Global trend in energy transition has brought its share of challenges to GCC. The new challenges need to be addressed through development of alternative energy sources and diversification of economies. Image Credit: Reuters

The economic and environmental challenges all countries will face over the next decade are burgeoning. Only the nature of these challenges vary from one country to the next, according to its social structures and the willingness to prepare for major change.

As there is no room to go deeply into all challenges facing each country or bloc, we will focus briefly on what matters to the Gulf countries by addressing two of the main hurdles and which require swift action. The first relates to the accelerated steps taken by various countries, especially oil consuming ones, to abandon fossil fuel.,These are progressing faster than what they were planning for five years ago.

European countries had decided to stop production and sale of petrol-powered cars by 2040, but have now brought it forward to 2035. Some European car manufacturers have even decided to stop manufacturing petrol-powered vehicles by 2030, thanks to the rapid tech advances, especially within the electric battery industry.

Tesla seeks to produce a car battery that lasts up to one million kilometres, while Swedish manufacturer Volvo has decided to stop making petrol cars by 2030 - and striving to make it even as early as by 2025.

Don’t hit panic buttons

With the advancement of alternative energy, real challenges lie ahead. It does not require getting into a panic, but it needs proper preparation through the development of alternative energy sources in the GCC, which are available. The GCC nations, however, need to make swift decisions - some have done so through developing non-oil sectors and alternate energy sources. And backing these through financial reforms.

These are important steps, but time is the main challenge for countries that are following this path. If the process is accelerated, it will help avoid many difficulties emerging from the decline in oil demand. Nevertheless, oil will remain a major source of energy for years to come, with vehicles accounting for 26 per cent of global oil consumption. The challenge here lies basically in capping levels of production and its impact on state revenues.

Everything shifts online

Another challenge involves moves by the likes of Volvo to limit sales to online channel by 2030. It brings into focus the commercial agencies law that Gulf countries have had in place for 80 years.

It means the likes of Amazon will further control trade in goods and services, further driving tens of thousands of small businesses in the retail trade into bankruptcy, and depriving their countries of customs revenues for their national income. And it will lead to the flow of wealth abroad without any checks.

Bypassing all controls

This does not mean that commercial agencies will be finished, but their role will decline significantly. And countries will lose some of the revenues they currently earn through fees and taxes.

Commercial agencies may be limited to after-sales services, which will also be reduced significantly in view of the production of electric cars that do not require much maintenance as petrol-powered cars do.

Their role in providing spare parts will also decline, due to the reduction in the number of parts for electric cars and also due to the possibility of importing these parts through ecommerce platforms.

All of which requires governments not to be lax in understanding the nature of challenges awaiting their economies from technology.

- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.