Kazakhstan’s Path to Carbon Neutrality Could Run Through the Gulf

The Gulf states hold a unique position among Kazakhstan's international partners, as demonstrated by Kazakhstan's involvement in the 2023 Central Asia-Gulf Cooperation Council (GCC) Summit. Addressing the summit in Jeddah, Kazakh President Kassym-Jomart Tokayev highlighted the potential for synergy between Central Asia’s resources and the Gulf states’ economic innovation. He emphasised the vast opportunities in this relationship and their collective capacity to elevate their multifaceted partnership.

At the summit, discussions centred around expanding energy collaboration, with a focus on advancements in green energy and the modernisation of power generation infrastructure. President Tokayev reaffirmed Kazakhstan's willingness to engage in close partnerships with Persian Gulf energy companies.

Decarbonisation policy is an emerging development priority for Kazakhstan, reflecting global trends in sustainability and climate action. The transition to a low-carbon economy presents a significant challenge, requiring comprehensive measures for the technological modernisation of the national economy, especially in the extractive industries.

At the Climate Ambition Summit in December 2020, Kazakhstan announced its goal of achieving carbon neutrality by 2060. This commitment was formalised in February 2023 with the adoption of the Strategy for Achieving Carbon Neutrality by 2060.The strategy seeks to balance carbon dioxide emissions with removals from the atmosphere, with an interim target to decrease greenhouse gas emissions by 15 percent by 2030 compared to 1990 levels. This reduction could be increased to 25 percent, provided international assistance is secured for the decarbonisation efforts. 

Transitioning to a decarbonised future requires a fundamental shift away from Kazakhstan’s coal-dependent energy system. The strategy estimates a total investment of $610 billion, with over half of this funding reallocated from conventional industries to more sustainable sectors. The remaining portion will be sourced from newly established investment channels.

Prominent financial organisations, including the European Bank for Reconstruction and Development (EBRD), remain committed to backing decarbonisation projects. Simultaneously, Kazakhstan is actively enacting reforms to encourage private sector investment in renewable energy sources.

Recognising the financial and technological commitments needed for decarbonisation, Kazakhstan is diligently fostering international partnerships. This approach is yielding support from key partners such as the EU, China, the World Bank, and the EBRD, thereby attracting further investment and the adoption of cutting-edge technologies. But additional sources of climate financing are needed—the Gulf is stepping up its commitments.

In December 2023, the sixth session of the Kazakh-Saudi intergovernmental commission convened in Riyadh to explore new opportunities for collaboration. During the meeting, ACWA Power, a Saudi company, announced plans to invest approximately $10 billion in Kazakhstan's green energy sector. This investment would support the growth of wind and hydrogen energy, thereby aiding Kazakhstan's broader decarbonisation efforts.

In March 2024, Kazakhstan and Saudi Arabia formalised this partnership for the ACWA Power project through an intergovernmental agreement, outlining their commitment to build wind power plants with a combined capacity of 1 GW, equipped with an integrated energy storage system. The project's initial investment is expected to exceed $1.8 billion. Additionally, both nations have partnered to establish a shared innovation hub in Riyadh, designed to promote Kazakhstan's IT solutions and burgeoning startups in the Middle Eastern market.

Kazakhstan is also working on its collaborations with the UAE on solar and wind initiatives. A significant milestone in this partnership was the signing of an investment deal with Masdar in 2022, aimed at building a 1 GW wind farm in the Zhambyl region. This project incorporates advanced energy storage solutions, enhancing the reliability and stability of Kazakhstan's power grid while increasing the share of renewables in the nation's energy mix and reducing carbon emissions.

Kazakhstan's regional prominence stems from its position as Central Asia’s largest economy and a leading hydrocarbon exporter, attracting roughly 60 percent of FDI inflows into Central Asia. Recognising its responsibility to curb greenhouse gas emissions, the country has pioneered the region’s first carbon trading system, creating economic incentives for businesses to decrease their emissions.

With an estimated renewable energy capacity of 1 trillion kilowatt-hours, Kazakhstan also shares its expertise with neighbouring countries, contributing to broader regional environmental improvements.

Kazakhstan is also strengthening green cooperation with Central Asian neighbors through initiatives like the International Fund for Saving the Aral Sea, which addresses environmental degradation, and the Central Asian Regional Environmental Center, which supports cross-border water and biodiversity projects. In 2024, The Presidents of Kazakhstan, Azerbaijan and Uzbekistan signed a strategic agreement on the intersystem integration of the energy systems of the three countries. Collaborative efforts are also emerging through the Central Asian Regional Environmental Center (CAREC), facilitating cross-border projects focused on water resource management and safeguarding biodiversity.

Concurrently, Gulf countries are also deepening green partnerships in the region. Masdar of the United Arab Emirates is leading major projects in Uzbekistan, including the 100-megawatt Nur Navoi solar power plant. Masdar has also signed an agreement with the Kyrgyz Republic’s Ministry of Energy to develop a pipeline of renewable projects in the Central Asian nation, with a capacity of up to 1 gigawatt, starting with a 200-megawatt solar photovoltaic plant. Tajikistan is partnering with the Abu Dhabi Development Fund and is being considered as a potential investor in the Rogun project. These collaborations drive regional energy transformation and deepen links between Central Asia and the Gulf through sustainable development and shared climate objectives.

In correspondence with the shift towards climate action worldwide, Kazakhstan is not only aligning with global sustainability trends but is also crafting its own unique model for a green economy, setting a precedent for the entire region. Through a combination of national strategies and active regional partnerships, Kazakhstan is positioning itself as a hub for clean energy innovation and sustainable development in Central Asia.

Photo: Eni

As Corporate America Makes Green Retreat, GCC Firms Should Hold the Line

Corporate America is undergoing a “great green retreat,” undermining the momentum that climate finance has built in recent years. Concurrently, President Donald Trump’s administration had dealt a final blow to America’s global climate finance ambitions. The dismantling of public US entities, such as USAID—which collaborates with private American firms on global climate initiatives—has further dampened private sector interest in the field. As a result, several American multinational enterprises have begun deprioritising their climate goals, including scaling back on ESG commitments and other climate-related initiatives. 

In contrast, climate finance has been gaining traction in the Gulf region, with the United Arab Emirates (UAE), Saudi Arabia, and Qatar emerging as regional leaders. They have been investing in climate finance not just domestically but also internationally, particularly in the Global South. Consequently, US firms have been among the main drivers and partners in GCC climate initiatives until now.

The GCC states have long maintained longstanding relationships with American entities, including in areas such as renewable energy and climate-smart agriculture—an approach that boosts agriculture while considering climate adaptation and mitigation. US-GCC collaboration in the climate sphere is consistently developing, with the US being recognised as a key supporter. This partnership has not only helped GCC states meet their climate goals but has also opened markets for US-based firms. However, shifts in US policy will potentially offset the GCC’s plans and ambitions in the field.

Additionally, GCC countries have issued various green bonds, which are essentially fixed-income financial instruments that raise funds for climate-beneficial projects. The green bond market has experienced a recent boom, increasing from $600 million in 2021 to $8.5 billion in 2022. This surge highlights the sudden rise in interest and demand for sustainable finance in the Gulf.

With the US retreat, there will be a gap in climate financing which will need to be filled, ideally by those countries whose interests are most threatened by this prospect. In this context, the GCC states should prioritise diversifying their climate finance partnerships, especially in emerging markets, to expand their presence, and influence in the global climate finance landscape. The GCC countries, particularly the Gulf 3—UAE, Saudi Arabia, and Qatar—must also look inward, focusing on their own climate finance policies, and implementing new approaches to attract private ESG investors. By doing this, they should ultimately make the climate finance atmosphere in the region more resilient and impactful in the long-term. 

In recent years, GCC countries have demonstrated their strength in fostering partnerships with countries around the world across various sectors. Now, as one partner retreats, another steps forward. Other global powers may see the American withdrawal as an opportunity to capitalise on and establish themselves as more prominent leaders in the industry. For instance, China, which is not far behind the US in terms of climate finance, has already been actively forming partnerships with GCC countries in this space.

Examples include ACWA Power’s collaboration with Chinese manufacturers to supply wind turbines for the Bash and Dzhankeldy projects in Uzbekistan. Additionally, UAE-based Mensha Ventures has partnered with Chinese companies to invest $1 billion in clean technologies in Asia. This trend indicates the growing opportunities for cooperation between the GCC and China in the realm of upcoming climate finance plans.

At the same time, the GCC is also expanding its partnerships with the European Union. While the EU is also very focused on climate initiatives, it has been more limited compared to the US. Despite the EU’s ongoing collaborations with the GCC, the depth of their relationships are not equal. With climate change being less politicised in the EU than in the US, increased EU-GCC partnerships could provide more stable and reliable avenues of investment and growth. 

In November 2024, during the first EU-GCC Summit in Brussels, there were calls from leaders on both sides for stronger collaboration in climate finance and investments, identifying many potential areas for knowledge sharing and collaboration. GCC countries stand to benefit from the expertise of institutions such as the European Bank for Reconstruction and Development in financing renewable energy projects. Furthermore, the EU is well-positioned in carbon market cooperation, as a global leader in this field, to pave the way for the GCC who is also interested in mobilising funds for climate finance in emerging economies.

Presently, the GCC has invested in climate finance initiatives and projects globally, from Bangladesh to Central Asia, from North to Sub-Saharan Africa, and beyond. However, it could be argued that the GCC could better leverage its platform for economic integration to better support climate finance. For instance, Saudi Arabia has invested over $25.6 billion in Sub-Saharan Africa alone over the past decade, building a strong foundation to incentivise expansion in climate finance in the region. Additionally, the UAE has invested over $3 billion in India during the 2023-2024 fiscal year, making it the largest Middle Eastern investor in South Asia. GCC investments in Asia also extend to ASEAN countries, with $13.4 billion invested between 2016 and 2021, and recent discussions on an ASEAN-GCC trade agreement further cementing GCC investment in the region. 

Although these investments may not explicitly fall within the realm of climate finance, they can serve as a stepping stone. If ongoing GCC economic investments and partnerships are redirected toward climate-related initiatives, they could make impactful contributions to the industry. Economic cooperation through strategic partnerships and financial mechanisms can mobilise great resources for climate action. For the GCC, this foundation is already in place, as discussions have consistently highlighted that financial policies aligned with climate goals can foster sustainable economic growth alongside climate resilience. To address the gap left by the United States, GCC states must align their collaborations across the Global South with clear climate objectives. 

GCC climate investments across the Global South create a win-win situation for both parties. They present an opportunity for GCC countries to support their economic diversification efforts as climate related projects in emerging markets can result in monetary gains, such as through investments in renewable energy and the energy transition. These investments can also help GCC states fulfil their own climate goals, such as their investment in Africa’s agricultural sector, which supports the GCC’s own climate resilience and food security objectives. 

In tandem to external action, GCC countries must leverage to their domestic resources to compensate for the loss of American green investments and foster regional climate finance initiatives. Across the Gulf, there is a need for more private green investments. While sovereign wealth funds have been successful in attracting investment for climate finance and accelerating climate action, reliance on a primarily state-driven approach acts as a limitation. Integrating private investment in the field attracts capital with proven cash flow potential and innovations, resulting in a synergistic approach that leverages the strengths of both private and public sectors to contribute to the field. 

A key way for governments to attract more green private investment is by establishing clear regulations. This clarity, in turn, increases investor confidence and attracts further investment. Although various ESG frameworks have been implemented, issues such as regulatory uncertainty persist. Organisations in Saudi Arabia, the UAE, and Qatar lack harmonised, standardised reporting frameworks, which has hindered the attraction of more private green investment. For the GCC, this means that the development of a GCC-wide framework focused on climate finance, incorporating a unified and comprehensive set of guidelines, standards, and best practices would be paramount. 

For GCC climate finance, the US withdrawal can be seen as a setback due to America’s prominent influence in the field. However, both inward and outward strategies present an opportunity for the GCC to capitalise on this moment. GCC states must create more accommodating conditions for climate related initiatives, and leverage their economic and political influence in the Global South to expand their climate finance reach. Such measures in the industry present a critical opportunity for the GCC states—the actions they take now will determine their future standing in global climate finance.

Photo: ACWA Power

Gulf States Offer Development Assistance in Central Asia as Western Donors Step Back

Recently, bilateral and multilateral relations have intensified between the five Central Asian republics and the six member states of the Gulf Cooperation Council (GCC). In addition to a surge in diplomatic visits and meetings at the state level, there are also signs of increasing GCC investment plans in Central Asia. This is accompanied by growing people-to-people and business  contacts; operators report a rise in travel between the two regions, while experts highlight the GCC as a potential labour migration destination for Central Asian workers. 

Against the backdrop of a seemingly encouraging overall picture, it is also important to consider development assistance. In Central Asia, Kazakhstan, and Turkmenistan are upper middle-income countries, with Kyrgyzstan, Tajikistan and Uzbekistan being lower middle-income countries. The latter three Central Asian republics receive development assistance to a larger extent, while Kazakhstan has started developing its own development agency. Nonetheless, all five countries remain assistance recipients. 

Traditional development assistance providers are based in the Global North, particularly among Western states. As such, many of the world’s leading development actors, such as the United Kingdom and France, are also former colonial powers. This often raises debates on how to approach aid and ensure historical injustices are addressed. So-called ‘new development assistance’ includes recently emerged major economic powers, who have received development aid themselves in the past, including China, India, and Brazil, among others. 

