Energy

This paper explores the effect of oil shocks on electoral outcomes. Using a new polling and election data set for 207 elections across 50 democracies, the paper shows that oil price increases systematically lower the odds of reelection for incumbents. The analysis verifies that these shocks—which reduce consumption growth—are associated with worsening performance for incumbents in the runup to reelection and a reversal in the leaning of the political party in power post-election.  

Gulf countries have hailed their investments in renewable energy, but some basic questions remain about the extent to which it makes sense for GCC states to invest aggressively in renewables. The sheer magnitude of such investments will require these countries to mobilize significant public resources.  Therefore, such an assessment requires these countries to focus on national interests, not just a desire to be perceived as constructive participants in the global transition away from carbon energy. 

This report starts by identifying four common strategic justifications for investing in renewable energy in GCC countries. Each of these rationales highlights a different aspect of renewable energy investments. In addition, each rationale is based on different assumptions about the underlying drivers of such investments, and each rationale is based on different assumptions about the future of energy. 
 

In the past 10 years, oil exports have averaged about $67 billion in Iran. Last year, they dropped by two-thirds, and they are expected to drop below $30 billion this year.  There are reasons to believe that, with appropriate policies, the country can live with this level of oil exports, albeit at a reduced standard of living, and even do itself some good in the long run by reducing its dependence on oil.

Iran has been there before. In 2012, when President Obama ratcheted up U.S. sanctions against Iran, oil exports dropped by 27.5 percent, and GDP fell by 6.2 percent. In 2015, sanctions and the collapse of oil prices further reduced oil exports to $32 billion, a decade-long low, and GDP declined by 1.6 percent. If Iran’s leadership is to successfully resist U.S. demands, it must do more than find ways to evade sanctions. A lot depends on its ability to adopt a plan that reduces the economy’s dependence on oil, while distributing the burden of restructuring equitably across social groups.

For the Islamic Republic, resistance to Washington has become a cultural norm, and it considers independence (esteghlal) as the main achievement of the 1979 revolution.  According to Secretary of State Mike Pompeo, Iran would have to meet 12 conditions before the United States will renegotiate the nuclear deal and consider removing its sanctions. These conditions, which are nothing short of surrender on Iran’s part, are either set to force Iran out of the nuclear deal and therefore trigger the return of UN sanctions, or they are a thinly veiled call for regime change.

With rising population and incomes, the “rentier” mode of development in Saudi Arabia has long been unsustainable. While the issue of fiscal stabilization will occupy policy-making in Saudi Arabia in the short and medium terms, the long-term challenge of finding new sources of growth to complement oil has only been made starker by the recent drop in oil prices. Analysis of the prospects for such reforms in KSA has long been divided between two opposite camps: those who believe that the inadequacies of the rentier model will necessarily usher a doomsday scenario sooner or later, regardless of economic policies; and those who believe the impending crisis can be met by moving from the current mono-sector economy to a modern and diversified knowledge based economy OECD-style.