The GCC energy transition 2026: energy security meets energy transition in a fragmented world

Decarbonization

Maintaining oil and gas revenues will enable the region’s plans to diversify economies, and that means national oil and gas businesses in the region must respond to customer demand for low cost, low carbon, and reliable hydrocarbon supplies. As a result, most national oil companies (NOCs) have taken steps to decarbonize their own production as well as looking to generate additional revenues by supporting others in their own decarbonization journeys (with large regional investments in LNG as a transition fuel, lower carbon petrochemicals, and even carbon capture and storage).

At the same time, an electro-petrostates dynamic is emerging as GCC grids decarbonize with large-scale renewables and battery storage—lowering power sector emissions while freeing barrels previously burned domestically for export. For example, Saudi Arabia’s build-out could reduce domestic use by roughly one million additional barrels per day by 2030, thereby reshaping regional energy revenues and creating further demand for grid, storage, and transmission projects.

Barrels to ores—the pivot towards metals and minerals

Decarbonization will mean an enormous increase in demand for certain metals and minerals, including lithium, nickel, and cobalt for gridscale batteries, copper for build-out of the power grid, silicon and polysilicon for solar panels and rare earth elements for wind turbines. The GCC is targeting this growth market, with outbound investment in mines and processing facilities and plans to develop entire domestic value chains—including mining in Saudi Arabia and Oman, the building out of refineries and smelters across the region, a large number of new iron and steel projects (often green or blue) and potentially the establishment of trading hubs in the GCC. There are also moves to grow downstream industry and manufacture solar panels, wind turbine blades, and other components in GCC countries. This trend has a global energy security element to it as well, as Western governments respond to Chinese dominance of these sectors and seek to ensure their own secure supply chains.

Transitioning to the AI age

The race to develop AI systems is the other trend that the region is determined to be central to. GCC countries are focused on the widespread deployment of AI and the enormous infrastructure investment that this will need—as evidenced by the establishment of key partnerships and joint ventures between major players (combined with large capital commitments). The region’s excellent track record of infrastructure deployment combined with its ability to deliver large amounts of reliable low carbon power (including both “round the clock” renewables with battery storage and gas power with carbon capture) makes it an ideal place to build data centers at hyper-scale.

Legal reform and global policy

Flexible legal systems and centralized planning allow GCC countries to move fast and deploy capital in pursuit of strategic objectives. Another important factor is the strong engagement by public bodies with the private sector, enabling project development and reducing bottlenecks. New legislation and incentive programs have also emerged in the past few years, including (i) the UAE’s Climate Change Reduction Law which mandates emissions monitoring, (ii) corporate tax regimes, which could facilitate tax credits as potential incentives, (iii) the establishment of government support and subsidy mechanisms to assist the energy transition and (iv) the announcement that the UAE is working towards a formal sustainable aviation fuel mandate for airlines. Alongside this, modernization and updating of other laws (whether clarifying insolvency and security regimes, relaxing foreign ownership restrictions, or liberalizing criminal laws) has helped to make the region increasingly attractive to foreign capital and foreign workers. The ecosystem is growing significantly as funds and advisors establish themselves in the GCC and begin to deploy significant capital regionally.

Alongside domestic legal changes, it is often international regulation (including border taxes in Europe or offtake incentives in Japan and Korea) that drive the business case for low carbon projects in the region. The increased use in recent years of tariffs and sanctions as trade tools is having a similar effect—as globalization and integration continues to slow, there is an opportunity for countries who can bridge the gap between East and West.

What to expect over the short, medium, and long term

In the short term (6–12 months), businesses can expect upward pressure on compliance costs as sustainability measures, including the UAE’s Climate Change Reduction Law and SAF mandate, are passed and come into force. In addition, the regional roll-out of renewables projects shows no sign of abating, with the large-scale programs of the UAE and Saudi Arabia spreading to other GCC countries and an increased focus on gridscale battery storage.

In the medium term (12–18 months), the picture becomes one of commercial opportunity, with the region committing to becoming a leader in the AI race. Businesses active in the construction and project development sectors may see significant scope for involvement in building the required infrastructure, with data and software businesses also likely to have heightened exposure to the region once the data centers are operational. We may also see other decarbonization projects become more widespread, driven by investments by NOCs looking to reduce the carbon emissions in their portfolios.

Over the long term (18 months–5 years), the GCC will look to diversify from its current position as a traditional energy power. However, far from abandoning its reputation as an energy leader, the GCC will seek to continue to fulfill the role of a dependable exporter of conventional energy, even while laying the groundwork to play a similar role across many other parts of the future energy system.