The GCC states thus represent an emerging wave of development assistance providers, having only recently begun to establish their profiles as global development donors. Central Asia, on the other hand, offers opportunities to engage in development aid in a politically safe and transparent manner. Having long been a recipient of development assistance, Central Asia still requires external support but has also accumulated sufficient knowledge and experience to engage with donors efficiently and transparently. 

The United Nations recommends developed nations to allocate 0.7 percent of their gross national income (GNI) to development assistance. The leading development assistance providers in the GCC—Saudi Arabia, Kuwait, Qatar and the United Arab Emirates—collectively contributed $9.2 billion in development aid in 2022 alone, concretising the region’s role in global development. Moreover, these states have established formal aid agencies and report significant outbound assistance

At the regional level, the GCC states have contributed to multilateral organisations such as the Islamic Development Bank, where they are major stakeholders. These efforts are often announced at GCC summits or ministerial meetings, with funding decisions aligning their collective strategic priorities. According to a 2023 report by the Center for International Policy Research, in 2021, the UAE provided $47.2 million in development aid to Central Asia, while Qatar allocated $5.2 million. Saudi Arabia contributed $43.6 million, and Kuwait distributed $33.3 million in further development assistance to the region. 

Inter-regional multilateral relations are becoming increasingly substantial and regular. The inaugural GCC-Central Asia Summit took place in the Saudi city of Jeddah on July 19, 2023. The next summit is scheduled to be held in May 2025 in the Uzbek city of Samarkand. In between these two milestone meetings, there have been a series of ministerial meetings, where cooperation in trade, economic, investment, transport and communications, cultural, humanitarian, environmental, and tourism sectors were discussed.

However, there remains a gap in the regional landscape in climate finance in Central Asia that must be addressed. The Trump administration’s recent suspension of all foreign aid sent shockwaves across the global development sector, sparking confusion and panic. While the full impact of this decision is yet to be realised and analysed, it is clear that at least some areas of economic development and welfare worldwide—including Central Asia—will require additional support. 

In addition, the GCC states, alongside other development donors, have a unique opportunity to carry out a conceptual overhaul of the global development aid approach. Conventional development assistance has faced significant criticism, ranging from neocolonial allegations to concerns about inefficiency. The GCC has both the resources and the strategic positioning to create something new, innovative, and more effective. Entering Central Asia as a relatively neutral actor, the GCC is unburdened by a complicated shared past, unlike Russia, or politically motivated aid, as seen with the EU or the US. This neutrality could help facilitate a mutually beneficial and more equitable partnership between the two regions. 

Engaging in development assistance in Central Asia provides the GCC with an opportunity to boost its soft power in the region. There are numerous avenues for bilateral and multilateral cooperation to choose from, including, but not limited to, public healthcare, education, tourism, and poverty alleviation. 

However, two key challenges may impede smooth development cooperation between the GCC and Central Asia. First, the GCC lacks a designated agency focused on multilateral development cooperation and the pooling available funds to support developing countries. In contrast to certain nations and other international entities that have separate organisations—such as USAID or EU AID—there is no specific GCC development assistance agency with a distinct name and brand. Branding is crucial in international development, particularly for visibility and public support on the ground. Development assistance serves various objectives, one of which is to build a positive image of the donor, thereby strengthening its soft power on both global and local levels. 

The closest equivalent to a dedicated development agency within the GCC is the coordinated effort under the GCC Secretariat General, often linked to initiatives like the Gulf Programme for Development (AGFUND). However, the execution of these efforts is largely delegated to national entities like the Saudi Fund for Development or Kuwait Fund for Arab Economic Development. National institutions within the GCC's member states occasionally collaborate in distributing development assistance and work with regional mechanisms or funds set up under the GCC's guidance.

Second, there is a clear lack of in-depth knowledge and understanding of the local and regional context in Central Asia, as well as the specific needs on the ground. It is no secret that, until recently, the GCC-CA interaction has been fairly limited; both regions have prioritised closer partnerships elsewhere in the world. However, the high-level GCC-C5 Summit in 2023 and the upcoming Summit in Samarkand this year signal a growing commitment from both sides to deepen ties. 

Policymakers in the GCC might consider streamlining regional development assistance, channelling it through intra-regional cooperation paths. This approach will help donor coordination, on one hand, and increase the visibility and impact of development assistance on the other. Meanwhile, policymakers in Central Asia could prepare and pitch ready-made proposals on how external national donors might contribute to the region’s economic development and welfare. Clear and transparent requests would make it easier for willing donors to justify their contributions domestically and internationally, creating the space for growth within this delicate dynamic.

While there is limited recent history of deep and meaningful interaction between the GCC nations and the Central Asian republics, the future of inter-regional cooperation appears cautiously bright. As the conventional development partners, such as the US and the EU, either withdraw completely from the international development sector or turn their focus to regions like Ukraine, the GCC countries are emerging as the new key actors in development assistance. 

At this stage, Central Asia has accumulated notable experience and expertise in engaging with development cooperation. Countries like Kazakhstan are on the verge of a transition from being recipients of development assistance to becoming providers themselves. But the majority of the region still requires external support, especially in the areas of economic development and transition to renewable energy. In light of this, the GCC could become a much more powerful player in this field.

Photo: Presidential Administration of Uzbekistan

GCC and Central Asia Want More Trade, But Connectivity Remains a Hurdle

Over the course of the past five years, the six countries of the Gulf Cooperation Council (GCC) and the five republics of Central Asia have taken several important steps to expand their economic and diplomatic relations. In addition to the advancement of bilateral relations among members of these two blocs, efforts have also been made at the regional level involving multiple countries from both sides. This includes several gatherings at the ministerial level, as well as the 2023 GCC-C5 summit that convened the six GCC and five Central Asian countries—Kyrgyzstan, Kazakhstan, Uzbekistan, Tajikistan, and Turkmenistan—in Saudi Arabia. The high-level summit resulted in a joint statement on the framework for economic relations. Preparations are currently underway for a follow-up summit in May 2025 in Samarkand.

The volume of trade between the two blocs is currently small. According to data compiled by the World Bank, the share of GCC countries in total exports of goods by Central Asian countries was only 0.8 percent in 2022. The ratio was even smaller for Central Asia’s largest economy, Kazakhstan, which exported only $462 million to GCC countries. This amounted to 0.55 percent of its $83.5 billion total goods exports in that year.

Trade relations are expected to expand from this low base if the forthcoming summit in Samarkand is fruitful. Not only is the GCC interested in the minerals, metals, and agricultural commodities that Central Asia can offer, but both regions are moving toward economic diversification. This will increase the range of manufactured and semi-processed goods that they can exchange.

While both sides have expressed a strong desire to expand their investment and trade relations in many sectors, transit routes and transportation costs pose important considerations for their respective political leaders and business communities. In their July 2023 summit, the leaders of GCC and Central Asia were already mindful of this issue. Connectivity was addressed in the Article 12 of the Summit’s Joint Statement: “The leaders stressed the importance of developing connected transportation routes between the two regions, building strong logistical and commercial networks, and developing effective systems that contribute to the exchange of products.”

The transport networks between GCC and Central Asia cross through several countries. Three distinct transport routes can potentially provide land connectivity between the regions in the coming years. These are the North-South Transport Corridor (NSTC) that runs mainly through Iran, the Development Road Project (DRP) that runs through Iraq, and the Trans-Afghan Corridor. Each of these multi-modal routes presents its own unique opportunities and challenges.

Firstly, it is important to consider the NSTC route through Iran. Currently the Central Asian countries have access to highway and rail transit through Iran to the Persian Gulf and the Gulf of Oman. With cooperation of Iran, Russia, and several Central Asian countries the rail connectivity has been operational since 2016. The trans-Iranian Railway connects the Sarakhs railway station on Iran-Turkmenistan border to the Bandar Abbas port on the Persian Gulf and this route is already in use by the Central Asian countries. 

Highway transit for cars and trucks is also operational; Iran’s network of roads and highways connects the Iran-Turkmenistan border crossings to several seaports in the Persian Gulf, from which containers can be transported to GCC countries by ship. The railroad transit will expand further with the completion of the Sarakhs-Chabahar railway line. Nearly two thirds of this route is already complete. The only remaining piece is the Chabahar-Zahedan segment which is currently under construction, though progress is slow due to economic sanctions. Iranian government officials expect this project to be completed by late 2025.  

These transit routes through Iran are safe,  offering the shortest and most cost-effective routes for GCC-CA connectivity. However, many GCC economic operators will avoid using this route in compliance with the U.S. economic sanctions against Iran. GCC countries have demonstrated high compliance with the U.S. sanctions against Iran because of their heavy reliance on American security and military protection; this cooperation is likely to continue in the future. 

Another transit route that can be used for trade between the GCC and Central Asia is the proposed north-south Development Road Project, which will, using rail and highway, connect Iraq’s Faw port at the tip of the Persian Gulf to Turkey’s broader transport network. This project is currently in its final planning stage according to Iraq’s Transport Minister, Razzaq Muhibis Al-Saadawi. After the recent improvement of diplomatic relations between Iraq and GCC countries, Qatar and the UAE have expressed an interest in providing additional financial support, assisting Iraq and Turkey in the endeavor. 

The DRP offers a significantly longer transit route compared to the Iran option. Additionally, it requires greater international coordination, as it passes through multiple countries—Iraq, Turkey, Georgia, and Azerbaijan—before requiring sea transport across the Caspian Sea to reach either Turkmenistan or Kazakhstan for connections to Central Asia. The Turkey-Turkmenistan segment, which is part of the Belt and Road Initiative’s middle corridor between Asia and Europe, is already operational. If Azerbaijan and Turkey can convince Armenia to provide them with a transit corridor, this route will become shorter and more cost efficient, yet still less economical than the Iran option. 

The DRP also faces several geopolitical and governance challenges. Kurdish militias that are in war with Turkey operate in the mountainous regions of Northern Iraq, near the Turkish border, posing a security risk to the road both during its construction and after completion. The Iraqi government’s opposition to the participation of the Kurdish Regional Government (KRG) poses another obstacle to the viability of this project as disagreements between Baghdad and KRG can lead to more disruption. 

Another challenge is the many governance issues in Iraq’s fragmented government structure, which has reduced the government’s efficacy and ability to implement long-term plans. Fortunately, Iraq’s political system has become more stable in recent years, contributing to better conditions for the implementation of the DRP. A recent security agreement between Turkey and Iraq might also reduce the security risks in northern Iraq.

A third land transit route between the GCC and Central Asia is the Trans-Afghan option, which will offer rail transit from Uzbekistan to Pakistan’s Karachi and Gwadar seaports on the Arabian Sea through Afghanistan. Cargo would be able to be transported from these ports to various GCC destinations in the Persian Gulf by ship. The Trans-Afghan Corridor has received support from Kazakhstan and Uzbekistan as the primary Central Asian stakeholders. Uzbekistan has also approached Qatar and the UAE for financial investment in this project, which is estimated to cost $7 billion.

Under the previous Afghan government, the Taliban posed a security risk to the Trans-Afghan Corridor. Now, in a turn of events, the Taliban-led government is a strong supporter, engaging in active negotiations with all stakeholders to expedite the project. In 2024, Afghanistan signed an agreement with Uzbekistan and the UAE to launch a feasibility study for the project. Pakistan is also lobbying the Central Asian countries, Qatar, and the UAE for support. 

Another important tailwind behind this project is the support of several other countries, including Russia and Belarus, which are also interested in development of the Afghan route. For Russia, which faces sanctions and security risks along its Baltic and Mediterranean transit routes, the Trans-Afghan Corridor will serve as an additional branch of the already operational NSTC route through Iran. In addition to the Uzbek option, Russia is also advancing an alternative branch of the Trans-Afghan railway via the Turkmenistan-Afghanistan border, further expanding the capacity of transit routes through Afghanistan.

The transit corridor competition that is currently underway between Iraq, Iran, and Afghanistan will increase the land connectivity options among the GCC and Central Asian countries in the coming years, reducing exposure to the risk factors in any single country that lies between the two blocs. While at present the only operational route is via Iran, it is encumbered by sanctions risks. The completion of the DRP and the Trans-Afghan Corridor will provide valuable alternatives despite being lengthier and hence more expensive. Their development will be reassuring to both the GCC countries and the Central Asian countries as they seek to boost trade ties as part of a process of West Asian integration.

Photo: Leonid Andronov

New Climate Financing Targets Present Opportunity for the Gulf

Following two weeks of COP29 negotiations, exhibitions, and panel events, delegates representing governments around the world reached a major consensus. Most significantly, they agreed wording on a new climate financing target for developing countries, international carbon market standards, and a support programme for national adaptation plans (NAPs) for the least developed countries.

These three key victories for the climate agenda present great opportunities for the Gulf states, particularly Saudi Arabia, the United Arab Emirates, and Qatar—collectively referred to as the Gulf 3—to play a leading and supportive role in investing in a 1.5C-aligned and resilient future, which was the fundamental aim of the 2015 Paris Agreement.

At the 2009 Copenhagen Climate Summit (COP15), developed countries agreed to mobilise $100 billion of annual climate financing for developing countries by 2020. This target was unfortunately never met, with the deadline extended to 2025 during the Paris Agreement signifying a commitment to updating the target to increase its ambition by the end of the decade. This brings the focus to 2024’s negotiations, which culminated in this target being updated to $300 billion annually by 2035.

