Could falling oil prices lead to opportunities for climate protection?

Pumps display the price of fuel per liter. Oil prices have been dropping since June last year. Photo by: KOMUnews / CC BY

Oil prices worldwide have dropped dramatically in the past few months, making for cheaper transportation in gas guzzling countries like the United States and raising red flags for oil-exporting economies — particularly developing economies in the Middle East — that depend on oil as a major source of revenue.

But what does this all mean for the health of the planet?

While cheaper gas does nothing to curb carbon emissions, falling oil prices could present a significant opportunity for advocates and development professionals seeking to mainstream climate-friendly policies such as carbon pricing.

Speaking Friday at the Carnegie Endowment for International Peace in Washington, D.C., Deborah Gordon, director of the think tank’s energy and climate program, said falling oil prices is a “wake-up call” for a Middle East “in flux.” She underscored the importance of diversifying the economy away from oil dependence. In particular, she highlighted the need for a meaningful alternative to oil — one that is not simply a different type of oil.

The recent drop in oil prices, according to Gordon, creates an opportunity for structural reform, market transparency, resource diversification and climate protection.

Falling oil prices could be an opportunity to advocate for political change that would “reduce the rate of growth of energy consumption” in the Middle East, agreed Masood Ahmed, director of the Middle East and Central Asia department at the International Monetary Fund.

“I think politically it’d actually be easier today in many of these countries to make the case for raising some of the energy prices,” Ahmed said.

If steps aren’t taken to diversify oil-exporting economies in the Middle East, countries such as Kuwait, Iraq and Liberia will experience large declines in export revenues in the coming year, according to IMF research.

Large development institutions such as the World Bank and the Office of Economic Policy and Regional Development can be valuable assets to countries in the region trying to diversify their economies since these institutions bring a wealth of knowledge and expertise based on experience, Ahmed said.

Development professionals in the Middle East, however, should think strategically about where economic diversification is possible, according to Uri Dadush, senior associate at the Carnegie Endowment for International Peace and former director of international trade at the World Bank.

While oil prices are projected to remain low for several years, they’re also likely to rise again, Dadush said, making prospects for lasting diversification in the manufacturing sector very low.

“The diversification that [oil-exporting countries in the Middle East] need is the diversification that generates jobs and that’s really the service industry. And there’s a lot of potential in my view for these economies to do a lot better in the service industry. And if you want to see a really good example of that, take a look at what’s been happening in Dubai,” Dadush said.

Can oil-exporting countries diversify their economies in a way that is climate friendly? Do development institutions have a role to play in the process? Let us know your thoughts by leaving a comment below.

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About the author

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    Jeff Tyson

    Jeff is a global development reporter for Devex. Based in Washington, DC, he covers multilateral affairs, U.S. aid and international development trends. He has worked with human rights organizations in both Senegal and the United States, and prior to joining Devex worked as a production assistant at National Public Radio. He holds a master's degree in journalism from Columbia University and a bachelor’s degree in international relations and French from the University of Rochester.