Key strategies to pursue include long-term just transition planning, investing in retraining for workers, matching workers to opportunities and promoting local diversification in oil-dependent regions.
“In 2016, when the oil prices were low, it badly impacted the oil industry workers. Thousands of contractor workers were laid off and oil-dependent towns like Ciudad del Carmen in Mexico witnessed massive unemployment, resulting in rising crime rates. This is happening again in the current oil crash,” said Jorge Gómez Lara, who works at Pemex, the Mexican state oil company.
Since worldwide coronavirus-related lockdowns began in early February this year, the global demand for oil has evaporated. This huge drop in demand coupled with an already over-inflated supply has depressed oil prices to historic lows. There has been justifiable attention on how to use this moment to help bolster low-carbon transitions. However, it is also important to address the negative impacts of this much-needed low-carbon transition on the livelihoods of the world’s millions of oil workers and their communities. The current oil crash shows why.
In particular, oil-exporting emerging economies such as Mexico, Kuwait, Nigeria, Saudi Arabia and the United Arab Emirates have all been severely impacted, facing revenue losses and record layoffs due to production cuts. Signs of trouble are emerging from the Middle East to the Americas. For example, Qatar Petroleum’s chief executive Saad al-Kaabi announced job cuts in an internal memo to employees. In the last few months, regional news reports have highlighted poignant stories of oil-industry workers losing jobs, facing salary cuts or experiencing delays in payment of wages. “In Mexico, many oil workers, especially those who work for Pemex contractors, are having a really difficult time,” said Gómez Lara.
The International Energy Agency captured the human impact of this plunge in its recent “Oil Market Report”: “…low prices impact the livelihood of millions of people employed along the oil industry’s extensive value chain, and they damage the economies of weaker producing countries where social stability is already fragile.” A recent Rystad Energy impact analysis forecast that job losses will intensify in 2020, resulting in the loss of nearly 1 million jobs in the worldwide oilfield service industry alone. Most of these losses are slated to be in the exploration and production segment, which forms the bulk of oil industry jobs in oil-exporting emerging economies. This could have grave repercussions for workers and their families due to the lack of social security measures, such as unemployment insurance, in these countries. Social breakdown may well follow.
Whether oil prices rebound in the long-term is an open question. However, it is clear that the livelihoods of millions of workers in the oil industry and associated sectors are likely to remain vulnerable, especially in light of ever-increasing pressure on governments to facilitate low-carbon transitions. Moreover, evidence from previous fossil-fuel industry declines suggests that workers’ legitimate concerns could be co-opted by elites with vested financial interests in the status quo, as a way to block energy transitions.
Current oil-sector employment in emerging economies
In many oil-exporting emerging economies, the scale of oil-industry and related employment is enormous and is typically regionally concentrated. For example, in Mexico, Pemex employs 130,000 people directly, from which flows indirect employment for a further 500,000 people. This means that nearly 2 million people in Mexico – the 630,000 workers, each with three or four family members — are tied to the oil industry.
Moreover, in such oil-dependent countries, large numbers of oil-related jobs are concentrated regionally in “oil towns” that were built around the local oil industries. In such towns, nearly every person relies on the oil industry directly or indirectly by running shops and local businesses that rely on oil workers’ spending. Beyond Mexico, such oil towns exist in all oil-exporting emerging economies—places like Basra (Iraq), and Ouargla (Algeria). In such towns, the loss of high-paying oil-sector jobs typically has enormous knock-on effects for wide swathes of the economy.
Just transitions in emerging economies
In the global north, experts have been vocal about the need for governments to implement “just transition” plans for oil workers. However, this has gone largely undiscussed in emerging economies. Given the significant oil industry employment in oil-exporting emerging economies and their associated vulnerability going forward, policymakers in such countries should start considering what is needed for just transitions.
Planning and implementing just transitions will not be easy, even in rich countries. A lack of alternative employment opportunities, challenges in the provision of appropriate retraining, and other socioeconomic obstacles have together kept opportunity sparse. Therefore, it is imperative that governments in emerging economies start planning for a just transition now.
Governments and researchers in some countries have in recent years developed approaches to support job transition for coal workers, some of which could be replicated for oil-industry workers. National and subnational governments could promote new industries for creating local employment opportunities in sectors ranging from clean energy to tourism and manufacturing. Colleagues and I recently found that it is technically feasible to create local solar jobs for some out-of-work coal miners in many coal mining areas in China, India, the US and Australia. These kinds of studies could be replicated for oil-industry workers in other vulnerable regions.
Starting now, national and subnational governments could also make critical long-term investments in education by creating new universities in oil-dependent regions. The creation of 22 new universities helped hard coal-mining dependent regions in Germany diversify to a knowledge-based economy. Another important aspect of just transition is that workers transitioning to new jobs might require retraining to acquire new or additional skills. Governments’ retraining efforts should align with the job requirements of emerging regional employment opportunities.
One mechanism to tackle these imperatives could be the creation of worker transition centers in towns and villages vulnerable to decarbonization. Last year in Canada, the federal government’s Task Force on Just Transition for Coal Workers and Communities recommended the creation of such centers, as in past industrial declines they played an important role in sharing information and helping workers to find new jobs. These centers could leverage the reach and influence of national oil companies and other actors, to engage with and support workers and other stakeholders throughout the transition process, including by providing training and matching them with opportunities.
Of course, not all localities can attract new industries and some workers may be more mobile than others. A just transition taskforce should consider these realities when planning.