Energy transformation affects the MENA region

The MENA region accounts for a diminishing share of the world’s oil production, while the overall importance of oil is reduced in the wake of an increase in the production of renewable energy. The consequences to the countries of the MENA region will be felt throughout the world, according to Victor Carstenius, analyst at EKN.

Fifty years ago, the MENA region – the Middle East and North Africa – accounted for 40 percent of the world’s oil production. Today, the share is down to 32 percent. At the same time, global trends in renewable energy and electrification serve to reduce the importance of oil as a source of energy. Today, oil provides 34 percent of the world’s energy supply, but the share is expected to decline to 28 percent by 2040.

“The world has become less dependent on Middle Eastern oil, and this development looks set to continue, which is one of the reasons the United States is withdrawing from the region. The US is now the world’s biggest oil producer and will soon become a net exporter of oil, says Victor Carstenius, analyst at EKN.

Region under pressure

Carstenius says the development lies behind the political unrest that has afflicted the region over the past years, including the fallout from the Arab Spring. Countries that still depend on the region’s oil – or are seeking to expand their global sphere of interest – are vying to fill the void left by the US. Combined with the purely economic consequences, this scenario will have major long-term effects on the economy in these oil-producing countries.

To the rest of the world, however, the situation may be quite the reverse. With more oil producing countries, and even more energy sources available to compete with oil, the price of oil and energy may become more stable.

“By and large, every economic downturn in the US has been correlated with an oil price shock, and historically the MENA region has controlled the price of oil. But as the power of the region is diminished, it could bring a greater measure of stability to the world trade and the global economy,” says Carstenius.

Export opportunities and risks

To some extent, he adds, this is an oversimplification. “Turmoil in the MENA region will of course have consequences for the rest of the world, and it is important that the global community actively works to promote stability in the Middle East. But the fact that a larger number of players may exert an influence on the supply of energy in the world is positive from a global perspective.

To EKN, the development has important implications, if it leads to a higher level of risk in exporting to the MENA region, particularly the risk of non-payment. Consequently, EKN expects the demand for export credits related to transactions with the region to remain high. Today, Swedish exports to the MENA region are worth around 40 billion SEK annually. To companies doing business with the region, Carstenius offers two important takeaways.

“The positive aspect lies in the fact that many of these countries are undergoing a transition towards a less oil-dependent economy, which requires substantial investments financed by affluent countries. On the other hand, it’s wise to be prepared for a situation of continued instability and political unrest.”

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