The Fate of Petro-States in a Petro-Free World

Sami Shirazi, Apr 19, 2024

Despite international efforts to address the climate crisis, collective action has barely moved the needle in reducing fossil fuel emissions. A major hurdle to this global climate effort is petrostates. An astounding 40% of the world's crude oil and 60% of oil traded internationally are produced by petrostates, which are countries whose economy is fueled primarily by oil or natural gas exports [1]. Many countries like the United States, China, and Canada also export vast quantities of oil but fall short of ‘petrostate’ status because their economies are not chiefly dependent on oil extraction. For a country to be categorized as a petrostate, it must heavily rely on oil and gas, and thus experience significant economic fluctuation based on global oil prices. Political turmoil often plagues petrostates. With such a reliable influx of money, petrostates neglect to diversify their economies, often leaving them with weak technology, infrastructure, and manufacturing sectors. When an economy is overly dependent on one sector, political power becomes concentrated within that sector and those who control it. The vast wealth that oil generates fosters corruption as those in power seek to maintain control absent accountability or transparency. For the international community to successfully achieve its climate goals and ensure political stability, there must be a concerted international effort to spur the diversification of petrostate economies. This can be accomplished using a combination of foreign aid, foreign direct investment, and trade agreements. Failure to transition petrostates from fossil fuels will exponentially worsen the climate crisis and crash petrostates' economies.


Not all petrostates are alike; they have varying degrees of economic strength and will require different strategies to prompt diversification. In 1960, five petrostates, Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela formed the Organization of Petroleum Exporting Countries (OPEC) to mitigate market competition through coordination. OPEC has expanded to include Algeria, Angola, Equatorial Guinea, Gabon, Libya, Nigeria, the Democratic Republic of the Congo, and the United Arab Emirates (U.A.E.). Saudi Arabia is an example of a petrostate that has enriched itself with its vast oil resources. Saudi Arabia accounts for about 13% of the world's consumption, keeps three million barrels per day (bpd) on reserve, and can manipulate the global price of oil at will [2]. Its oil monopoly, combined with a domineering autocracy and strong international connections, has protected Saudi Arabia from the economic volatility, corruption, and political instability that typically threatens petrostates. Another successful petrostate is the U.A.E. A member of OPEC since 1967, the U.A.E. has leveraged its geographic location to become a powerhouse of commerce and tourism in the Middle East. Venezuela, by contrast, represents a petrostate's worst fears. The country has not adequately invested in production, generating over 3.2 million bpd in 2000 and only 700,000 bpd last year [3]. President Nicholas Maduro’s power grab has hollowed out Venezuela’s democracy, and when the price of oil crashed in 2014, it descended into economic and political chaos. It is important to understand the different political dynamics of petrostates, and diversification solutions must be customized to persuade them to move away from oil.


Regardless of how various petrostates pursue diversification, it is clear that the status quo of carbon-based energy consumption is unsustainable. It is widely agreed among climate scientists that our long-term climate goals should focus on limiting global warming to below 1.5 degrees Celsius compared to pre-industrial levels to avoid climate catastrophe [4]. To achieve this, humanity will have to completely rethink its source of energy, which for the past 150 years has been fossil fuels: coal, oil, and natural gas. We must collectively decarbonize our industries by transitioning to renewable energy, which involves rejecting fossil fuels in favor of solar, wind, geothermal, and hydropower energy. Simultaneously, governments must focus on adopting technology, construction, and industry components that promote energy efficiency [5]. By mid-century or earlier, we must achieve carbon neutrality or net-zero emissions, balancing emissions with carbon removals or offsets, through strategies like reforestation, soil carbon sequestration, and industrial emissions reduction [6]. Though these steps are widely accepted as a necessary course of action to limit the climate crisis, the United Nations (UN) has failed to facilitate any meaningful collective action thus far. 


