The Price of Instability: Oil Shocks, Energy Transitions and MENA's Economic Future

At NRGI, we know that energy policies in the Middle East and North Africa (MENA) are of critical importance not just for the region, but for the world. This is why we created our “MENA Just Energy Transition Platform”—an evolving space for knowledge building and sharing, raising awareness, fostering dialogue, and ultimately influencing policies that shape the region’s energy future.

Last week, this platform again proved its worth as we brought together three leading experts for a webinar to reflect on what is happening in the current conflict, and on what it means for the direction of energy systems, economies and governance across the Gulf and wider MENA region. Moderated by NRGI’s MENA Regional Director, Laury Haytayan, our panelists—energy expert and CEO of Crystol Energy Dr. Carole Nakhle, Kuwaiti economist and former minister Dr. Rola Dashti, and Chatham House Associate Fellow Dr. Lina Khatib—examined the structural implications for oil markets, governance, regional cooperation, and the allocation of resource revenues. 

The impact of the war—what the International Energy Agency has described as the biggest energy crisis in history—provided a critical backdrop for this discussion. The disruption of key chokepoints and the resulting market volatility requires a deep interrogation of future policy choices and regional trajectories. This is precisely the kind of moment our platform seeks to engage with: one where regional voices can collectively examine the implications of crisis and shape more grounded responses, and our expert guests certainly delivered.

Three takeaways stood out. First, the importance of diversifying energy sources felt less like a policy preference and more like a sober reading of reality. Placing bets exclusively on either hydrocarbons or renewables seems increasingly untenable; resilience lies in a balanced and flexible energy mix. Second, it was genuinely hopeful to hear renewed conversations around reinvigorating regional institutions. At a time when many view these bodies as obsolete, the idea that they could be retooled—potentially in tandem with more flexible forms of cooperation—signals an important shift. This links closely to the third takeaway, namely pragmatism in advancing energy policies. Combined with the region’s long history of economic and infrastructural connectivity, particularly within the GCC, pragmatism may help reshape future relations and channel divergent interests into constructive competition rather than fragmentation.

Next, we examine these insights in greater depth, situating them within the broader question of how MENA economies can navigate instability while advancing toward a more just and resilient energy future. 

Redefining diversification in energy and economies 

The crisis has delivered a blunt message: single-commodity dependence is a strategic liability, and no single energy source guarantees security. Dr. Nakhle emphasized that energy security comes only through diversifying across all sources, including oil, gas, renewables, and potentially nuclear. The lesson from past crises—from 1973 to Europe’s post-2022 energy scramble—is that resilient economies are those that have built diversified supply portfolios and infrastructure redundancy.

Equally important is what Dr. Dashti identified as a necessary reframing of economic diversification itself. Gulf states had made real gains in tourism, logistics, aviation, and financial services, but these sectors proved fragile when they were needed most. Their foundations, including openness, freedom of movement, and investor confidence, collapsed under geopolitical pressure. The distinction matters for governance: diversification as a growth strategy is not the same as diversification as a resilience strategy. Countries need sectors that can withstand shocks, not just expand during boom cycles.

From a resource governance perspective, this is a familiar tension. Windfall years provided the capital to diversify, while the political economy of hydrocarbon dependency created the inertia to delay change. The current crisis may finally shift that calculus, but only if governments move beyond announcements into the institutional and regulatory reforms needed to anchor a more resilient economic base.

Reviving regional institutions and retooling them for difficult times

One of the most striking arguments in the discussion came from Dr. Dashti: the answer is not to abandon existing Arab regional institutions, but to fundamentally repurpose them. The Arab Fund, the Arab Monetary Fund, and the Arab Organisation for Agricultural Development already exist. However, they are geared toward development financing and slow-moving coordination, not rapid response.

Her proposal is to transform regional institutions from project funders into risk managers by introducing precautionary financing mechanisms, coordinating strategic reserves, diversifying import sources, and building supply chain connectivity across borders. In a connected economy, regional infrastructure such as power grids, rail links, and shared logistics becomes a governance imperative, not just a technical aspiration.

Dr. Khatib added a crucial qualifier: this kind of institutional revitalization requires political will that is currently absent. What she observed instead was pragmatism, with each state acting in its national interest and forming bilateral arrangements to meet immediate needs. The UAE’s withdrawal from OPEC+, infrastructure proposals crossing Syria, Jordan, and Lebanon, and the India-Middle East-Europe economic corridor all reflect flexible, interest-driven alignment rather than principled multilateralism.

For resource governance, this pragmatism cuts both ways. It creates opportunities for new forms of regional cooperation. However, it also risks fragmenting the normative frameworks, including transparency standards, revenue arrangements, and accountability mechanisms, that regional institutions could help anchor. The question is whether pragmatic cooperation can carry governance content, or whether it will remain purely transactional.

Reshaping pragmatism in politics and in practice

Dr. Khatib’s framing of pragmatism as the defining feature of the current moment deserves unpacking from a governance perspective. In practice, it appears to involve several concrete choices:

Continuity over long-term investment. Gulf governments are channeling fiscal resources toward security spending and consumer subsidies, crowding out investment in health, education, and development infrastructure. This is rational crisis management, but it defers the structural reforms that resource revenues should be funding.

Bilateral infrastructure deals across previously siloed relationships. Proposals for pipelines through Syria, rail connections to Turkey, and expanded GCC electricity grids are creating economic interdependencies that function as informal security arrangements. At the same time, they raise important governance questions regarding applicable frameworks, risk allocation, and revenue management.

Renewed interest in nuclear energy, with significant caveats. Dr. Nakhle noted growing interest in nuclear power as part of the energy mix but cautioned that interest and investment are not the same. Nuclear infrastructure requires decades, significant capital, strong regulatory systems, and sustained political commitment. These are governance prerequisites that remain demanding even in stable environments.

What we are tracking for the future

The direction of the energy transition. At stake is the direction the region will take as it navigates multiple, and sometimes competing, energy pathways. Current signals suggest a shift toward diversification across energy sources, supply routes, and investment strategies rather than a linear transition model. Increased production, windfall-funded investments, renewed interest in nuclear, and the expansion of renewables may all move forward in parallel, each with different implications for governance, risk, and long-term resilience. Through NRGI’s MENA Just Energy Transition Platform, we will closely track these shifts and work to unpack what this growing diversification means in practice. This includes engaging with policymakers and stakeholders to shape energy policies that are not only effective in managing uncertainty, but also aligned with longer-term development and accountability goals.

The future of regional cooperation: The UAE’s move away from OPEC and its positioning within OPEC+ can be read in two ways. It may signal growing fragmentation within the GCC and a shift toward more individual, interest-driven strategies. Or, it could present an opening to rethink and reinvigorate regional institutions—moving beyond current limitations toward frameworks better equipped to respond to today’s economic and energy challenges. We will continue to follow these developments and unpack what it means to reinvent regional institutions in ways that can more effectively support forward-looking, resilient, and inclusive energy policies.

The impact on development revenues and communities: The allocation of development revenues will shape the consequences of this crisis for countries and communities across the region. The ability of richer GCC countries to support neighboring economies might be diminishing. Countries such as Egypt, Jordan, Tunisia, and Lebanon are already confronting rising costs, limited investment, and increasing pressure on social services. We will continue to prioritize community voices and work toward strengthening their role in decision-making processes especially at a time when policy choices around energy and public finances will have even greater impacts on people’s lives.