achieve its 2030 goal of producing 50% of electricity generation from renewable sources. Although the share of renewables in the kingdom’s installed electricity generation capacities has jumped more than twelvefold since 2020, it currently accounts for just 1.3%.      

• This comes as Gulf states are focusing on carbon capture as they expand oil and gas production capacity. ADNOC plans to capture 10 million metric tons of carbon annually, while NGO Global Witness estimates the energy giant will emit 684 million metric tons of CO2 by 2030. Meanwhile, the Gulf still features some of the world’s worst CO2 emitters per capita and the Saudi-led OPEC insists that global oil demand won’t peak until at least 2040 (over a decade beyond the IEA’s prediction).   

The takeaway: A prolific year for Gulf dealmaking saw renewable energy serve as a major investment area in MENA as the UAE, Saudi Arabia and Oman laid the foundation to become clean energy powerhouses and replicate their strategic role in the fossil fuel industry. 

Looking ahead: Gulf players will face challenges reaching clean energy targets and the stakes are getting higher as pressure to phase out fossil fuels rises. As Young’s memo noted, there’s a critical need to reconcile regional goals for new energy products like green hydrogen with a realistic timeline of renewable electricity generation capacity. In the short term, we are likely to see simultaneous efforts to accelerate nuclear power in the Gulf, along with renewable energy capacity for industrial uses.   

Another factor to watch: Economic competition in the Gulf. The Saudi-UAE rivalry is already impacting many industries and could influence renewable energy drives. For instance, competing bids to become green hydrogen powers could ultimately undermine regional attempts to capitalize on this opportunity.   

MENA revs up EV investments and manufacturing in 2023  

• Although regional electric vehicle (EV) adoption remains modest, 2023 saw MENA countries increasingly seek to play an impactful role in the global race to electrify transportation, which offers an opportunity to secure billions in foreign investment. That has already produced Middle Eastern EV brands, factories and dealmaking with industry players from the United States, China and Europe.        

• Saudi Arabia has been particularly active here in 2023 after the kingdom has spent recent years training its financial firepower on the EV industry. That trend ignited in 2018, when its Public Investment Fund (PIF) agreed to inject over $1 billion into US-based EV brand Lucid. It now owns a controlling stake in the company, which began producing vehicles in the kingdom in September 2023, with initial capacity at 5,000 EVs per year.      

• Saudi Arabia this year also reportedly dangled incentives in a long-shot bid to attract a Tesla factory to the kingdom (Elon Musk shot the rumors down). That attempt was underpinned by Saudi Arabia’s efforts to secure access to metals in Africa needed to power energy transitions.      

• Simultaneously, Turkey’s president Recep Tayyip Erdogan has also made overtures to Musk about a Tesla factory. That came as Turkey, already an automotive industry hub, saw its homegrown EV brand Togg deliver its first vehicle in 2023.      

• Elsewhere, news surfaced in November that the PIF is reportedly in talks to invest at least $250 million into Chinese electric vehicle maker Human Horizons Group. The Saudi wealth fund could ultimately buy the Shanghai-based company for around $3 billion, Bloomberg reported.        

• The UAE is also targeting EV investments. Prior to injecting $2.2 billion into Nio in December, Abu Dhabi’s CYVN invested $738.5 million into the Chinese EV market in June. Morocco is accelerating the transition to EV manufacturing, as Francisco Serrano outlined in a memo earlier in 2023.     

Takeaway: 2023 saw MENA states accelerate ambitions to become EV manufacturing hubs for major global brands alongside launching their own EV ventures, a trend led by Turkey and Saudi Arabia.  

Looking ahead: The road to mass market EV adoption remains a work in progress, but the industry’s development will remain a key storyline in the Middle East in 2024. Alongside activity in the established regional auto hubs of Turkey and Morocco, the coming year should prove revealing for Saudi Arabia’s aspirations, which now increasingly hinge on muscling into the EV supply chain as the kingdom builds out an industrial base needed to support lofty production targets.  

Another factor to watch: The transition to green aviation, a trend that will only loom larger going forward for regional airlines. In May 2023, the CEO of Qatar Airways voiced skepticism around the aviation industry target of achieving net-zero emissions by 2050, citing inadequate supplies of sustainable aviation fuel (SAF). In October 2023, Masdar inked an agreement with Boeing to explore SAF industry advancements in the UAE and beyond.