One reason for the global inaction on climate is the petrostates’ history of voting against climate resolutions in the UN. The 28th Conference of the Parties of the United Nations Framework Convention on Climate Change (COP28) that took place in 2023 was a historic summit that went further than any in history. It signaled the beginning of the end of the fossil fuel era by laying the ground for a swift, just, and equitable transition categorized by deep emissions cuts. Representatives from nearly 200 countries agreed to the resolution [7]. But several petrostates sought to spoil the summit. Saudi Arabia asserted early on it would reject any agreement calling for the phasing out of oil production. In an open letter, the Secretary General of OPEC, Haitham al-Ghais, called on member countries to reject any text that called for the phasing out of fossil fuels [8]. Many OPEC countries did their part and were the reason COP28 did not go further in calling for an immediate transition from fossil fuels. OPEC explicitly opposes climate initiatives; oil-rich countries understandably don’t want people to stop buying oil. According to Secretary al-Ghais, “The world should target emissions rather than fossil fuels themselves.” [9]. Of course, the two are inextricably linked—burning fossil fuels is the source of emissions. The current strategy for fossil fuel interests is to assert that climate change can be addressed by changing aspects of our behavior. In reality, only by fundamentally altering our sources of energy can climate catastrophe be averted, which puts petrostates in a difficult position that has yet to be seriously addressed internationally. 


Eventually, we will move away from fossil fuels for the simple fact that inaction is no longer an option. As more sustainable energy resources are developed, global oil demand will certainly wane in the coming decades. Once demand diminishes, petrostates would inevitably go from collaborators to competitors, forced to lower their prices to sell more to other nations still reliant on fossil fuel energy. If, by then, their economies are not diversified, their economies will crash, even despite efforts to produce more to accommodate any holdout countries still importing oil. Ultimately, they must diversify their economies to avoid political crises. 


It is tempting to cast the blame of inaction towards the climate crisis on petrostates and look for ways to circumvent them at climate summits. A common preconception in the climate conversation is that petrostates are producing excessively for no reason. The reality is that even as global clean energy efforts soar, the global oil demand has never been higher, recently surpassing a staggering 100 million bpd [10]. Petrostates see countries pledging to reduce their carbon emissions along with climbing demand for the source of those emissions, making many of them unconvinced that pledges to transition from fossil fuels are sincere. 


Petrostates will be forced to change course, and the lack of diversification in their economies will be their burden to bear. However, expecting changes to happen without proper planning and process ignores the geopolitical realities of petrostates and what their instability could spell out for the rest of the world. For instance, what happens when Saudi Arabia, a rigid autocratic system, is suddenly unable to maintain its economy? And for petrostates with already struggling economies, losing their primary source of income would certainly lead to political chaos. The world does not want to witness authoritarian petrostates simultaneously imploding. Nonetheless, ignoring the climate crisis is not the answer. 


There are a few ways to prevent the economic collapse of petrostates while curbing emissions. First and foremost, governments of major consuming countries such as the U.S., China, and India need to send an unambiguous message that they are serious about curbing fossil fuel demand. This means implementing stronger policies in their own countries that reflect their commitment to reducing carbon emissions and championing renewable energy. Oil-producing countries continue to invest in fossil fuels because they do not believe that countries will follow through on their commitments to reduce emissions. The faster nations begin to decrease their emissions, the quicker petrostates will adapt. 


In addition, petrostates need to be encouraged and supported to rapidly accelerate the diversification of their economies. Considering that petrostates currently lack the immediate incentive to do so, the international community must find a way to make it worth their while. One strategy, and perhaps the most obvious, would be to make diversification more attractive through direct aid. Developing countries have argued for years that they need aid to give themselves a chance to transition to clean energy. For struggling petrostates, direct monetary aid is a feasible option, assuming that the money is used for its intended purpose. In some cases, this is a big assumption. For petrostates such as Nigeria, profiteering, corruption, and explicit theft are common. One successful model for the aid strategy is the case of South Africa. In 2021, a coalition of wealthy countries approved an $8.5 billion aid package to help South Africa wean itself off coal. The state had previously used coal for about 70% of its electricity production. It has begun an ambitious energy transition plan focused on solar, wind, and battery storage [11]. Such aid can often be given with additional terms, earmarking certain amounts for various industries and investments into clean energy. Direct aid can be a feasible step towards diversification for more impoverished petrostates with limited corruption.


