The pressure on the oil industry and producers has been immense for some time. This has been manifested by tightening regulations on efficiency of use, on product specifications to reduce pollutants, on increasing taxes to reduce growth in demand, and by encouraging every possible avenue to substitute it with other fuels.

The industry met the challenge of improving product specifications and reducing sulphur content as well as other pollutants or harmful components. Oil substitution worked and oil almost lost all its share in electricity generation to coal, nuclear energy and gas and, recently, to renewables.

The industry failed to convince governments in the developed countries to be reasonable with respect to taxes and oil remains probably the most taxed commodity. The policy worked wonders for the governments by taming demand and by providing huge revenues to balance budgets.

Then came the question of global warming and climate change and oil became a major target again. Regulations were tightened more and taxes increased.

It is no longer the case where in the 1960s demand growth was in the order of 6 per cent a year. The industry is lucky now to get between 1-2 per cent growth a year.

Yet demand increased from 55.6 million barrels a day (mbd) in 1973 to close to 100-mbd by the end of this year and forecasted further to 111-mbd by 2040 despite all the pressures. But investment in oil and gas is less than desired, and the International Energy Agency believes that “investment in new conventional projects remains a worrying indicator for future market balance, creating a substantial risk of a shortfall of new supply in the 2020s”. And that up to 2040, “investment in oil and gas development is anticipated at $20.6 trillion [Dh75.6 trillion].”

The industry may be rich but will need other investors to chip in. As if all the pressures on the industry are not enough, a new movement is threatening investment in fossil fuels.

Threat of divestment

I am referring to the threat of divestment where “the removal of investment assets — including stocks, bonds, and investment funds — from companies involved in extracting fossil fuels in an attempt to reduce climate change by tackling its ultimate causes” according to Wikipedia.

The movement began on university campuses in the US in 2011 but is spreading. In 2015, Norway’s $1 trillion sovereign wealth fund announced its intention to divest holdings in international petroleum companies, including its own Statoil. It is said that the Norwegian central bank is uncertain aboutfuture demand for oil. The move is considered “potentially the biggest advance yet for a global fossil-fuel divestment campaign”.

The Fund has $35 billion invested in oil companies, but divestment is not expected to happen until late 2018 at the soonest.

Lately, New York’s city administration is planning to divest $5 billion from fossil fuels and sue oil companies over their alleged contribution to global warming. That could happen over a period of five years.

Bill de Blasio, New York’s mayor, said: “We’re bringing the fight against climate change straight to the fossil fuel companies that knew about its effects and intentionally misled the public to protect their profits.” At the same time the mayor opposes charging vehicles for congestion.

New York is taking five major oil companies to court seeking damages of $20 billion “due to their contribution to climate change” and to “shift the costs of protecting the city from climate change impact back on to the companies that have done nearly all they could to create this existential threat”. Nice rhetoric and the action is echoed by other cities, especially California.

But oil companies so far are not that worried and Exxon complained that it has been targeted by a “collection of special interests and opportunistic politicians” for various political objectives. At the same time, Linda Kelly, senior vice-president of the US National Association of Manufacturers, said the plan was an “absurd attempt to politicise natural disasters, rather than a good-faith effort at securing meaningful change”.

Chevron, ExxonMobil and Shell issued statements calling the reduction of greenhouse gas emissions a global issue that required more sweeping action than legal action.

It is reported that “religious institutions, pension funds and other financial institutions in more than 70 countries controlling more than $5 trillion in assets have already committed to dropping some of their fossil-fuel holdings in recent years”.

All this is to stigmatise oil in the eyes of the public, pressure oil producers and spread the divestment movement further without consideration that this may lead to future shortages and extreme rise in oil prices. Let us hope it does not work.

Saadallah Al Fathi is former head of the Energy Studies Department at the Opec Secretariat in Vienna.