This target and metric are highly contested. Developing countries want to increase the target further as their financing needs are much greater than this amount. The Overseas Development Institute has estimated that the need is closer to $1.3 trillion per year by 2035, which is the new cumulative goal. Moreover, much of this financing is currently provided in the form of debt rather than grants, adding to existing debt obligations, which is especially challenging for small and developing nations.

The new agreement requires the 24 developed nations, across Europe, the United States, Japan, Australia, and New Zealand, to deliver on this target. A broader climate financing target of $1.3 trillion has also been set by 2035, and “voluntary” contributions from countries outside the original 24 are allowed to be included in this figure.

Fossil-fuel-dependent states, including the Gulf 3, have faced criticism for their role and influence over the talks, but the opportunity remains for them to contribute further, as part of this new metric for South-South financing.

Documenting and disclosing existing investment flows can build transparency and show the world that the Gulf 3 are serious about contributing to global climate finance flows. Once this reporting infrastructure is in place, the next opportunity for the Gulf 3 would be to demonstrate their leadership and commitment to South-South climate financing by increasing financial flows from the baseline to help meet the $1.3 trillion annual funding target by 2035.  Alongside the likes of China and Korea, this effort will help to further increase South-South climate financing.

According to the World Investment Report released earlier in 2024 by the UN Conference on Trade and Development, foreign direct investment outflows from the Gulf 3 totalled some $38.2 billion in 2023, down from its peak  of $58.2 billion in 2022. While a more detailed breakdown of the share of these investments that can be considered climate financing and the proportion  allocated to other developing countries is not available, this demonstrates the scale of capital available from the Gulf 3 for this opportunity.

A significant chunk of this financing came from Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund (PIF), with some $620 billion in assets under management. Of the thirteen “vital and strategic" investment sectors PIF has identified for the upcoming five years, seven are crucial to climate financing going forward: food and agriculture, metals and mining, transport and logistics, automotives, real estate, construction and building, utilities and renewables.

A similar sector focus can be seen in the investment portfolios of the UAE and Qatar. The Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Emirates Investment Company (EIC), and Qatar Investment Authority (QIC), which boast a combined portfolio of $1.8 trillion, are responsible for driving investments that can help to fill this global green financing gap. In particular, the Abu Dhabi Fund for Development has a designated mandate for concessional and sustainable financing to local and global emerging economies.

COP29 also led to defined rules for both Article 6.2 and 6.4 in relation to carbon markets. The International Emissions Trading Association estimates this can raise $1 trillion of additional financing for developing countries by 2050, by channelling funding into nature-positive projects, particularly in developing nations. Article 6.2 defines the framework for countries to make bilateral agreements to exchange and trade carbon credits. Article 6.4 creates a centralised international carbon market, supervised by the UN who then validates, issues, and verifies carbon credits.

The defining of Article 6.2 and 6.4 market mechanisms means that legal and regulatory frameworks now exist for the Gulf 3 to partner bilaterally and multilaterally with countries around the world to improve the supply and demand for these carbon credits, working towards a high-quality and high-price carbon credit market.

In Baku last month, Saudi Arabia’s PIF launched a carbon credit exchange called the “Regional Voluntary Carbon Market Company,” with the auctioning of 1 million tons of carbon offset credits. Last year, the UAE Carbon Alliance announced targets to buy USD450m of Africa’s carbon market initiative, with the UAE additionally considering developing its own Emission Trading System. At the same time, Qatari firm Emsurge has announced a public-private partnership to fuel its own carbon market development.

The outcomes of COP29 present a critical opportunity for the Gulf 3 to align their financial resources with global climate goals. By scaling investments through sovereign wealth funds like PIF, ADIA, and QIC, these nations can help close the global climate financing gap and drive South-South cooperation. Transparent documentation and a commitment to increasing flows will showcase their leadership in building a resilient, 1.5C-aligned future.

Photo: WAM

New Agreement Boosts Prospects for Connected Grids in the Gulf

The October 9 agreement to finally connect Iraq to the Gulf Cooperation Council Interconnection Authority (GCCIA) marks a significant step toward greater energy integration in the region. Originally established to link the power grids of the six GCC states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—the GCCIA has been gradually expanding its reach. Iraq’s inclusion in this regional grid highlights the growing importance of cross-border energy cooperation to address the rising electricity demands in the Gulf. Iraq’s existing energy ties with Iran, however, suggest that the region could be on the verge of an even more ambitious project: a Gulf-wide power grid that includes all eight Gulf states. 

Energy demand in the Gulf has surged over the years, driven by rapid population growth, industrialization, and the region’s heavy reliance on energy-intensive processes such as water desalination. Between 2010 and 2023, the Gulf's population grew from 153 million to 194 million, with projections indicating it could exceed 300 million by 2050. This population boom has placed immense pressure on power generation systems, which remain dominated by fossil fuels. In 2022, electricity demand alone accounted for about 15% of the total energy consumed in the region, with per capita electricity consumption growing by 74% between 2000 and 2022. This rise in demand is largely the result of increased industrial and commercial activity, infrastructure development, and economic growth, all of which require significant amounts of electricity.

Moreover, most regions surrounding the Gulf experience extremely high temperatures during the summer months, often reaching 50°C. As a result, space cooling has become essential, further driving up electricity consumption. The scarcity of freshwater in the region also leads to heavy dependence on desalination, which is a highly energy-intensive process. Reverse osmosis, one of the commonly used desalination technologies, is particularly reliant on electricity for mass production. Additionally, Gulf governments have historically subsidized electricity, making it relatively cheap for consumers. While this has helped meet public demand, it has also encouraged inefficient consumption patterns.

As of 2023, the Gulf’s combined installed power capacity stood at 272 gigawatts, with 70.4% of electricity generated from natural gas, 25% from oil products, 2.2% from nuclear, 2.2% from renewables (hydro, solar, and wind), and 0.2% from coal. The residential and commercial sectors are the largest consumers of electricity in the Gulf, accounting for 40% and 30%, respectively. In contrast, the industrial and agriculture sectors make up 22% and 6%. In 2022, the total carbon emissions from electricity generation in the Gulf amounted to about 700 million tons, representing 38% of the region’s total energy-related carbon emissions.

Cross-border electricity trade has also become an important feature of the Gulf’s energy landscape to meet rising demand. Between 2016 and 2022, the accumulated electricity trade in the region amounted to 126.5 terawatt-hours (TWh). Notably, about 55% of this trade involved Iran, which exports electricity mainly to Iraq while importing from countries such as Armenia, Azerbaijan, and Turkmenistan. Iraq accounted for 40% of the region’s electricity trade, all of which was imported from Iran. The GCC countries accounted for the remaining 5%, exporting and importing electricity among themselves through the GCCIA grid.

Iraq, in particular, has struggled with chronic electricity shortages. Despite an installed generation capacity of around 29.4 GW, inefficiencies and under-maintenance have reduced Iraq’s available capacity to just 15.7 GW. In 2022, peak electricity demand reached 30.5 GW, nearly double the available capacity, leading to regular power outages. Iraq has long relied on electricity and natural gas imports from Iran to help meet its energy needs. In 2022, Iran exported 3.5 TWh of electricity to Iraq through four transmission lines, and the two countries signed a five-year agreement in 2023 to import 50 million cubic meters of Iranian gas per day. These imports have been especially crucial during the summer months when electricity demand peaks.

However, Iraq’s reliance on Iranian energy is complicated by US sanctions on Iran. Since the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iraq has received waivers to continue importing Iranian electricity and gas. Yet, delayed payments and mounting debt—estimated at $11 billion—pose significant challenges. Iraq spends about $4 billion annually on Iranian energy, but US sanctions have delayed the country’s ability to make timely payments, leading to substantial debt accumulation. To settle this debt, Iraq proposed an oil-for-gas barter deal in 2023, allowing it to repay Iran through crude oil. However, opposition from the US Congress and ongoing conflicts in the Middle East continue to hinder the smooth functioning of Iraq-Iran energy cooperation.

Iran itself faces significant domestic energy challenges, including infrastructure problems and environmental factors such as droughts that have reduced its hydroelectric output. In 2021, Iran faced a 12 GW gap between peak summer electricity demand and supply. These domestic issues highlight the potential benefits of integrating Iran into the broader GCCIA grid, which could help stabilize Iran’s power system while benefiting the region as a whole. Iran’s vast land area and renewable energy potential—particularly in solar and wind—could complement the Gulf’s energy needs. By connecting Iran to the GCC grid, the region could also better manage electricity demand across different time zones, as argued by Robin Mills, leveraging the 1.5-hour time difference between eastern Iran and western Saudi Arabia to extend the availability of solar power during peak hours.

The potential for a Gulf-wide energy grid that includes Iran, Iraq, and the six GCC states presents significant opportunities for enhancing energy security, sharing resources, and balancing electricity supply and demand across the region. However, significant challenges remain. 

Expanding the GCCIA grid to include Iran would require substantial investment in infrastructure, including new transmission lines and modern grid management systems. Iran’s aging power infrastructure would need to be upgraded to ensure reliable connectivity with the Gulf states. Additionally, coordinating electricity markets and pricing across such a diverse group of countries would require careful negotiation and planning. Geopolitical tensions as well as US sanctions, pose other major obstacles to integrating Iran into the GCCIA grid. 

Despite these challenges, a Gulf-wide grid could foster greater political and economic cooperation. Energy interdependence could reduce regional tensions and encourage collaboration on other critical issues, such as water security and climate change adaptation. The Gulf is particularly vulnerable to the effects of climate change, including extreme heat, water scarcity, and rising sea levels, all of which could destabilize power grids. Multilateral cooperation on energy could play a key role in mitigating these risks in the Gulf.

The agreement to connect Iraq to the GCCIA represents a turning point in the Gulf’s energy landscape, opening the door to broader regional cooperation. With regional diplomacy expanding between Iran and the Arab states of the Gulf, the possibility of integrating Iran into a Gulf-wide electricity grid becomes an increasingly tantalizing prospect. 

Photo: GCCIA

Accelerating the Gulf's Energy Transition in the Wake of Russia's War

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The 2022 Russian war against Ukraine has been both a gift and a curse for oil producers in the Persian Gulf. In the short term, the war has created restraint for the development of renewables, contributed to the high oil demand, and in doing so demonstrated the need for more international investment in oil exploration and drilling. High oil prices and the resulting profits enabled the member states of the Gulf Cooperation Council (GCC) to partially offset financial losses from previous years—and also benefitted the economies of these member states. However, the transition to a new model of global energy consumption has not been cancelled—it has only been delayed.

This conflict clearly demonstrated the economic risk of excessive dependence on hydrocarbon-based resources, and as a result the leading GCC countries began to develop clear action plans for speeding up the energy transition. For the Gulf’s traditional oil producers, this is a huge challenge: after the short hiatus forced by the war, the race to switch to renewable energy will restart and force the Gulf states to once again work against time to prepare the oil sector for the “post-oil” era.

In general, most GCC states base their current strategy on an understanding of two contradictory but coexisting trends in the global energy market—trends created by the war in Ukraine. The first relates to national security issues: individual countries may find it necessary to extend their hydrocarbon use. The second and conflicting trend is that some players may accelerate their transition to renewables for the same security considerations and to reduce their dependence on fluctuating hydrocarbon prices.

Economic Development and Political Considerations

If the GCC countries are to reduce their current economic dependence on hydrocarbon exports, they need to diversify on a large scale into renewable energies. Alongside this, there is a need to maximise income from oil exports—something which can be achieved by simultaneously reducing domestic consumption and increasing oil output. However, GCC members will need to avoid increasing the volume of CO2 emissions, as these damage the health of the population and cause environmental damage.

But the political considerations are tied to the rentier social contract model of the states in the GCC. This model is now becoming too costly; budgets are uncertain against a backdrop of fluctuating oil prices. The fourth energy transition—and related processes, such as decarbonisation, digitalisation, and the development of renewable and alternative energy sources—will enable Gulf states to generate additional sources of income to finance government subsidies and social programmes. The development of the renewables sector will additionally contribute to preserving the social contract, provided that  its growth will also lead to the provision of new and high-paying jobs for the citizens in the public sector.

 External Influences

Other countries are placing increasing pressure on GCC states to accelerate their energy transition—and to make the oil they export more environmentally friendly (a marketing requirement formulated by the global push for energy transition). To maintain the competitiveness of their oil in the global market, Gulf producers are forced to take steps to reduce the environmental harm that can be caused by the production and transportation of hydrocarbons. The active spread beyond the United States and the European Union (including in Asian countries, who have been the traditional sales market for the GCC countries) of what some term the “green agenda” further increases the importance of presenting hydrocarbon products as green and minimising the negative impact on the environment.

Moreover, GCC countries will inevitably be pressured by the international community to implement international climate agreements. In 2022, the Arab states took an active part in the COP 27 climate summit in Egypt, and again in 2023, when they held the COP 28 summit in the UAE. The latter was a major milestone: its final document not only summed up what the international community had done within the framework of the Paris Agreement, but also recognised the need to phase out energy derived from fossil fuels. In light of these developments, by early 2024, almost all GCC states had put forward their own net-zero emissions targets.

