Many of the far-reaching financial and economic reforms undertaken by the Gulf states are yet to be fully comprehended. These reforms, of course, came about against the backdrop of the sharp decline in oil prices — but the fact is they would be needed even if oil prices had remained high.

This is related to the fundamental changes in the global energy balance and the emergence of other factors that have led to radical changes in the structure of the energy balance, such as the unprecedented development in alternative energy sources and the substantial rise in shale-driven opportunities.

Since the end of the Second World War and until the end of the past decade, the Gulf occupied an exceptional position as an energy provider. But after the production of shale and Europe’s reliance on Russian gas, that status has declined.

This change, data suggests, will intensify in the coming years, causing a further imbalance. Total investment in renewable energy recorded $286 billion (Dh1 trillion) in 2015. Hence, most of the power generation by 2027 is expected to be sourced from renewable energy and exceeding those of gas. Renewable energy should also replace coal by 2037.

According to the International Energy Agency (IEA), solar energy production is going to grow from 3 per cent (in 2014) to 18 per cent of the world’s total production capacity by 2022. Therefore, the main challenge facing oil-dependent countries now is how to deal with, understand and harness these sweeping changes to serve their development polices. In other words, what is to be done?

Suitable measures

First, we have to recognise that the age of cheap energy locally and uneconomic subsidies is over. It has become necessary to use more suitable economic measures that can cope with rapid changes to create alternative income sources by developing non-oil sectors and applying effective tax policies as well as scraping subsidies, with a possible exception for low-income households.

This requires a change in the oil-reliant economic structure — as referred to by His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Abu Dhabi Crown Prince and Deputy Supreme Commander of the UAE Armed Forces, when he highlighted preparations to export the last drop of oil.

Second, Arab countries need to invest heavily in the production of alternative energy. Only three countries are moving in the right direction: the UAE, Saudi Arabia and Morocco. The UAE, for example, is expected to produce 30 per cent of electricity from solar energy by 2030.

Third, hydrocarbon energy sources should be increasingly used in the production of petrochemicals whose demand is growing, especially with the GCC states becoming a global hub for such vital products over the past three decades.

It is true that energy sector’s rapid changes has surprised some oil producing countries, but the rapid measures taken in response have curbed their negative impacts on economic conditions.

Sharp declines

Interestingly, GCC countries have managed to increase their non-oil revenues, cut budget deficits and cope better with sharp declines in oil revenues.

Therefore, sticking to the economic reforms and an inclusive future vision is the right thing to do as the matter here is not related to rising energy prices or cancelling some allowances granted earlier. It is to serve the higher interests and mobilise everyone’s to build a sustainable and growing economy without depending on a single source of income.

If that were to happen, it would be a response to the global energy changes and a guarantee of a decent and stable life for society.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.