The Gulf in the New Energy Order

The Gulf Cooperation Council countries are navigating a complex energy and geopolitical landscape that is rapidly evolving. At the heart of this transformation lies the balancing act among economic diversification, long-term energy security, and sustainability – three pillars under increasing pressure from regional conflict, market volatility, and shifting global alliances. These multilayered shifts are unfolding at a time of intensifying geopolitical tensions and renewed global disorder, partly triggered by President Donald J. Trump’s trade tariffs.

The war in Gaza and Yemeni rebel Houthi attacks on Red Sea shipping routes have exposed vulnerabilities in regional supply chains, prompting energy-exporting states to rethink logistics and resilience strategies. While oil flows from the Gulf have not been disrupted, trade patterns have shifted. Shipping was rerouted around the Cape of Good Hope, lengthening delivery times and increasing shipping costs. Despite these geopolitical tensions, oil prices softened in early 2025, a reflection of weak global demand and steady non-OPEC supply. For GCC exporters, sustained low prices could undermine fiscal stability just as governments are ramping up investments in diversification and energy transition projects in the softer oil price environment.

The GCC states, mainly Saudi Arabia, the United Arab Emirates, and Oman, are investing in expanding their renewable energy capacity while also moving aggressively into hydrogen, carbon capture, and international energy partnerships.

In the UAE, the Barakah nuclear plant reached full capacity in 2024, supplying nearly 25% of the country’s electricity. Dubai’s Mohammed bin Rashid Solar Park has expanded to 3.3 gigawatts and is expected to reach 5 GW by 2030, complemented by a groundbreaking 1 gigawatt per 24-hour battery storage facility.

Saudi Arabia is also moving rapidly to grow its renewable energy capacity. By the end of 2025, the kingdom is expected to have doubled its renewables capacity to 12.7 GW by year-end, overtaking early starter the UAE. Meanwhile, battery energy storage system capacity will quadruple to 8 GWh by year-end as Riyadh invests in addressing the intermittency of renewables. Also in Saudi Arabia, the Neom Green Hydrogen Project – a $8.4 billion joint venture among ACWA Power, Air Products, and Neom – is scheduled to start exporting green hydrogen by 2026. Aramco is also investing in blue hydrogen projects as it steps up exploitation of its conventional and unconventional gas fields.

Meanwhile, Oman is positioning itself as a green hydrogen leader, with its Hydrom initiative overseeing more than $30 billion in green hydrogen projects awarded to consortiums involving Shell, British Petroleum, and Marubeni. These projects, if realized, would contribute to the sultanate’s aspiration to become one of the leading producers and exporters of green hydrogen and secure export revenue when oil demand reaches a plateau.

Yet despite these advances, hydrocarbons remain central. But oil prices have fallen sharply since the April announcement of sweeping trade tariffs by Trump and the decision by some OPEC+ producers to increase supplies onto a jittery market.

Oil and gas make up 84% of the energy mix and revenue of the GCC states, while the collective share of renewables in the GCC countries is still in single digits. Despite high solar irradiation levels and competitive costs, gas remains the primary fuel for electricity generation. All GCC states face the challenge of cutting reliance on hydrocarbons and adapting their economies to manage climate risks in the drive to net zero.

To that end, they are adopting a two-track policy – expanding low-carbon projects while reinforcing hydrocarbon exports – an approach to the energy transition that is pragmatic, sequenced, and market driven. Yet the best laid plans could be derailed by the uncertainty that has gripped global oil, equities, and bond markets since the beginning of 2025. Oil prices have sunk to their lowest in four years, depriving oil exporting countries of a key source of revenue with which to drive their economic diversification and transition forward.

The Role of the GCC in the New Energy Order

The GCC states are gearing to become dual suppliers of choice – offering conventional fuels to meet today’s global energy demand and renewable power and hydrogen for tomorrow’s markets. The region’s energy companies are scaling their international footprints. Saudi Arabia’s ACWA Power is developing solar projects in Uzbekistan and Azerbaijan. The UAE’s clean energy developer Masdar has expanded its footprint around the world, with investments in wind and solar projects in more than 40 countries across six continents with a combined capacity of over 51 GW. Saudi Aramco, ADNOC, and Masdar have acquired stakes in liquefied natural gas, petrochemical, and hydrogen assets across Asia, Europe, the United States, and Australia.

Energy investment flows are also moving in the other direction with international energy companies returning to the Middle East and other hydrocarbon regions in a bid to grow their legacy oil and gas businesses as investors’ appetite for green energy has waned.