Circular Carbon Economy

It is important to note that the final COP 28 document calls for a gradual phase-out of the use of oil in energy systems but emphasises that this process should be carried out without prejudice to hydrocarbon producers. This duality fully meets the needs of the Persian Gulf countries. They are ready to provide consumers with hydrocarbons for as long as they are needed—for example, the European Union, which seeks greater independence from Russian supplies—and cooperate with the international community in preparing for a “post-oil” world. Under these circumstances,  most GCC states now speak not only about the need to increase the proportion of energy generated by renewables, but also about the goal of creating a special form of the Gulf’s circular economy that could still be built on the base of the region’s hydrocarbon riches.

Thus, the so-called circular carbon economy concept promoted by Saudi Arabia does not reject the further development of oil and petrochemical industries of the Kingdom but implies the introduction of obligatory compensation measures for emissions through the active use of carbon capture technologies (CCUS). It also argues about the increased role of renewable energy sources in the production and transportation of hydrocarbons. Alongside these plans, the Gulf countries are also developing a strategy to become world-leading hydrogen producers.

Options for Cooperation

In Iran, deteriorating climatic conditions and attendant ecological problems are creating extra incentives for the government to increase its efforts to make the energy transition and restructure its economy. In a sense, the country started investigating ways to develop its own renewable sector long before the idea became popular among its neighbours. Possessing substantial hydro, wind, and solar energy-producing potential, Iran achieved substantial progress in developing these in 2000–2010. Unfortunately, any further progress was substantially slowed and in some areas even prevented by the sanctions placed on the country from 2010 onwards, although by 2022 Iran was still among the top five countries in the Middle East in terms of how much electricity is generated by renewables. Its experience in the renewables development field can still be of interest to other Gulf countries, and Tehran itself can learn a lot from the GCC member states about the use of CCUS technologies and renewables in the production and transportation of hydrocarbons.

The current situation might intensify levels of cooperation among the Gulf countries, and also between these countries and international partners. There is a good incentive to cooperate—between both the Gulf players within OPEC and those on the bilateral track—as the GCC economies and oil sectors will have a lot of challenges in common that they need to prepare for. Meanwhile, the Gulf states need to ensure a stable and long-term demand for Gulf hydrocarbons, which means regional players must invest more in Asian economies and attract Asian investments. Moreover, an important element of the Gulf countries’ economic strategies is now to attract and allocate in-house and international investments in both the traditional and renewable energy sectors.

Alongside other developments, the war in Ukraine has led to a clear intensification of European diplomacy in the Gulf and a revision of some past practices. Traditionally, European concerns about Gulf domestic policies limited the interaction between EU countries and GCC states in the energy field, but many of these concerns have been pushed aside. Instead, the European Union has demonstrated its readiness to help the GCC countries in their own transition to renewable energy sources, making it clear that it expects the Gulf to help the EU move away from its dependence on Russia’s oil and gas and ease the influence of geopolitical factors on oil prices.

 Road Ahead

It is worth noting that the GCC countries do not intend to entirely replace the hydrocarbon sector with renewable energy production or to phase out oil usage or the development of petrochemicals. Instead, the Gulf states see the sustainable energy sector (as well as those industries accompanying the fourth energy transition) as a complement and addition to their hydrocarbon-based economies. The wealth they have accrued through hydrocarbons will allow them to accelerate diversification and make the “old” oil industry look eco-friendly. None of the Gulf states has abandoned plans to develop petrochemical production, seeing in it an opportunity to conveniently and easily diversify GCC economies and as a response to the question of what to do when oil is not in demand as feedstock for fuel production. As oil market analyst Tsvetana Paraskova puts it: “Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil.” This is well understood in the Persian Gulf, and the various crises have shown that fluctuations in demand for hydrocarbons have not always depended on the demand for fuel.

In the medium and long term, adaptation to a new energy order would require Persian Gulf oil producers to restructure their economies and revise their social contracts to withstand a decline in demand and a reduction in prices for oil resources. They would need to rebuild their energy systems for a lower-carbon future while simultaneously ensuring the survival of their oil industries. Moreover, the Gulf states clearly understand the need to adapt to the growth of competition in traditional markets, particularly in Asia, and will need to consider multilateral cooperation to offset some challenges.

Looking into the future, the hydrocarbon production and petrochemical sectors will remain the backbone of the Gulf countries’ economic structure. The main motivations that shape the development plans in the region are twofold: to increase sources of income through diversification, including the development of hydrogen exports; and to ensure the profitability of the traditional oil sector for as long as possible. The likely success factors in this quest will be the reduction of the cost of producing both hydrocarbon-based and sustainable energy, the reduction of harmful emissions from traditional industries, and the maintenance of the necessary level of investment in both the oil sector and the new energy sources. As UAE Minister of Energy and Industry Suhail Mohammed Almazroui succinctly put it, “drop the cost, drop the carbon, maintain the investment.”

Photo: Dubai Protocol Department

The Case for Cooperation on the Energy Transition in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Regional security and economic development among the Gulf states—Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—can improve if cooperation is fostered in the energy, minerals, and water industries, by encouraging joint exploitation of resources, establishing neutral regional zones, and creating energy sources that are interconnected. The positive diplomatic environment of 2023, particularly after the rapprochement between Iran and Saudi Arabia after seven years, holds the key to unlocking a new era of cooperation in the region across the resource mix.

Fostering Renewable Energy Cooperation

The region’s geographic location means it receives some of the highest annual amounts of solar energy in the world—more than 2,100 kilowatt-hours (kWh)—and a wind speed that can reach about 10 meters per second (m/s). These natural clean energy resources could be exploited regionally and also exported beyond the region, benefitting the economy both directly and indirectly and encompassing many sectors of industry, including energy, manufacturing, and information technology.

The Gulf Cooperation Council Interconnection Authority (GCCIA) envisions establishing a robust interconnected power grid. This would leverage the region’s abundant solar and wind resources and further position the are to become a hub for producing and exporting clean energy. As of early 2024, part of the region is already interconnected through this grid—from Oman in the south through the UAE, Saudi Arabia, Qatar, and Bahrain, and then to Kuwait in the north. In addition, Iraq recently signed an agreement with the GCCIA to join the grid. GCCIA has an ambitious plan to extend to Eurasia and East Africa. Iran is also part of this planned grid, as is Turkey. Such interconnection would give domestic power grids more reliability and stability in the face of increasing challenges, such as unexpected electric load rise, as well as blackouts due to natural disasters or equipment failures.

Envisioning a Gas Network

Expanding the gas sector across the Gulf is a potential solution to some of these problems. Doing so would pave the way for a joint gas pipeline network that could facilitate hydrogen transmission—which is key to achieving net zero carbon emissions. Several Gulf countries have either not fully developed their gas production sectors or have insufficient resources. Iraq, Kuwait, and the UAE are net gas importers, and in 2022 imported 50%, 40%, and 20% of their gas demand respectively (see chart below). For example, Iraq imports most of its gas from Iran, and the UAE sources much of its gas from Qatar through the Dolphin pipeline.

Kuwait is the only Gulf country to source a large percentage of its imported gas (46%) from non-Gulf regions, such as Africa, Europe, and North and South America. This sourcing of around 4 billion cubic meters of natural gas annually from faraway countries is deemed to be a lost economic opportunity for Gulf countries, including Iran and Qatar.

Expansion of the gas sector in the Gulf would play a key role in the region’s energy transition. Having a joint pipeline network capable of carrying hydrogen products could also pave the way for the region to become a world hub in the production and export of carbon-neutral (blue and green) hydrogen.

Gulf Minerals Powering the Future

The Gulf region’s mineral wealth, essential for energy transition, has come to the forefront. Recent discoveries of lithium, cobalt, nickel, copper, and other minerals mark a turning point in the global race to secure mineral supply chains. These minerals are essential components of renewable energy technologies and energy storage systems.

Recently, Iran announced the discovery of a huge lithium deposit—an estimated 8.5 million metric tonnes—on its territory. This makes the country the fifth lithium reserve resource holder after Bolivia, Argentina, Chile, and the United States. Moreover, Iran also revealed the discovery of additional vital minerals, among them manganese, nickel, and cobalt.

Saudi Arabia also recently announced the discovery of mineral reserves with an estimated market value of US $64 billion. Among the discovered minerals related to energy transition are copper, iron, and nickel. Oman, too, has announced an ongoing project to update its national geographical and geological minerals database with more discoveries of copper and iron reserves.

The envisioned regional collaboration would include joint investments in developing the infrastructure needed in the region for extraction, preliminary mineral processing, and export logistics. Joint efforts to invest in the management of mineral resources could position the Gulf as a key influencer in the global transition to clean energy. This could be pursued by establishing joint venture companies where investors include the Gulf states’ public and private sectors.

Working together, the Gulf states could pool resources, share costs, and achieve economies of scale. By doing so, the region would be able to collectively manage and mitigate risks associated with volatile commodity prices, environmental challenges, and geopolitical uncertainties. As a result, such collaborative ventures would contribute to political stability in the region. The Gulf countries would have broader access to markets and assert their role as key players in the energy transition agenda.

It is worth noting that Iran’s current economic sanctions may discourage other states from establishing joint ventures. However, these restrictions do not prevent discussion of joint strategies for making the most of the Gulf’s mineral reserves and developing regional value chains.

Developing Shared Fields

The collective strength of Gulf countries lies in their vast natural resources, accounting for approximately 48% and 40%, respectively, of the world’s proven oil and natural gas reserves. Shared oil and gas fields, as illustrated in the table below, are poised for active development, offering potential solutions to regional energy challenges. 

In early 2022, Kuwait signed a memorandum of understanding with Saudi Arabia to develop the joint offshore Arash/Durra gas field in the partitioned neutral zone. However, Iran has objected to the agreement and demanded its share. Most likely the Arash/Durra field will not be exploited in the short term until an agreement is reached on the demarcation of maritime borders between Iran, Kuwait, and Saudi Arabia. However, joint exploitation of Arash/Durra could be achieved without compromising the territorial sovereignty of the three countries; Iran is already jointly exploiting oil and gas fields with neighboring Gulf states, including the South Pars/North Dome gas field with Qatar and the Esfandyar/Lulu oil field with Saudi Arabia. These joint models can provide lessons and open the door for pragmatic and logical negotiations to enable cooperation in exploiting other joint fields, including Arash/Durra.

Establishing a Regional Water Network

A region is labelled as water-scarce when the availability of natural renewable water (waterfalls, rivers, freshwater lakes, and aquifers) is below 1,000 cubic meters per person per year. This definition implies that all Gulf countries except Iran are under the natural water poverty line. Consequently, these countries depend on energy-intensive seawater desalination to meet their potable water demand. The power stations in these countries are mostly cogeneration systems that produce electricity and heat.

Addressing water scarcity is paramount for Gulf countries, especially those heavily reliant on desalination. Despite challenges including geopolitical tensions, a strategic imperative is to establish a regional water interconnection network. With this in mind, GCC leaders decided to carry out a water interconnection study in the year 2000. The proposed network would supply fresh water to all GCC states from desalination plants that would be built on the shores of certain states. Three desalination plants were proposed—to be built in Sohar, Oman; Al-Sila in the UAE; and Al-Khafji in Saudi Arabia. Unfortunately, there has been no tangible action on the project since 2013.

There is an urgent need for increased cooperation in the areas of seawater desalination, water treatment, water resource management, and water transmission across the Gulf region if its future is to be more sustainable. The latter of these in particular is a key survival strategy, and such a water network would make the region resilient to natural and changing environmental conditions challenges. The feasibility of a regional water grid should not therefore purely be based on financial profits—it also needs to consider the grave water scarcity challenges the region is poised to face in the years ahead.

Moving Towards Sustainable Horizons

While it may take time to achieve regional cooperation in energy, water, and environmental sustainability, diplomatic rapprochement between Iran and Saudi Arabia could pave the way for positive outcomes. Policies should focus on establishing interconnected regional infrastructures, including gas and water networks, and implementing a joint financing system to support balanced development across the Gulf region. It is essential to overcome political differences and address challenges through dialogue for these policies to succeed.

As we chart the course toward sustainable horizons in the Gulf, the call for cooperation echoes loudly. Embracing shared objectives, drawing on collective strengths, and navigating challenges with a collaborative spirit will propel the region towards a future defined by sustainability, resilience, and mutual prosperity.

Photo: Shams Power

Rising Electricity Demand Requires New Thinking on Gulf Grids

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The demand for power is rising in the Middle East and North Africa (MENA) region; the 2023 Electricity Market Report by the International Energy Agency (IEA) estimates that this demand will grow at an annual rate of 2 percent in the 2023–25 period. Most of this growth is driven by Iraq, Iran and Gulf Cooperation Council (GCC) countries, notably Saudi Arabia, Oman, and the United Arab Emirates (UAE). For these countries, the same report expects electricity consumption to increase, on average, by 2–3 percent between 2022 and 2025. The main drivers of this are population growth, and specific uses such as cooling and water desalination.

The effects of climate change, such as a higher number days when maximum temperatures exceed 35 degrees Celsius, are driving demand upwards in the region. But measures to boost energy efficiency are also on the rise. A recent IEA study based on temperature projection models shows how these trends are particularly affecting the region. For example, Saudi Arabia has accelerated the roll-out of smart meters in the country while partially reviewing its electricity tariffs to support more rational consumption patterns. If these measures were maintained and widened throughout the region, the growth of demand for electricity would potentially be mitigated. The Emirate of Dubai currently has over two million smart meters installed. Oman also has a national smart meter programme overseen by the Authority of Public Services Regulation, which aims at installing 1.2 million smart meters by 2025, covering all of the country’s electricity consumers.

