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Stability versus Sustainability: Energy Policy in the Gulf Monarchies

Over the past half-century, production from vast reserves of hydrocarbons has transformed the once destitute Persian Gulf monarchies into developed states with comfortable lifestyles. However, longstanding policies that stimulate energy demand in these states are diverting an ever-larger share of resource production into domestic markets, threatening the region's chief export and biggest contributor to GDP. Five of these six sheikhdoms must soon choose between maintaining energy subsidies and sustaining exports. Rising domestic demand for natural gas, once considered nearly free, has already forced some states to shift to higher-cost resources, including imports. For now, governments have absorbed these costs and insulated consumers from higher prices. This practice only intensifies the pressure on exportable resources. As hydrocarbon production reaches a plateau, domestic consumption will gradually displace exports. Politically difficult reforms that moderate consumption can therefore extend the longevity of exports, and perhaps, the regimes themselves.

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JEL Codes: Q41: Energy: Demand and Supply; Prices, Q40: Energy: General, Q35: Hydrocarbon Resources, Q37: Nonrenewable Resources and Conservation: Issues in International Trade

Keywords: Energy subsidy reform, Electricity pricing, Natural gas consumption, Hydrocarbon exports, Persian Gulf monarchies

DOI: 10.5547/01956574.36.4.jkra

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Published in Volume 36, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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