TotalEnergies is investing $27 billion in a multifaceted deal involving oil and gas production alongside a solar energy project in Iraq. The French major has also expanded its upstream presence in the eastern Mediterranean and North Africa. BP is also returning to its roots in Iraq, signing up to boost production from the Kirkuk oil field that it discovered decades ago in the early days of the Middle East’s oil boom. BP, through a local subsidiary, also operates the giant Rumaila oil field in Iraq.

Shell, BP, and TotalEnergies have each acquired a 10% stake in Abu Dhabi’s Ruwais LNG project, alongside Japan’s Mitsui. The facility, operated by ADNOC with a 60% stake, aims to produce 9.6 million tons of LNG annually, more than doubling the UAE’s current capacity.

Qatar’s massive project to expand its LNG production capacity has attracted a who’s-who of the largest international energy companies, some of them entering the Qatari LNG sector for the first time. ExxonMobil, TotalEnergies, Shell, ConocoPhillips, Eni, China’s CNPC, and Sinopec all signed up to partner with QatarEnergy in the two-phase expansion that will double LNG capacity to 142 million metric tons per year by 2030.

The Trump Effect

Trump’s return to the White House triggered a major policy shift. His pledge to expand U.S. fossil fuel production, dismantle clean energy subsidies under the Inflation Reduction Act, and reassert “energy dominance” will reshape global energy flows. The implications for the GCC states are significant: Slower global momentum on climate policy could soften near-term pressure to accelerate transition, but it also introduces long-term risk of demand destruction as climate impacts intensify and capital moves away from hydrocarbons.

Still, the Gulf is pressing ahead. The UAE’s $54 billion clean energy investment plan through 2030 and Saudi Arabia’s Public Investment Fund-backed push into green steel, electric vehicles, and battery production show that regional leaders view the transition as an economic opportunity not just an environmental necessity.

However, if the Trump administration goes ahead with the new tariffs on Chinese energy technologies, it could disrupt GCC-China supply chain cooperation on solar panels, electrolyzers, and electric vehicle production. The Gulf’s deepening energy and infrastructure ties with Beijing – from Jinko Solar’s plant in Abu Dhabi to Huawei’s role in digitalizing grids – may increasingly come into conflict with U.S. geopolitical interests.

Shifting Borders and Power Struggles

The Middle East has been reshaped since the October 7, 2023 Hamas attack on Israel and the subsequent war on Gaza. While the conflict hasn’t escalated into a regional war, its political consequences are profound. Iran has suffered strategic setbacks in Syria, Lebanon, and Gaza, even as it remains a disruptive force. The ongoing, indirect discussions on a new nuclear deal between the United States and Iran have yet to progress significantly. Should the talks fail to reach an agreement that both sides can live with within an acceptable time frame, matters could escalate. Israel has threatened military action against Iranian nuclear sites, which would have a devastating impact on the Gulf states if it were to lead to capital flight and further instability.

In the meantime, Saudi Arabia’s talks regarding normalizing ties with Israel are on hold, and Gulf states have had to balance public outrage over the war in Gaza with strategic relations with Washington.

These changes place the GCC in a delicate position: managing traditional alliances with Washington while advocating for Palestinian rights and maintaining regional stability. The viability of a two-state solution appears increasingly remote in the absence of an impartial broker. Yet Gulf diplomacy – through reconstruction funding, regional investment, and backchannel negotiations – may offer a path toward de-escalation and new alignments.

The Gulf Transformation

The Gulf transformation is not merely about energy – it is about power, diplomacy, and resilience in a fractured global system. As Gulf states expand their influence across supply chains, fuel types, and geopolitical alliances, the choices made today will define the region’s role in the new energy order and the emerging world that surrounds it.

The energy heavyweights in the Middle East are shifting to a new strategy that focuses on embracing new technologies and decarbonizing their mainstay energy industry. Dismantling an entire energy system that runs on hydrocarbons needs to be synchronized to ensure there is sufficient flexibility to accommodate a new slate of energy sources without disrupting the global economy, upsetting the geopolitical order, or harming the environment.

About Petro Diplomacy

This paper is the scene setter for the 2025 Petro Diplomacy conference. Now in its 11th year, AGSIW’s Petro Diplomacy conference is a signature annual event that brings together stakeholders in the energy sector of the Gulf Arab states, global supply competitors in North America, analysts, and policymakers to discuss how changes in technology, fiscal priorities, and opportunities for growth continue to alter the relationship between politics and energy for both the region and the world.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.