At the same time, oil and gas remain dominant in the MENA region, with natural gas playing a prominent role. During 2023–25, the IEA expects gas-fired power to generate the most electrical capacity. For instance, in 2024, the same IEA report predicts that two thirds of the 60 gigawatt (GW) capacity being added to the whole Middle East region are expected to come from natural gas, with the rest being split between nuclear and renewables. At the same time, these countries are seeing the effects of renewable energy sources being increasingly deployed, in particular solar photovoltaics (PV).

Between 2023 and 2028, the IEA predicts that the Gulf region is expected to increase its renewable power generation capacity by over 40 GW. This represents almost half of Saudi Arabia’s current power generation and is more than the total power generated by the UAE today. This growth is dominated by utility-scale solar PV. In addition, the report cited that hydrogen also represents around 13 percent of extra renewable power capacity, mainly enabled by government-backed incentives to stimulate hydrogen trade. Other factors supporting the growth of renewables for hydrogen include high levels of solar irradiation, land availability, and port infrastructure.

While this growth remains impressive, it could increase faster. Possible strategies to further accelerate growth might include encouraging more competition between utility providers, introducing domestic tariffs that reflect individual users’ costs, addressing contractual issues with existing fossil fuel providers, and better supporting power storage systems to be flexible.

Cross-border electricity trading can also improve the deployment of renewables. However, international connections in the Gulf today only represent a small proportion of each country’s electricity consumption. The six-member GCC Interconnection Authority, which has the remit to do this, was established in 2001, but as of 2024 has only been able to support 1.2 GW of capacity. The recent linking of Iraq to the network through Kuwait, and ongoing discussions about a Saudi–Iraqi connection, would strengthen the region’s interconnectedness in terms of power generation.

Of course, regional particularities need to be considered, for example consumption patterns related to climatic conditions. Innovative economic models are needed to address the need for system flexibility as a result of changes in peak demand between seasons, and between day and night. While leaders in the GCC are looking into the diversification of power supplies without compromising grid stability—whether through renewables or nuclear—leaders in Iran and Iraq face a growing mismatch between supply and demand.

For instance, in 2021, Iran had to face a 12 GW gap between peak summer demand and supply. Severe droughts limited hydropower in a country that generates 4.6 percent of its electricity from that source. Although there were also other factors at play, both domestic and external, the effects of climate change and limited diversification in the power generation sector cannot be discounted as factors limiting the overall resilience of the current system. Neighbouring Iraq also faced similar challenges, despite the domestic context being different. Nevertheless, both countries are investigating whether renewable power capacity can be developed faster. For example, Iran has set a 2025 target for 10 GW of renewables, while Iraq is looking into linking oil and gas investments with large-scale renewables projects. However, it is worth pointing out that reforms in the electricity market remain a key prerequisite to address the power sector crisis.

There can be no large-scale transformations in electricity markets without adequate reforms. In the Gulf, there remain vast opportunities related to tariffs and subsidies. While investments in renewables in the region have been enabled by the active involvement of governments (where land availability and permissions enable large-scale projects, such as in Oman and the UAE), tariff and subsidy reforms should remain a priority. Otherwise, current and future renewables projects will not be financially viable. Reforms such as these would also allow utility companies in the region to recoup their costs and allow for investments in the grid infrastructure. These investments would pave the way for further renewables to be developed and deployed, such as decentralised solar PV.

The dynamics surrounding power markets in the MENA region require addressing a series of priorities that sometimes come into conflict with each other. Governments are expected to provide secure, reliable, and affordable electricity to all. In a geographical area significantly affected by the effects of climate change, the need to mitigate these impacts is probably more pressing than in any other region. Climate change not only creates new patterns in demand, with a heightened need for cooling and desalination, but it also affects the resilience of the power system itself. Higher temperatures, droughts, higher sea levels, or flash floods can all significantly affect operations on the supply side and reduce output. This is not limited to conventional power generation (oil and gas); nuclear and solar PV units can also be affected.

In this challenging regional context, where priorities are continuously shifting, it remains important that the climate crisis increasingly plays a central role in how regional leaders think about their future energy systems. Climate change has significantly increased the complexity of power markets. It is essential to pay more attention to how systems are planned and designed, and how they must operate in the face of new demands.

Photo: Emirates Nuclear Energy Corporation

Climate Policy and Cross-Border Hydrocarbon Development in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The Gulf countries are leading global producers and exporters of oil and gas. They have long reserves lives at current production levels, well beyond 2050, and substantial potential to increase reserves through field development, enhanced recovery, and exploration. They are intrinsically low-carbon producers measured by upstream emissions per barrel, although this is obscured in Iran and Iraq by high levels of flaring of unused associated gas (a by-product of oil production) and leakage of methane. They have strong involvement of state oil companies in oil and gas production, though this varies from an effective monopoly (Kuwait) to a leading role for international operators (Iraq and Oman).

With the exception of Iraq, they have large domestic petrochemical industries. Saudi Arabia and, increasingly, the UAE, have extensive international investments in refining and petrochemicals across the US, Europe, and Asia. While this is mainly on their own account, Kuwait does have a stake in the important new Duqm refinery in Oman. The region’s oil exporters also make use of the extensive oil storage and bunkering facilities in the UAE and Oman. On the other hand, Qatar is the world’s biggest LNG exporter and has a major expansion programme to be completed during 2026-27, Oman and the UAE are smaller LNG exporters (the UAE also expanding), while Iran is an important supplier of gas by pipeline to Turkey and Iraq.

The role of the Gulf states as oil exporters has limited the potential for cooperation between them. The dominance of the state in the upstream industry means that cross-border hydrocarbon investment is very limited. Mubadala Energy, the energy arm of the Abu Dhabi government strategic development company, has some upstream assets in Qatar and Oman, and utility Taqa has oil operations in the Kurdistan region of Iraq. QatarEnergy recently entered a project in southern Iraq led by TotalEnergies for development of oil, gas, water injection and solar power. Sanctions and political disputes have prevented any GCC investment in Iran’s hydrocarbon sector. There has been some interest, for example, and various plans since the early 2000s for gas and electricity connections, and most recently, discussions between Saudi Arabia, the UAE, and Iran in July 2023 concerning investment and the development of shared fields.

Gas is more promising for cooperation, given that some of the Gulf states are relatively gas-short. The most notable project, Dolphin, exports gas from Qatar by pipeline to the UAE, with small volumes continuing to Oman. Dolphin faced opposition from Saudi Arabia, which argued that the pipeline crossed its own maritime territory. A similar plan to supply Qatari gas to Kuwait was entirely blocked by Saudi Arabia, which did not want the smaller GCC states to be linked beyond its influence. Although LNG exports from Qatar to the UAE stopped during the boycott of Doha between June 2017-January 2021, Dolphin continued operating as normal, a sign of its importance to both countries, and of the promise of energy projects to constrain conflict.

Some oil and gas fields in the Gulf lie across borders. In general, countries have developed them competitively, extracting as much as possible without an agreement with the neighbouring state. The most notable field affected by a boundary dispute is the large gas-field Dorra, known in Iran as Arash, which lies partly in Kuwaiti waters, partly in the Kuwaiti section of the Partitioned Neutral Zone with Saudi Arabia, and partly, in Tehran’s view, in Iranian waters. Kuwait’s shortage of gas leads to heavy domestic use of polluting and expensive oil. An agreement on Dorra, perhaps via a joint development zone without concession of sovereignty, could be a way forward. Such agreements have enabled Saudi Arabia to supply half of the oil from the Abu Safa field to Bahrain as part of a boundary settlement and Qatar and the UAE to divide the resources of the offshore Bunduq oil-field.

The most important cross-boundary field, not just in the Gulf but in the world, is called the North Field in Qatar and South Pars in Iran. It is world’s biggest gas field. The field, which also contains shallower cross-boundary oil resources, has been developed by each side without formal agreement, but there are tacit understandings to avoid one side moving too far ahead of the other on extraction levels. Qatar imposed a moratorium on further development of the North Field in 2005, and lifted it in 2017. Ostensibly this was for technical reasons, more plausibly for gas market management purposes, but it also gave Iran time to catch up to and even exceed relative Qatari production levels. As Iran’s own output from South Pars increased, so eventually Qatar was able to decide to raise production further, without risking tensions with Iran over unfair levels of extraction.

More intra-regional gas trade would enable reducing the use of oil in the power sector. Qatar, Iran (if its gas resources were properly developed), and the Kurdistan Region of Iraq, would be natural gas suppliers by pipeline to neighbours. This would require more regional trust, and transparency to put gas supplies on a reliable commercial basis. Cross-border investment in gas-using sectors such as petrochemicals, multi-country gas networks, and robust arbitration procedures, could create structures that would be more resistant to politically- or commercially-motivated cut-offs. Iran is, for example, a 10 percent shareholder in Azerbaijan’s important Shah Deniz gas field and in the South Caucasus Gas Pipeline from Azerbaijan to Turkey via Georgia, along with BP, Russia’s Lukoil and Turkish and Azeri state entities. But the recent history of Russian gas supplies to Europe, and the interruption of federal Iraqi and Kurdistan region oil exports through Turkey, reveals how even long-standing pipeline deals with strong mutual profitability can be derailed.

As COP28 in Dubai signalled, climate policy will exert ever-greater influence on the oil and gas industry: first through requirements to zero-out its own emissions, second through a longer-term reduction in demand, at least for oil. The Gulf countries present a wide spread of economic and environmental vulnerability, and sophistication of climate policy ranges from the very limited (Iraq) to the relatively advanced (UAE). The Oil and Gas Decarbonisation Charter (OGDC) concluded at COP28 was signed by the national oil companies of Abu Dhabi, Sharjah, Bahrain, Oman, and Saudi Arabia, among others, but not by Iran, Iraq, Kuwait, or Qatar.

With the exception of Qatar, all of the Gulf countries are members either of OPEC or the OPEC+ alliance. OPEC and the OGDC, as well as other structures such as the Oil and Gas Climate Initiative, offer potential to foster cooperation on decarbonisation paths within the petroleum industry, which include ending flaring and methane leakage, improving energy efficiency, electrifying operations, and incorporating renewable and nuclear power, implementing carbon capture and storage, piloting carbon dioxide removal technologies, producing sustainable aviation and maritime fuels, and developing hydrogen and its derivatives.

Specific cooperation would include aligning standards and regulations; sharing technological learnings and best practices; conducting joint studies on regional carbon dioxide storage capacity or satellite monitoring of methane leakage; and possibly some shared infrastructure, though this is more challenging and probably not essential. Joint investments, either within the Gulf countries or in third countries, could include the production of low-carbon hydrogen and sustainable fuels.

This collaboration can also include policy-related and diplomatic endeavours, on areas such as carbon caps, prices or taxes, international carbon trading under the Paris Agreement’s Article 6.4, dealing with the growing use of carbon border tariffs, and appropriate certification and regulation for low-carbon hydrogen.

The global energy market has been evolving rapidly, notably with the rise of Asia as the world’s key importer and consumer of energy and emitter of greenhouse gases, and the evolution of the natural gas business into a truly internationalised market via LNG trade. Most recently, the Russian invasion of Ukraine, the elimination of most of its pipeline gas exports to the EU, and a near-total ban on imports of Russian oil by the EU and other Western countries, have reshaped the global energy market and the patterns of trade in Gulf energy. The increasing US-China tensions, and the moves towards more diversity and robustness in supply chains and greater domestic self-sufficiency in key energy-related materials and technologies, is another emerging and evolving theme.

Greater Gulf cooperation on hydrocarbons, as a part of balanced strategies incorporating climate protection, could manage some of these threats and promote longer-term cooperation solutions to problems facing the region’s critical economic sector.

Photo: Aramco

Solar Power’s Water Problem in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Since the inauguration of the Mohammed Bin Rashid Al Maktoum Solar Park in Dubai in 2013, the Gulf Cooperation Council (GCC) has become home to an increasing number of solar power installations. Emirati leaders have so far invested the most in large utility-scale solar in the region, but their peers in Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain have also begun to set up new solar parks in recent years.

The Arabian Peninsula’s desert landscapes might seem to be perfect for large solar power facilities like those being developed in the GCC states. Vast and largely uninhabited, the Arabian Desert gets plentiful sunshine: it receives around 3400 hours of sunshine per year, compared with averages of around 1600 hours in Germany or 2900 hours in Spain.

But solar power needs much more than desert sunshine to work. Arid landscapes present various infrastructure challenges, including high temperatures that can damage solar arrays and remoteness from established energy transmission lines. And where sunshine is most abundant, water is not.

Indeed, water scarcity is the most important limit on the grand promises of GCC governments to overhaul and decarbonise the region’s energy system. The Arabian Desert is one of the most arid places on earth, typically receiving under 4 inches (100 mm) of rain per year, and already facing near total depletion of its groundwater.

Unfortunately, today’s solar technology requires substantial amounts of water. Celebratory discussions about solar power are often illustrated with photographs of sparkling PV arrays. These solar panels are always pristine, recently cleaned arrays. Unfortunately, such a scene is a rare encounter in the Arabian Desert, where dust and blowing sand is quick to cover the solar panels and mirrors of both PV (photovoltaic) systems and CSP (concentrated solar power) systems.

