Impact of Middle East economies and the new alternative sources of energy?

Impact of Middle East economies and the new alternative sources of energy?

Across the world, population growth has driven the demand for services, which in turn led to more demand for energy. Unlike other regions, the Middle East and the Gulf region are some of the most affected areas. The region’s population growth and economic development have accelerated the demand for energy. Thus, the government is increasingly looking for alternative sources of energy. Investment in renewable energy is one of the critical areas Middle East governments have put much emphasis on. However, renewable energy is, by contrast, is a new phenomenon in the energy landscape in the Middle East. Limited environmental pollution, increased quality of life conservation of scarce natural resources, job creation, and economic growth are some of the foreseen benefits associated with new alternative sources of renewable energy (El-Katiri, 2014).  However, government subsidies on energy continue to elicit mixed economic outcomes in the region. There significant economic potential for renewable energy in the Gulf region; however, the economic growth from these alternative energy sources is likely to be hampered by policy approaches.

The changing energy landscape across the Middle East has come with new development, including actors, institutions, and policies undergirding it. For a long time, the Middle East heavily relied on oil and gas production. Renewable energy is relatively one of the new and development undertakings within the region. Most Middle East government and the gulf regions are the leading investors in clean, renewable energy. Some of these new technologies, such as solar and wind, are strategies to reduce the overreliance of fossil fuels (Bressand et al., 2007). However, the lack of a comprehensive policy approach will hold back these nations from experiencing the benefits of using alternative energy sources.

For a long time, the energy sector has been instrumental in propelling the Middle East economy.  Apart from meeting the energy needs and social developments, export revenue generated from these natural resources such as oil and gas has improved the regional economy (Nematollahi et al., 2016). For decades, the Middle East has heavily relied on oil and gas to fulfill its domestic energy demands. Even though natural resources of oil and gas satisfy the local energy demand, the widespread use of fossil fuels has caused environmental degradation.

The increasing population in the region, combined with rapid industrial development, causes constant constraints in natural resources in this region (Nematollahi et al., 2016). Recent years have seen the need to use alternative energy sources. Global warming resulting from human activities has necessitated changes in energy usage. Many countries in the Gulf region have taken drastic measures to adopt alternative strategies to produce clean energy to meet the ever-increasing energy demand on a large scale (ABB, 2014). Significant investment in alternative energy sources projects in the Middle East is the best approach to transform the economy of this region and also cater to the energy demands of the population in the region. However, the governments’ experience in managing new infrastructure development related to renewable energy sources is what will influence the economic growth of this region.

In the past years, the Middle East countries, including the UAE, Qatar, and Saudi Arabia, have heavily invested in the project to improve alternative energy sources. One of the notable examples is the Abu Dhabi energy project in Masdar city, sustainable energy technologies. The city has dramatically transformed into clean technology as part of urban development, making it one of the countries with the lowest carbon economy (Bressand et al., 2007). One of the biggest oil producers in Saudi Arabia invested in clean solar energy technology, making energy available across the country.  Additionally, the UAE has channelled most of its oil revenues into alternative energy, spending more than $ 160 billion on renewable energy projects (Bressand et al., 2007). However, one of the limitations affecting the economy of the Middle East is the regulatory obstacles, which often limits innovation in sustainable energy generation.

Middle East economies are yet gain from alternative energy sources projects, despite the common assumption that the transition to renewable energy would be economically beneficial. The fact that alternative energy sources limit the pressure of utilizing natural resources of oil and gas, switching to alternative energy sources, can build a stable and diversified economic energy system(Bressand et al., 2007).  These can only be possible if governments in the Middle East do not put strict measures. Regional governments in the Gulf region continue to impose a strict rules to control energy prices. Some of the economic decisions majorly influenced by political ambitions (Amuzegar, 2012). Thus, the main objectives of energy policies include enhancing household income and encourage economic development, which provides for ensuring better domestic consumption of energy. However, strict energy policies will not improve the economies of this region.

