What will happen to oil-based economy countries as world shifts to solar, wind and electric?

Globally, the shift to renewables is happening at a fast pace. The primary sources of renewable energy being utilized include solar energy, wind energy, hydropower, geothermal energy, tidal energy and biomass energy. The shift to renewable energy is happening primarily due to the concerns about climate change and global warming. The other reason is that non-renewable sources such as oil and gas reserves are limited and will not last forever. To avoid a potential global climate catastrophe, use of fossil fuels is being minimized.

While the switch to renewable energy sources is inevitable, it makes us wonder how the oil industry and oil producing nations will manage this change. What will happen to the large workforce that is currently deployed in the oil industry? How will oil-producing nations deal with the threat of losing their primary source of income? How will the citizens of these countries be impacted, who currently have one of the highest per capita incomes in the world? To answer such questions, let us take a look at how the shift to renewable energy sources such as solar energy and wind energy will impact the oil industry and oil producing countries.

Gradual shift, not instant

While renewable energy sources are being harnessed at an industrial scale, it will still be several decades before oil is completely removed from the ecosystem. As per estimates provided by the International Energy Agency (IEA), oil demand is expected to reach its peak by 2025. Beyond that, there will be a steady decline in demand for oil.

However, oil will continue to be used by various industries. For example, sectors like aviation and shipping will take much longer to shift to renewable energy sources. Oil and gas will continue to be used in power plants and even for generating green fuels such as hydrogen. In comparison, the auto industry is expected to switch to electric much faster.

Economic diversification

Oil-rich countries such as Saudi Arabia, Iraq, United Arab Emirates, Iran, Kuwait, Qatar, etc. have stepped up focus on diversifying their economy. This is the only way for these countries to survive the switch to renewable energy sources. For example, Saudi Arabia is making big investments in solar and wind energy. It is also focusing on sectors such as tourism, banking and finance, pilgrimage, global supply chain and logistics and healthcare.

Economic diversification will help absorb the negative impact of the shift to renewable energy sources. People employed by the oil industry can be reskilled and shifted to other sectors. Assets and resources of the oil industry can be repurposed for various industries including renewable energy such as solar and wind energy. As the shift will be gradual, oil-producing nations have ample time to diversify their economies.

Shift in geopolitical landscape

Traditionally, oil-producing countries have enjoyed tremendous clout in the global political landscape. With the shift to renewable energy, oil-producing nations will see a reduction in their global influence. This will create a balance of power among nations. It is not necessarily something that is a negative development for oil-producing nations. As a matter of fact, the change in geopolitical landscape will prompt oil-producing nations to innovate and compete more aggressively, instead of being completely dependent on oil money.

Impact on oil industry workers

As the shift to renewables will be gradual, the oil industry will continue to function for several decades. However, since production is expected to decline gradually, some job losses will be unavoidable. It will be great if oil companies and governments can work together to launch special programs to protect the interests of people employed in the oil industry. As mentioned earlier, reskilling can be a great way to help oil industry workers impacted by the shift to renewable energy sources.

Focus on newer technologies

Fossil fuels are blamed primarily due to their high carbon footprint. However, things can change in the future with new technologies. For example, improved methods of carbon capture can reduce the pollution emitted via the burning of fossil fuels. Similarly, more efficient internal combustion engines can be developed to produce electricity or other green fuels.

Government policy and regulations

The overall impact on the oil industry and economy will depend on how prepared the respective governments are in dealing with the shift to renewable energy sources. With proactive policies and regulations, oil-producing nations can achieve a smooth transition.

Is it safe to invest in green energy stocks?

With the shift to renewable energy sources, one may consider investing in green energy stocks. However, it is important to choose the right stocks that have potential for growth. Some reliable green energy stock options one can consider include Adani Green Energy, Reliance New Energy, JSW Energy, KP Energy, Zodiac Energy, Websol Energy System, Borosil Renewables, NTPC, BF Utilities and Inox Wind Energy. It is important to do your own research and invest as per your risk appetite. For max gains, you may have to choose long-term investments in green energy stocks.