Aware of desert solar’s dust problem, companies like Arizona’s First Solar and Luxembourg’s SolarCleano have promoted waterless cleaning systems. Yet these technologies are still not advanced enough to employ on a large, industrial scale. Solar technology companies based in the Gulf are also aware of this problem and have tried to engineer their own solutions. For example, Saudi Arabia’s NOMADD has designed its namesake “NO Water ​Mechanical ​Automated Dusting Device” to address the challenge of cleaning of solar panels in the Arabian Peninsula.

While robotic PV-cleaning systems are deployed in some sites today, waterless cleaning technologies are expensive and have failed to scale up beyond small, pilot projects. As a result, the GCC’s small-scale solar installations and the large-scale solar parks continue to use water to clear dust and debris from their panels. Most of that water is desalinated sea water, which is produced with a huge energy cost and substantial CO2 emissions. In this case, then, solar energy produced in the Arabian Peninsula’s desert parks is far from green—it is actually incredibly wasteful.

Renewable energy’s water footprint

The water footprint of solar power extends beyond just cleaning. Water is also used in extracting diverse minerals needed to manufacture PV cells and batteries, such as lithium, cobalt, tellurium, and gallium, as well as in the manufacturing process itself. Mining for the renewable energy sector largely takes place outside of the Arabian Peninsula, but Saudi Arabia’s new investments in mining, described as advancing global efforts to “decarbonize,” will invariably expand this water footprint in the region.

Water is integral to all modern forms of electricity generation, including fossil fuels, and nuclear, alongside renewables. Required water inputs vary by the source, in large part because the infrastructures needed to generate, store, and transmit energy all have different geographies. The solar water footprint contrasts to the water demands for coal, for example, where water is first used to extract coal from the earth, and then in power plant cooling operations like all thermoelectric power systems (coal, natural gas, and nuclear).

Proponents suggest that the water demands of renewables are a significantly lower than those of traditional fossil fuels. This is probably true. But even so, estimates from the IEA (International Energy Agency) use absolute numbers that reflect a limited proportion of renewables in the overall global energy supply mix. These estimates also tend to neglect the physical geography of renewable energy installations siting—like whether a proposed solar park is located in a desert where it is liable to dust problems that increase its water needs.

Overpromising solar to hype hydrogen

Encouraged by partners in Europe and Asia, Gulf fossil fuel producers are increasingly keen to promote hydrogen energy and state-backed efforts to develop hydrogen are now found in the UAE, Saudi Arabia, and Oman. In many cases, these projects are framed as key to transforming the region into future “green” hydrogen hubs. Creating hydrogen energy requires vast amounts of energy and for it to be “green,” this energy must come from renewables.

To date, the amount of renewable energy produced in the Arabian Peninsula is so limited that none of the impressive green hydrogen targets in the Gulf are realistic. Local programs that position the Arabian Peninsula as a new green hydrogen hub overpromise their future solar energy capacity. They overpromise solar both in the present, because the production capacity simply is not there, and also in the future, because the region’s water supplies are insufficient to deliver on local renewable energy promises. Instead, the new Gulf hydrogen programs are on track to locally lock in natural-gas generated hydrogen. Meanwhile, the water limits of solar power’s expansion are a fundamental obstacle to any future for “green” hydrogen in the region.

Just like the solar power parks that they depend on, new hydrogen energy schemes can only represent an improvement on the CO2 footprint of traditional fossil fuel energy sources if the production site decisions take water into account. If any renewable energy project’s water footprint is not carefully evaluated, then the most likely outcome will be that it turns into a big “green wash,” a convoluted mess of energy infrastructure that is built in the name of being green, but does not actually result in any CO2 reductions. And perhaps the most tragic outcome of this green theater would be if it only exacerbates local water shortfalls that then exacerbate the climate crisis, as they are met with yet more carbon-emitting desalinated seawater.

Water and energy futures

Although water is one of the most forgotten elements in today’s discussions about energy systems, the water-energy nexus has come into sharper focus recently and has been integrated in the climate talks under the UAE COP28 presidency’s Water4Climate initiative. Yet, similar to how mainstream climate change discussions are defined globally, water is often just reduced to an issue of “water security” for vulnerable populations. This is, of course, an important issue. But it is almost entirely divorced from the problem of water use and planning in the implementation of high-tech energy infrastructure around the world.

Regardless of whether oil and gas is “phased out” or “phased down,” fossil fuels are on their way out. Yet high-tech energy infrastructure, including renewables, will continue to be prioritised by political and economic leaders in the Arabian Peninsula. The question is where those infrastructures will be located.

Since the Gulf’s energy leaders want to remain central to the post-oil energy system, they are already investing in renewable energy abroad. For example, the UAE’s Masdar has stakes in solar parks, wind farms, and geothermal energy operations all across the world, including in neighbouring Gulf states like Iraq. Likewise, UAE-based AMEA Power was set up several years ago with the express purpose of investing in foreign renewable energy projects – and is growing at breakneck speed. Renewables have also been major targets for foreign investment from Saudi Arabia’s ACWA Power, which has also been the most aggressive actor in setting up hydrogen partnerships with foreign partners in Eurasia and the MENA region, including in Morocco, Uzbekistan, Kazakhstan, China, and beyond.

These future energy partnerships are already fostering regional cooperation and they will continue to do so. However, it is essential that water be at the centre of all considerations about how renewable energy infrastructures are located. In particular, if solar parks are located in places that strain water resources in a partner country—such as with growing water problems from Morocco’s Noor solar plant—then they are likely to provoke local opposition and accusations of “water grabbing” and neocolonialism.

No map can answer the question of how renewable energy landscapes should be ideally configured, because all geography is political. But decision-makers in the GCC, in neighbouring countries like Iraq and Iran, and in countries spearheading climate action, must think critically about where to locate renewable energy infrastructures. To take serious, coordinated action toward scaling renewable energy in a way that actually reduces carbon emissions, water usage must be the primary consideration.

Photo: Canva

When it Comes to Middle East Diplomacy, Chinese and European Interests Align

A version of this article was originally published in French in Le Monde.

In March, China managed to a broker a détente between Iran and Saudi Arabia, achieving a diplomatic breakthrough that had eluded European governments. But Europe and China have shared interests in the region and there is scope for the two powers to work together to foster further multilateral diplomacy.

Europe and China, which both depend on energy exports from the Persian Gulf, have long relied on the US-led security architecture in the region. But the 2019 attacks on oil tankers in the UAE and oil installations in Saudi Arabia, widely attributed to Iran, were a watershed moment. Shifting US interests and President Trump’s erratic reaction to those attacks forced the Chinese and Europeans to take more responsibility for regional security over the last four years.

In 2020, China presented its idea for regional security in the Persian Gulf, arguing that with a multilateral effort, the Persian Gulf region can become “an oasis of security.” In the time since, the agreement between Saudi Arabia and Iran, signed in March, can be considered an outcome of such efforts.

European governments have also sought to back multilateral diplomacy. France was intent on creating a platform for Tehran and Riyadh to engage in dialogue. President Macron helped launch the Baghdad Conference for Cooperation and Partnership that was held in August 2021. The conference was a unique opportunity to gather countries that had not sat around the same table for years. Officials from Iraq, Iran, Kuwait, Qatar, Saudi Arabia, and the UAE, in addition to Egypt, Jordan, Turkey, and France participated. Oman and Bahrain joined the second gathering which took place last December in Amman, Jordan.

The European Union also expressed its support for the Baghdad process. Joseph Borrell said during the Second meeting that “promoting peace and stability in the wider Gulf region…  are key priorities for the EU.” Adding that “we stand ready to engage with all actors in the region in a gradual and inclusive approach.”

The Joint Communication to the European Parliament and the Council on a strategic partnership with the Gulf reflects the EU’s keenness on expanding its engagements with the region, particularly on economic ties. The partnership is focused on the GCC, but it mentions that “involvement of other key Gulf countries in the partnership may also be considered as relations develop and mature”—a reference to Iran and Iraq.

Clearly, China and the European Union have multiple areas of mutual concern in the Persian Gulf region. Ensuring freedom of navigation, the undisrupted flow of oil and gas from the region, and non-proliferation of nuclear weapons are shared priorities. But while China is now a central player in the strategic calculations of all states in the region, the Europeans are being largely left out.

European diplomatic outreach has faltered in the face of new political pressures arising from Iran’s continued nuclear escalations, its involvement in Russia’s war against Ukraine, and its repression of ongoing protests for democratic change.   

The French president was coincidently in China when the Beijing Agreement was signed, and he welcomed the rapprochement between Saudi Arabia and Iran. Given shared interests, European officials must now find ways to engage with Chinese counterparts on fostering greater regional diplomacy in the Persian Gulf. 

There are reports that a regional summit will take place in Beijing later this year, involving all GCC states, Iran and Iraq. This is an important opportunity for multilateral dialogue and cooperation. European governments should consult with regional players and China to secure a seat at the meeting. The EU can help regional countries find ways to jointly tackle basic issues that have impeded economic growth which have resulted in spillover effects such as increased food insecurity and inability to mitigate the rising challenges of climate change.

In parallel, the Baghdad Conference could emerge as an EU-backed platform for economic cooperation in tandem to the now ongoing political and security dialogue process in China. The EU can draw in regional countries to help with reconstruction efforts in Iraq, a country that is in dire need of foreign investment. Given the shuttle diplomacy conducted by Iraqi officials between Iran and Saudi Arabia, and considering the role of France and the EU in the Baghdad conference, it would be apt to explore EU-supported joint economic projects in Iraq, especially those projects that create mutual economic interests between Iran and Saudi Arabia.

Whether in Baghdad, Amman, or Beijing, inclusive regional gatherings are needed to address common economic challenges facing all eight countries surrounding the Persian Gulf. Europe can make significant contributions towards regional dialogue on economic integration by helping to create multilateral platforms, transfer knowhow and technology, and provide financial support. These are areas where China has significantly increased its activities, but European countries enjoy far greater experience in establishing the institutions and infrastructure needed for regional economic development. European officials can leverage this experience to support regional diplomacy. Such efforts would also cement European regional influence at a time when US influence may be waning.

The newly appointed EU Special Representative for Gulf Affairs, Luigi Di Maio, should directly oversee and coordinate initiatives in support of economic diplomacy and integration in the region, finding common ground with China to head off competition. Achieving security through stronger diplomacy and deeper economic ties represents a transformative goal that the region can rally around.

Photo: IRNA

When it Comes to Iran, China is Shifting the Balance

In 2016, during his first trip to the Middle East, Chinese Premier Xi Jinping visited both Riyadh and Tehran, a reflection of China’s effort to balance relations among the regional powers of the Persian Gulf. But Xi’s recent trip to Riyadh, his first visit to the Middle East since the pandemic, suggests that China is no longer aiming to treat Iran and its Arab neighbours as equals.

Following the meetings in Riyadh, China and the GCC issued a joint statement. Four of the eighteen points that comprise the joint statement directly pertain to Iran. In the declaration, China and the GCC countries called on Iran to cooperate with the International Atomic Energy Agency as part of its obligations under the beleaguered Joint Comprehensive Plan of Action (JCPOA). Using strong and direct language, the statement additionally called for a comprehensive dialogue involving regional countries to address Iran’s nuclear programme and Iran’s malign activities in the region. The language used was less neutral than that typically seen in Chinese communiqués and instead took the tone of Saudi and Emirati talking points regarding Iran.

Iranian officials were especially vexed to see that China had effectively endorsed longstanding Emirati claims to three islands: Greater Tunb, Lesser Tunb, and Abu Musa. The islands, located in the Strait of Hormuz, were occupied by the Imperial Iranian Navy in 1971 after the withdrawal of British forces. Ever since, Iran has considered the three islands as part of its territory. The United Arab Emirates (UAE) has made periodic attempts over the last four decades to regain control of the islands, claiming that before the British withdrawal, the territories were administered by the Emirate of Sharjah. While the statement does not go so far as to declare that the islands belong the UAE, China’s call for negotiations over their status inherently undermines Iran’s claims. 

The reaction of Iranian officials and the public has been sharp. The day after the statement was published, Iranian newspapers featured bitter headlines. One newspaper even provocatively questioned China’s claim over Taiwan. Iranian Foreign Minister Hossein Amir-Abdollahian tweeted that the three Persian Gulf islands belong to Iran and demanded respect for Iran’s territorial integrity. Meanwhile, Iran’s Assistant Foreign Minister for Asia and the Pacific met with the Chinese Ambassador to Iran, Chang Hua, to express “strong dissatisfaction” with the outcome of the China-GCC summit.

Amid the polemic generated by the China-GCC statement, the Chinese official news agency Xinhua announced that Vice Premier Hu Chunhua would visit Iran and the UAE next week. If the stopover in Tehran was intended as a Chinese gesture to ease tensions, the move is likely to backfire. While “Little Hu” had been expected to gain a prestigious seat in the Politburo Standing Committee during the recent National Congress of the Chinese Communist Party (CCP), he was instead demoted from the Politburo and is expected to be removed as Vice Premier in March 2023. Considering Xi’s triumphal visit to Riyadh, the optics surrounding Hu’s planned visit to Tehran are especially bad.  