Controlling energy prices in the Middle East will affect economic growth in the region (El-Katiri & Fattouh, 2017). There is one of these economic strategies used to not only to promote the sector but also to encourage diversification and ensure equal distribution of the state benefits to its citizens (El-Katiri & Fattouh, 2017). The Middle East region, for a long time, relied on energy price subsidies. These is a strategy that acts as a social safety net and also a plan to achieve economic goals. However, one of the drawbacks of this policy has been unintended consequences, especially when handling alternative energy sources projects. Energy subsidies used on renewable energy might become a fiscal burden due to its aggressive nature resulting unsustainable economy.  The Middle East is likely to experience an inefficient economy due to high budgetary cost.

Controlling renewable energy projects such as solar energy can be challenging. For instance, solar power requires significant portions of and their successes majorly depend on weather conditions (Boersma & Griffiths, 2016). These are different from how governments have traditionally managed other natural resources. For decades Middle East government has relied on low energy domestic prices to sustain its economy. However, alternative sources of energy technology are complex. Thus old policies cannot be effective.

To adjust to fit the modern trends, Middle East governments need relevant policy reforms, not policies that only address political goals. However, the complexity of these reforms has to increase been scrutinized by experts, especially the recent unrests witnessed in the Arab nations. The fall of oil prices in 2014, combined with unintended events such as the Arab uprising, has put the government under pressure to enact subsidy reforms to maintain political stability without any consideration for the economic outcomes (Boersma & Griffiths, 2016). This decision is likely to put government finances into massive pressure, which will eventually affect the fiscal sustainability of the economy.

Despite the perceived benefits of renewable energy in the Gulf region, energy subsidies reforms have created distorted economic incentives. They are likely to plague the economies of many Middle East countries (Boersma & Griffiths, 2016). The measurement of subsidies has added more complexity in policy design since the full cost of these subsidies are never reflected in the budget (Boersma & Griffiths, 2016). It often difficult to quantify the effect of these energy subsidies since they are usually channelled to either direct cash transfers, tax reduction; thus, it makes energy subsidies reforms highly inequitable (Boersma & Griffiths, 2016).

Energy subsidies have created distortions that will hurt the economy, and this might limit investment in sustainable energy. Most of the energy subsidies reforms are a complex process that requires structural change and also control of crucial assets of the states like land (Alleyne et al., 2013). Other challenges include the proper distribution of infrastructure and networks. However, the energy policies have not put all these factors into consideration .thus; the economies in the Middle East will not experience any positive growth from alternative energy projects.

Generally, the principles of economic analysis require measuring how citizens directly benefit from government energy subsidies. However, citizens have not benefited from renewable energy subsidies.  Weak macroeconomic conditions combined with a lack of government credibility have negatively affected low-income households (Alleyne et al., 2013). The political instability in the Middle East is one of the reasons that impede further reorganization of the energy sector. Thus, Middle East countries cannot benefit from the current price liberalization programs.

The abundance of renewable projects in the Middle East can provide these countries with opportunities to diversify their economies, increase energy security, an open up new market opportunities. Such potential, however, has been held back by several factors, such as lack of favourable energy policies for conventional technologies (Alleyne et al., 2013). The absence of the proper framework limits the growth of the energy sector. Sustainable fiscal policies are vital to promoting stable economic growth.

The Gulf region needs to create measures to remove regulatory obstacles for the region can benefit from alternative sources of energy. Despite increased investments and innovation witnessed in the Middle East, the government needs to limit regulation to enjoy the economic benefits associated with renewable energy (Boersma & Griffiths, 2016). Massive investment in renewable energy systems is visible in the region; it is only a lack of proper transitional policies to guide the new investment on renewable energy resources that can limit the economic growth in the region.

To make significant advancement for renewable energy development, there is a need to implement effective energy policies o have a better prospect for progress in the region. The current energy policies used in the region are not enough to propel the economy because the policies that lack the common regional objectives cannot improve the regional economy. Policy inefficiencies combined with high budgetary costs are some of the highly contentious issues of renewable energy subsidy reform in the gulf region that continue to negatively affect middle east economies, making the changes a delicate task for several gulf states. The region’s economy can only improve with sound policies to guide massive investment in renewable energy systems.

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