On the other hand, the international community would certainly resist sending aid to an economic powerhouse like Saudi Arabia. For wealthy petrostates, there is a general expectation that they will eventually diversify rather than allow their economies to crumble. One of the few petrostates to change their practices is the U.A.E., which began extensive spending on infrastructure, education, healthcare, and renewables, among other sectors. For a wealthier petrostate, foreign direct investment is a reasonable method of encouraging non-oil spending. This has come to fruition in Dubai, which has used foreign direct investment to bolster a vast tourism industry and international sporting events like Formula 1 racing. The U.A.E.’s efforts have largely been successful. Oil made up 85% of its economy in 2009, and has decreased to less than 30% today following diversification [12]. They are a model that other petrostates can follow.


In the case of poorer petrostates, there are better solutions than aid or foreign direct investment. The aid is often inadequate and the existing infrastructure is incapable of supporting such investments. In addition, foreign investors are reluctant to pour money into countries where they see low potential for return on investment. One solution is trade capacity-building programs, which are initiatives that would facilitate petrostates' ability to effectively participate in international trade that is not centered on oil. This would give petrostates guaranteed nations to consume their goods. Another solution is subsidized trade preferences, which involve multilateral agreements where countries grant petrostates favorable trade conditions on alternative exports to oil. Finally, petrostates could be encouraged to establish special economic zones. By doing so, they would create areas subject to more favorable economic conditions, which would bolster both domestic and foreign investment in sectors like renewable energy. These are alternative trade and market-based solutions to help petrostates diversify when direct financing may not be viable.


For the international community to meet its climate goals, a concerted international effort is needed to diversify the economies of petrostates through a combination of direct aid, foreign investment, and trade agreements. Regardless of what customized approach is adapted to any specific petrostate, one thing is certain: time—and climate change—wait for no man. 


[1] “U.S. Energy Information Administration - EIA - Independent Statistics and Analysis.” EIA, March 12th, 2024,

[2] “Factbox OPEC and Saudi Spare Oil Production Capacity | Reuters.” Reuters, January 30th, 2024,

[3] Roy, Diana. “Venezuela: The Rise and Fall of a Petrostate.” Council on Foreign Relations, Council on Foreign Relations, December 22nd, 2023,

[4] Litvin, Daniel. “To Save the Climate, Change the Game for Petrostates.” POLITICO, December 15th, 2023.

[5] Charlton, Emma. “5 Ways to Remove Carbon and Tackle the Climate Crisis.” World Economic Forum, September 27th, 2023.

[6] “Carbon Dioxide Removal.”

[7] COP28 Agreement Signals “Beginning of the End” of the Fossil Fuel Era, December 13th, 2023.

[8] Friedman, Lisa. “OPEC Leader Tells Members to Block Any Climate Summit Deal to Curb Fossil Fuels.” The New York Times, The New York Times, December 8th, 2023,

[9] Ghaddar, Ahmad. Why Does OPEC Oppose the Idea of a Fossil Fuel Phase-out at COP28? | Reuters, Reuters, December 12th, 2023,

[10] Blas, Javier. “The Harsh Truth Is We’ve Never Consumed This Much Oil.”, July 27th, 2023.

[11] Khumalo, Thuso. “South Africa Prepares to Navigate a Coal-Free Future – DW – 12/11/2023.”, December 28th, 2023.

[12] Talwar, Aradhana. “From Oil to Diversification of the UAE: An Economic Perspective.” Diplomacy Beyond Plus, February 17th, 2022.