As Xi begins his third term as China’s leader, he appears to be viewing relations with Iran through the prism of liability, rather than opportunity. Despite the fanfare surrounding the beginning of Iran’s long-awaited accession to the China-led Shanghai Cooperation Organisation (SCO) in September, this was a relatively shallow political move. The SCO is an organisation with a limited institutional capacity and substantial internal divisions—Iran’s accession did not herald the opening of a new era in Sino-Iranian relations.

Two issues appear to be hampering China-Iran relations. First, negotiations to restore the JCPOA have failed. With sanctions in place, Iran has struggled to attract Chinese investment and cooperation, especially when compared to Saudi Arabia and the UAE. As I argued in March, economic ties are a pillar of the Comprehensive Strategic Partnership (CSP) that China and Iran have devised, but relaunching economic relations between the two countries requires successful nuclear diplomacy and the lifting of US secondary sanctions. Beijing and Tehran announced the beginning of the CSP implementation phase last January when the nuclear talks appeared likely to succeed. Today, the prospects for implementing the CSP are nill and China-Iran trade is continuing to languish at around $1 billion in total value per month.

Second, Iran’s decision to sell military drones to Russia, thereby becoming actively involved in the war in Ukraine, is proving a significant strategic miscalculation. By actively supporting Russia’s war of aggression, Iran has taken itself out of a large bloc of countries, nominally led by China, that have adopted an ambiguous position towards the conflict. This bloc, which notably includes the GCC countries, is neither aligned with Ukraine and NATO nor openly against Russia and its coalition of hardliner states. In short, Iran’s overt alignment with Russia is at odds with China’s approach.

Meanwhile, the evident strains in US relations with Saudi Arabia and the UAE have created an opening for China to deepen ties with the two regional powers. In some respects, this opening has diminished China’s need to cultivate a deeper partnership with Iran. Ties with Tehran had long been attractive as a means to counterbalance US influence in the region. But Beijing’s success in building deeper relations with Riyadh and Abu Dhabi, two capitals that have long taken their cues from Washington, suggests that China is gaining new means to check US power in the Middle East. 

China-Iran relations have seesawed plenty over the years, but the outcome of Xi’s visit to Saudi Arabia suggests a new and more negative outlook for bilateral ties. While Iran tries in vain to “turn East,” China may be shifting away.

Photo: IRNA

Can 'Unitisation' of Oil and Gas Fields Power Diplomacy in the Persian Gulf?

In March, the Saudi Energy Minister met with his Kuwaiti counterpart to sign an agreement for the joint development of a shared offshore gas field. The Dorra field lies about 50 miles off the coast at the border between Saudi Arabia and Kuwait and is around the same distance from Iran’s southwestern shores. The field could produce 1 billion cubic feet of natural gas and 84,000 barrels of condensate per day.

Shortly after the Saudi-Kuwaiti declaration, Iran’s Foreign Ministry swiftly expressed its dismay and said that any step for the joint development of the field—called the “Arash” field in Iran—must be carried out in cooperation between the three countries. In a surprising response, Saudi Arabia and Kuwait invited Iran to hold negotiations to determine the eastern limit of the joint, energy-rich, offshore area. While the proposed talks have yet to take place, the Dorra-Arash field is a clear example of how an area of contestation has the potential to be turned into an area for cooperation, if the political and security environment of the region allows.  

As key regional players move towards de-escalation and dialogue, evidenced by the end of the intra-GCC conflicts as well as Saudi Arabia and the United Arab Emirates’ diplomatic engagements with Iran, it is worth considering potential for regional energy diplomacy. The shared oil and gas fields in the Persian Gulf and Gulf of Oman are largely untapped areas for bilateral and multilateral cooperation. Iran and Qatar share the largest gas reserve in the world and Iran shares a further two-dozen oil and gas fields in the Persian Gulf with the Gulf Cooperation Council (GCC) countries and Iraq. There are also numerous fields shared among the GCC states and Iraq. To move the energy produced by these fields, regional countries have long mulled pipelines projects, such as one between Iran and Oman, as well as talks for the re-exportation of Iranian gas as Liquified Natural Gas (LNG) by Qatar and Oman.  

But most of the shared fields amongst the Persian Gulf states are either inactive or are disputed. In the absence of cooperation agreements, countries have mainly opted to develop and extract the reserves on their own. Disputes over median lines, extraction rights, and varying concessions have often led to tensions between regional states.

Iran has disputed Kuwait and Saudi Arabia’s claims on the Dorra-Arash field since it was discovered in the 1960s. At the time, maritime boundaries in the Persian Gulf were poorly defined and bordering countries did not pay much attention to them. This was also the case for the South Pars-North Dome field—the shared gas field between Iran and Qatar—as the median line between the two countries had been negotiated before the gas field’s discovery in 1971. When Iran and Qatar determined their boundaries two years prior, the predominant factor underlying the delimitation was equidistance.  

Because of the fact that the boundaries continue to be poorly defined, Kuwait, Saudi Arabia, and Iran have each asserted their sovereignty on the Dorra-Arash field by awarding overlapping concessions throughout the past five decades. By the year 2000, Saudi Arabia and Kuwait had reached an agreement on the corresponding offshore zones where their concessions could be awarded. In retaliation for its exclusion in the negotiations, Iran deployed drilling equipment to the field the following year. A cycle of actions and retaliations that have largely continued to date, rendering the field underdeveloped on the Saudi, Kuwaiti, and Iranian sides altogether.

The output from the Dorra-Arash field will have an “inconsequential” impact on today’s global gas and LNG markets in the wake of the Russian invasion of Ukraine and rising global demands, as Wayne Ackerman argues. This is primarily because the three countries will need to use the outputs to satisfy their own domestic energy demands. But inconsequential as it might be, the output from the field is significant in both adding to the global gas reserves and establishing an area for inclusive multilateral cooperation in the region.

Economic diplomacy, if enacted through joint projects such as the development of the Dorra-Arash gas field,  could give new impetus to relations between Iran and GCC countries. The establishment of a long-term cooperation project to jointly develop the Dorra-Arash field would provide a way to measure the state of regional economic diplomacy in the region and provide Iran and its GCC neighbours to show good faith. Another possible area for cooperation is in the Salman field shared between Iran and the UAE. So far, Iran and Iraq appear the closest to putting join development plans into action. Following years of negotiations, they recently decided to form joint technical groups to develop energy ties and shared fields. 

In this context, the European, and Asian, countries and companies could step in to promote confidence-building measures between the Persian Gulf countries by proposing multilateral projects with their participation. External players, particularly those who have the capacity to mediate and work with both Iran and the GCC states, could assist the regional countries in defining their boundaries using international law, proposing win-win multilateral projects, and investing in the development of the fields.

The GCC states and Iran have largely overlooked the benefits of “unitisation,” the joint development of an oil or gas field extending across two or more territories. Unitisation would allow the GCC states and Iran, as well as external players such as European or Asian companies, to jointly develop shared fields and benefit from cost-effective solutions for extraction, processing, and export. Regional leaders should leverage energy cooperation to creating the shared incentives necessary to make regional diplomacy more durable.

Photo: Shana.ir

GCC States Bet on Nuclear Deal as They Seek Better Relations with Iran

Iranian foreign policy has been in high-gear over the last week. As Iranian negotiators made their way back to Iran’s capital from the seventh round of nuclear talks in Vienna, the UAE’s top national security adviser Sheikh Tahnoon bin Zayed Al Nahyan arrived in Tehran. Al Nahyan’s visit is the latest example of the significant shift underway in the foreign policies of Iran’s Arab neighbours, including in their views of the Iran nuclear deal.

In a recent joint statement, the US and GCC declared that the restoration of the Joint Comprehensive Plan of Action (JPCOA) would “pave the way for inclusive diplomatic efforts to address all issues that are necessary to ensure sustainable safety, security, and prosperity in the region.” The GCC was far from unified in its support for the nuclear deal when negotiations were first underway between 2013-2015. Oman was instrumental in facilitating backchannel talks between Iran and the United States. Qatar and Kuwait were vocal supporters of the diplomatic process once it became public. But Saudi Arabia, Bahrain, and the UAE, maintained a cautious position on the nuclear deal and criticised the negotiations for failing to address Iran’s missile program and regional activities. Behind these criticisms was a more fundamental fear that a rapprochement between Iran and the United States would alter Washington’s relationships with its traditional partners as they had not been extensively consulted in the lead-up to the negotiations. The JCPOA appeared poised to tip the regional balance of power in Iran’s favour.

Nevertheless, all six GCC states officially welcomed and endorsed the JCPOA following the Camp David Summit hosted by President Obama in May 2015. The joint statement issued by the US and GCC after the summit highlighted security cooperation and security assurances with a particular focus on “countering Iran’s destabilising activities.” Still, the GCC member states “affirmed their strong support for the efforts of the P5+1 to reach a deal with Iran,” noting that “such a deal would represent a significant contribution to regional security.” In addition, they “reaffirmed their willingness to develop normalised relations with Iran should it cease its destabilising activities.”

President Obama aspired for dialogue between the GCC states and Iran, and stated that the “purpose of security cooperation is not to perpetuate any long-term confrontation with Iran or even to marginalise Iran.” He also suggested that Saudi Arabia should “share” the region with Iran. This encouragement, however, led nowhere.

Saudi Arabia, in particular, attempted to hamper the implementation of the JCPOA. Just days before the official implementation day of the agreement on January 16, 2016, Saudi Arabia executed a prominent Shi’a cleric which resulted in protests in front of the Saudi diplomatic missions in Tehran and Mashhad. In response to the ransacking of the embassy by protestors, Saudi Arabia cut off all diplomatic and commercial ties with Tehran and pushed other countries in the region to follow suit. The tensions continued to rise and any hopes for regional dialogue faded with the end of the Obama presidency. Divisions amongst the GCC states toward Iran and the JCPOA deepened when President Trump took office.

While Oman, Qatar, and Kuwait attempted to facilitate or mediate talks between Tehran and Washington in an attempt to stave a deeper regional crisis, the UAE, Saudi Arabia, and Bahrain supported the Trump administration’s “maximum pressure” campaign against Iran, launched following the US withdrawal from the JCPOA. Over the next few years, rising tensions between Iran and the US increased the risk of conflict in the region.

Key flash points included a series of attacks on tankers in the Persian Gulf, including off the coast of Fujairah in May 2019. Later, in September of that year, there was an attack on Saudi Arabia’s most important oil processing facilities in Abqaiq and Khurais. These attacks were attributed to Iran and its proxies. But there was no clear US response to these attacks and the UAE and Saudi Arabia realised that they can no longer solely rely on an American security guarantee. Trump’s escalatory Iran policy had become a liability.

The election of Joe Biden created a new political reality for the Middle East. During his campaign, Biden made clear that his administration would seek a return to mutual compliance with the JCPOA. He also called Saudi Arabia a “pariah” state, indicating that Saudi influence would be diminished in Washington. Biden also committed to reducing the US footprint in the Middle East.

Responding to these shifts, Saudi Arabia and the UAE have pursued a de-escalatory approach in their foreign policy. They ended the more than three-year long blockade on Qatar at the Al Ula Summit, participated in the Baghdad Conference for Cooperation and Partnership, and increased their back-channel talks with Tehran. These bilateral and multilateral diplomatic developments were unimaginable just a few years ago.

The UAE has been most adamant about repairing diplomatic ties with Iran. Al Nahyan’s visit follows a steady tempo of exchanges over the last two years. In November, Iran’s new deputy foreign minister, Ali Bagheri Kani, travelled to Abu Dhabi to meet his Emirati counterparts—they agreed to open a new chapter in bilateral relations. A few days later, the Iranian and Emirati foreign ministers had a phone conversation where expansion of bilateral ties was stressed.

Saudi Arabia and Iran have held several rounds of talks in Baghdad that included key officials from both countries. Progress has been limited, but if continued, these talks could yield some much-needed results. A small goal would be the resumption of formal diplomatic ties. A bigger goal would be an end to the war in Yemen.

But the diplomacy now underway can have more than just political dividends. During meetings held in Riyadh in mid-November, the political directors of the E3 and the US Special Envoy for Iran welcomed their “regional partners’ efforts to deescalate tensions and promote dialogue in the region” and “underlined that enhanced regional dialogue and a return to mutual compliance with the JCPOA would… allow for more regional partnerships and economic exchange.” The potential for economic exchange was reiterated in a subsequent statement, in which the GCC officials discussed their efforts “to build effective diplomatic channels with Iran,” and affirmed that “deeper economic ties after the lifting of US sanctions under the JCPOA are in the mutual interest of the region.” Last month, Rob Malley, Biden’s Iran envoy, also talked about the notable interest in economic engagement with Iran that had come through in his discussions with GCC officials. Moreover, given that the attacks stemming from Iran’s response to “maximum pressure” focused on economic infrastructure, the linkages between security and economics dividends are clear.

The GCC states’ acknowledgement they can benefit from JCPOA-related sanctions relief suggests that regional diplomacy has reinforced trust in the nuclear talks. The nuclear deal has an important role to play in the emerging framework for regional diplomacy. That bodes well for the deal’s future if it is successfully restored.

Photo: IRNA

Attendance in Baghdad Shows Iran's Commitment to Regional Diplomacy

The Baghdad Conference for Cooperation and Partnership, which took place on Saturday, was intended to boost Iraq’s regional profile, gather political and economic support for the country and, most importantly, provide a unique venue for diplomatic engagement between Iraq and its neighbours—Iran, the United Arab Emirates, Qatar, Saudi Arabia, Kuwait, Turkey, Jordan, and Egypt.

The decade since the Arab Spring has been marked by rising tensions in the Middle East. The Baghdad Conference offered a hopeful message that regional actors could move beyond tensions and violence. While it was the first time in recent years that officials from Iran and its Arab neighbours had met in such a multilateral format, the conference was not solely intended to foster reconciliation between Tehran and Arab capitals. Numerous intra-Arab conflicts had threatened regional security and the conference presented an opportunity to begin the mending of those fractured relations.

Such a gathering would have been impossible to imagine even just a few months ago. With the help and support of French president Emmanuel Macron, approval from the Biden administration, and the buy-in of all participating states, Iraq successfully managed to play the role of regional mediator.

Since beginning his term in May 2020, Iraqi Prime Minister Mustafa Al-Kadhimi has made it a priority to facilitate greater regional diplomacy. But the conditions were not right until Donald Trump’s departure from the White House, the end of the GCC rift following the Al Ula Summit, and the commencement of back-channel talks between Iranian security officials and both Saudi and Emirati counterparts. Moreover, the impact of the COVID-19 pandemic, which underlined the interconnectedness of the region and the importance of coordinated economic and public health interventions, made Khadimi’s call for dialogue more convincing.

While the summit itself may have comprised more of symbolism than of substance, the mere presence of officials from the nine countries in the same venue and the numerous bilateral talks that took place on the sidelines provided a foundation for further regional diplomacy.

Last December, I suggested that 2021 could be the year that Iran and the GCC states enter into a robust dialogue. In recent years, Iranian leaders have increasingly focused on regional dialogue, reacting to an overall deterioration in regional security and the increased risk of escalation. In 2019, the Rouhani administration proposed the Hormuz Peace Endeavor (HOPE), a plan of action for regional diplomacy on issues including energy security, arms control, and nuclear non-proliferation. A summit was envisioned as one of the initial components of the plan.

The HOPE plan was not taken seriously by many Arab officials nor analytics, who remained sceptical that the plan put forward by the Rouhani administration had backing from the Iranian deep state, which had taken an interventionist line in the region in recent years. But today, the participation of the Raisi administration in the Baghdad Conference provides evidence that the importance of regional diplomacy is understood even among Iran’s so-called hardliners.

Iran’s new foreign minister, Hossein Amir-Abdollahian, made clear that regional diplomacy would be a cornerstone of the Raisi administration’s foreign policy. Of course, there are competing visions of what such diplomacy should entail. Amir-Abdollahian was unhappy about Syria’s exclusion from the Baghdad Conference, and it is precisely for that reason that his next trip after Baghdad was to Damascus. That the conference took place, however, should encourage Iranian leaders to put grudges aside.  Extended hands will encourage Iran to unclench its fists.

Photo: IRNA

Why Qatar Wants to Facilitate a US-Iran Breakthrough

On February 15, Mohammed bin Abdulrahman Al Thani, the foreign minister of Qatar, travelled to Tehran in the latest instance of Doha's efforts to act as a facilitator for the resolution of international conflicts.

Al Thani delivered a letter from the Emir of Qatar to Iran's President, Hassan Rouhani. Beyond matters related to bilateral issues, the contents of the letter likely included Qatar’s offer to facilitate dialogue between Iran and the United States on issues related to the Joint Comprehensive Plan of Action (JCPOA).

This trip was not the first time Qatar has attempted to play a role in resolving the conflict between Tehran and Washington. Just over a year ago, a day after the assassination of Iranian military commander Qassem Soleimani, the Qatari foreign minister made an unannounced trip to Tehran to deescalate tensions. Shortly afterward, Emir Tamim bin Hamad Al Thani's made his first official visit to Iran.

Qatar's diplomatic efforts surrounding the conflict between Iran and the United States cannot be characterized as mediation. After all, Qatar does not have direct involvement in the negotiations between Tehran and Washington, nor is it overseeing any meetings or presenting any initiatives. But the less significant role of facilitator is nonetheless important.

Until recently, Oman and, to a lesser extent, Kuwait took on the role of facilitators in the Middle East, be it in between Iran and the United States, or Iran and Saudi Arabia, or between Yemeni factions. Qatar is trying to take a further step in this regard and act as a facilitator for a wide range of international conflicts. The Qatari Foreign Ministry touts that the emirate “hosts negotiations between conflicting parties and contributes as a facilitator of dialogue between them." Examples of diplomatic achievements include "an important role in reaching Doha Peace Agreement in Darfur, releasing of Djiboutian prisoners of war in Eritrea, releasing hostages in Syria, [and] ending the presidential vacuum in Lebanon." Moreover, Qatar is involved in the Palestinian-Israeli conflict through a humanitarian capacity, it is hosting the most recent intra-Afghan talks, and attempted to facilitate the resolution of the issue between Iran and South Korea over the oil tanker in the Persian Gulf just recently. 

The focus on the US-Iran tensions reflects not just the significant security issues these tensions pose for the Persian Gulf region, but also the appreciation of Qatar’s leadership for Iranian assistance during the blockade imposed by fellow members of the GCC. The recent détente between Qatar and the other GCC states marked by the Al Ula Summit are unlikely to negatively impact the deeper relations built with Iran over the past years. This is despite the fact that curbing diplomatic and economic ties with Iran was one of the conditions set when the blockade was first imposed. Qatar did not comply with these demands.  

In contrast, the blockade propelled Qatar's post-conflict regional approach to enhance its relations with Iran. While Qatar had recalled its ambassador from Tehran in solidarity with Saudi Arabia following the January 2016 incidents at Saudi diplomatic facilities in Iran, Doha restored its diplomatic representation in Tehran by reinstating its ambassador soon after the blockade was imposed. Furthermore, to guarantee the food security of its population, to ensure an air-route for its leading international airline, and to secure regional diplomatic support, Qatar continued to deepen its relations with Iran. 

Iran and Qatar share the largest gas reserves in the world—a unique feature in the bilateral relationship between the two countries that has provided a basis for constructive relations. Along with expressing a desire to bring Iran and the United States back to the negotiating table, Qatar has repeatedly called for an inclusive GCC-wide dialogue with Iran. Statements from Qatar's Emir, foreign minister, and defence minister have described Iran as "our neighbor" and "part of [the region’s] fabric" and noted that Iran’s stability is "[Qatar’s] stability." 

In an interview a day before Joe Biden's inauguration, Foreign Minister Al Thani stated that he hopes that Iran and the United States "will reach a solution with what has happened with the JCPOA" and that Qatar will welcome the invitation if it is asked by the stakeholders to play a role. Additionally, according to Al Thani, resolving the issues around the JCPOA "will help relations between the GCC and Iran" as everything is "interconnected at the end of the day." He has further argued that "the time should come when the GCC will sit on the table with Iran and reach a common understanding between the countries that we have to live with each other, we cannot change geography." 

The Emir of Qatar was among the first world leaders to welcome the JCPOA, calling it "a positive and important step" in his address during the 2015 United Nations General Assembly, not long after the deal was struck. Since then, Doha has been vocally supportive of the agreement—it even tried to persuade the Trump Administration to stick with the deal.

The diplomatic outreach has picked-up since the election of Joe Biden. The Qatari foreign minister has been in contact with the U.S. National Security Adviser, Jake Sullivan, and the Special Representative for Iran, Robert Malley. It can be expected that he will speak to Secretary Anthony Blinken in the coming days as well. Iran is likely to be high on the agenda for this call.

In the end, the European parties to the nuclear deal—France, Germany, and the United Kingdom—are best positioned to formally mediate between the US and Iran in any period before direct talks. However, Qatar’s diplomacy may help facilitate this subsequent stage of mediation, in a role similar to that played by Sultan Qaboos of Oman in 2013. 

While in Tehran, Al Thani made clear his hopes for renewed diplomacy, stating, "We hope that with the return of the US to the nuclear deal as soon as possible, challenges and sanctions can be alleviated within the framework of the deal and Qatar will not spare any efforts to make that happen." Doha is certainly eager to notch another diplomatic success.

Photo: IRNA

Arab Business in Iran: Looking Beyond Regional Rivalry

With high disposable incomes furnished through oil rents, the GCC economies are geared towards the consumer. Famed for massive malls, expensive cars, luxury housing, and entertainments galore, perhaps no other group of countries around the world are as defined by such conspicuous consumption. To underscore the point, a recent report by Global Footprint Network, an environmental protection institute, suggests that if every person in the world consumed resources at the same level as Emiratis, we would need 5.4 planet earths to sustain humanity.

Created to answer this insatiable demand, the GCC region's most successful conglomerates are not in manufacturing or industry, but in consumer-focused sectors like food service, real estate, hospitality and leisure, luxury retail, and FMCG.

Given that Iran has a large consumer driven economy, with a middle class that will benefit from post-sanctions economic growth, GCC companies are actually very well positioned to transfer their knowhow to the Iranian marketplace. A recent study of which companies would most quickly benefit from an Iran deal was “loaded” with GCC companies, particularly those based in Dubai.

This fact complicates the political economy of regional relations in the Perisan Gulf region. Most analysis focuses on the increasing rivalry between Iran and the Gulf states, especially Saudi Arabia. However, the prospects for business tell another story, in which trade and investment can aid the development of a regional geopolitics based on mutual gain rather than mutual antagonism.

To illustrate this point, below are 5 leading companies from the GCC, which could make it big in Iran due to their consumer driven businesses.

It remains to be seen if opportunities in Iran will be enough to outweigh the rivalry in regional politics. But it wouldn't be the first time that commerce has overcome conflict.

• Majid Al Futtaim Group, Dubai, UAE- Retail Development

Revenue: USD $6.8 billion 

A holding company specializing in large-scale retail and hospitality projects, MAF Group owns some of the iconic malls and hotels in the Middle East. While we might imagine an MAF backed five-star mall development in Iran one day, it is MAF’s longstanding role as the regional partner for French hypermarket chain Carrefour that has won them early success in Iran. With the first store opening in 2009, a subsequent $400 million dollar investment has seen hypermarkets open in Tehran, Shiraz, and Esfahan. The company boasts of plans to open 15 more locations, and aims to dominate the sector with a mix of hypermarkets and smaller supermarkets.

• Aujan Group Holding, Dubai, UAE- FMCG

Revenue: USD $200 million (Iran entities only)

Continuing the FMCG theme, another Arab success story in Iran can be seen in the experience of Aujan Holding Group, the regional partners for The Coca-Cola Company, which purchased 50% of the Aujan Industries subsidiary in 2011 for nearly USD $1 billion. A separate Iran-registered joint stock company, Aujan Industries Iranian Company, is the manufacturer and distributor of Rani and Coca-Cola beverages in Iran.  Importantly, Coca-Cola’s tie-up with Aujan excluded the Iranian business. This leaves the door open to future capitalization and expansion, as Iran exhibits the second largest absolute value growth in MENA region soft drinks in the next few years.

• Olayan Group, Saudi Arabia- FMCG and Food Service

Revenue: Undisclosed

A diversified Saudi conglomerate, Olayan has operations in everything from business services to construction. But it is the group’s holdings in fast-moving consumer goods (FMCG) and food service that position it for an Iran market entry. In the area of consumer goods, Olayan has longstanding relationships with global giants such as Mondelez International, Nabisco, Kimberly Clark, and Colgate-Palmolive. These US-based multinationals have limited exposure to Iran’s market, and Olayan’s local supply chain could be adapted to ensure distribution to Iran. But perhaps more uniquely, Olayan is the regional franchisee of Burger King. The first firms to rollout globally recognized fast food and fast-causal chains in Iran will tap into a massive unmet demand, and Olayan is a company with the muscle to do so.

• RAK Ceramics, Ras al Kamiah, UAE- Ceramics

Revenue: USD $1 billion

It is a little known fact that the largest ceramics manufacturer in the world is located in one of the lesser-known Emirates. RAK Ceramics produces everything from toilet bowls to tableware in over 8000 designs. RAK Ceramics has a presence in Iran, but tough economic conditions and supply chain issues have depressed profits this year. The company has begun scaling back its Iran operation. RAK Ceramics boomed on the back of procurement in the GGC, as large-scale residential and hospitality developments mushroomed. In this way, the supplier’s success is connected to consumer demand. Similar construction volumes could be expected across Iran’s multiple metropolises in a post-sanctions environment. As a global leader, RAK Ceramics is certainly poised to benefit as this massive market on its doorstep becomes easier to engage.

• Damac, Dubai, UAE- Real Estate Development

Revenue: $556 million (Damac Properties only)

With over 100 buildings either complete or nearing completion, Damac has emerged as a leader in Dubai’s crowded real estate development market. Until now, groups like Damac have seen Iran as a source of high network individuals, eager to establish a residence in Dubai. But looking forward, economic growth and freer financing will make Iran the next big real estate story in the Middle East. As a private entity, Damac is likely to be less entangled in the political battles between Abu Dhabi and Dubai on the issue of engaging Iran. This differentiates it from Emaar, with its legacy as a formerly 100% government owned entity. Investors are taking note. The listed entity Damac Properties Dubai saw its stock rise over 8% immediately following the conclusion of the April JPOA framework agreement between Iran and the P5+1 powers. 

Photo Credit: Koroush Complex