Afghan Authorities Accelerate Push for Road and Rail Projects

As the Taliban government pursues an assertive policy to enhance Afghanistan’s logistical infrastructure, interest in the country’s role as a southern transit hub is gaining momentum across West Asia, facilitating the joint implementation of a wide range of new road and rail projects. Leading the charge is Uzbekistan, which has revived its ambitions through the Termez–Mazar-i-Sharif–Kabul–Peshawar railway—better known as the Kabul Corridor—positioning itself at the forefront of regional integration.

Meanwhile, Turkmenistan, backed by Kazakhstan, is advancing a parallel railway initiative through western Afghanistan to secure more direct access to Pakistan’s seaports. In a symbolic move, the foundation for the 22-kilometre Torghundi-Sanobar railway line was laid in September 2024, making a significant step towards reshaping regional connectivity.

The growing engagement between the Central Asian republics and Kabul in the development of transport infrastructure reflects a shared ambition to diversify foreign trade routes and establish more efficient supply chains to access the vast South Asian market. Alongside ongoing projects involving Uzbekistan, Turkmenistan, and Kazakhstan, Afghan authorities have announced plans to construct the Mazar-i-Sharif–Herat–Kandahar railway. This line has the potential to become the shortest trade route between India and Russia, enabling New Delhi to build transport links with Afghanistan and Central Asia while bypassing Pakistan.

Even Iran, which remains the primary conduit linking Central Asia to the warm waters of the Indian Ocean, and, by extension, to global trade, is seeking stronger transport links with Afghanistan. Tehran is planning to launch two railway connections to Afghanistan simultaneously: the Khaf–Herat line in the north and the Zahedan–Zaranj line in the south-west. The railway from Khaf to Herat is nearly complete, and the Taliban intend to extend it to Mazar-i-Sharif, a key Afghan trade hub already connected to the Uzbek-built Hairatan–Mazar-i-Sharif railway (launched in 2011) and the planned Kabul Corridor. Integrating these routes could eventually allow Iran to reach the Wakhan Valley in Afghanistan’s Badakhshan province, which is the narrow strip of land separating Afghanistan from China.

Notably, during a Taliban delegation’s two-day visit to Tashkent in February 2025, Uzbek and Afghan authorities agreed to jointly implement the Mazar-i-Sharif-Herat railway route. According to the Afghan Deputy Prime Minister for Economic Affairs, Mullah Abdul Ghani Baradar Akhund, this project would expand Tashkent’s trade with South Asia, Iran, and China, reinforcing the idea that Tehran could utilise the Kabul Corridor to reach the borders of China’s Xinjiang region. Another potential route could see the Zahedan-Zaranj railway extended to Kandahar and Kabul with its subsequent link to the Wakhan Corridor.

In 2020, Iran began constructing the Chabahar–Zahedan railway line, with plans to extend it to Zaranj in Afghanistan’s border province of Nimroz and further onward to Dilaram and Kandahar. Engineering surveys have already been conducted on the Afghan side for the Zaranj–Kandahar railway, which could offer Tehran an alternative access route to Afghanistan beyond the Herat Road—bringing it one step closer to creating a new overland trade route to China.

Nevertheless, the prospect of reviving the Wakhan Corridor— an outcome eagerly anticipated by Tehran—remains uncertain. In 2024, Afghanistan’s Ministry of Rural Rehabilitation and Development announced the completion of gravel laying on a 50-kilometre stretch of the road. However, substantial investments are needed to turn the ancient route into a viable commercial transit point. The Taliban are striving for help from China, although Beijing has so far adopted a cautious, wait-and-see approach and is in no rush to open its arms to Afghanistan.

Despite this limited progress, Tehran appears unlikely to back down, particularly as it pursues other ambitious projects. One of these is the proposed Iran–Afghanistan–Tajikistan–Kyrgyzstan–China railway corridor, also known as the Five Nation Road.

Its initial section will be the Khaf-Herat railway, scheduled to begin full operations later this year. The route would continue through Sheberghan, Mazar-i-Sharif, Khulm, and Kunduz, ultimately reaching the Tajik border at the Sherkhan Bandar crossing. It would then stretch eastwards across Central Asia to Kashgar in western China, spanning an estimated 2,000 kilometres. In this context, the Taliban’s proposed Mazar-i-Sharif–Herat railway becomes a strategic segment of a broader transit route from Iran to China.

The creation of a Five Nation Transit Corridor could also benefit Turkmenistan, which has long pursued a railway link to Tajikistan via Afghanistan through the TAT project. This initiative emerged in 2013 amid rising tensions between Tashkent and Dushanbe over transit routes and the desire to bypass Uzbekistan.

Turkmenistan completed the first stage of the TAT railway in 2016, spanning from Atamurat (Kerki) through Ymamnazar to Akina. The Akina–Andkhoy segment followed in early 2021. However, the Taliban’s return to power in summer 2021 brought work to a halt, as regional actors reassessed the group’s stance on cross-border infrastructure and foreign engagement. Yet contrary to initial concerns, the new Afghan leadership has shown a pragmatic approach to regional connectivity.

In February 2025, Afghanistan and Turkmenistan agreed to carry out survey and design work for the 55-kilometre Andkhoy–Sheberghan railway line, a project first announced by the Taliban in 2024. Meanwhile, in July 2024, Tajikistan’s Ministry of Transport and the Korea International Cooperation Agency signed a protocol to develop a feasibility study for a 51-kilometre Jaloliddini-Balkhi–Panji Poyon railway, linking Tajikistan to the Afghan border. Both developments indicate a resumption of the TAT project, which could raise concerns in Uzbekistan, given its longstanding role as a key transit country for several of its neighbours’ access to global markets.

The development of trans-Afghan logistics infrastructure is also of growing interest to Russia, which sees the new corridors as a means of extending its flagship International North–South Transport Corridor (INSTC) to Pakistan.

A clear indication of this was the visit of a Russian delegation led by Security Council Secretary Sergei Shoigu to Kabul on 25 November 2024, during which the construction of the Trans-Afghan Railway was discussed. Following talks with the Taliban, Russian Deputy Prime Minister Alexei Overchuk stated that the Russian Federation considers this project as an integral component of the INSTC.

The Russian Ministry of Transport later announced that it would collaborate with Uzbekistan to prepare a feasibility study for a railway through Afghanistan, based on two agreed routes: Mazar-i-Sharif–Herat–Dilaram–Kandahar–Chaman and Termez–Naibabad–Logar–Kharlachi. But this announcement was not confirmed by Uzbekistan Railways.

Russian involvement in constructing both the western and eastern Afghan railway routes—starting from the borders with Turkmenistan and Uzbekistan, respectively—would allow Ashgabat and Tashkent to secure a share of cargo flows between Northern Eurasia to South Asia. Increased competition along these routes is likely to drive down the cost of transit transport over time.

The opening of new trade routes through Afghanistan presents significant opportunities for realising Central Asia’s economic and transport-transit potential. Several key factors should be considered when assessing further developments in this area.

One consideration is the potential reorientation of Uzbekistan towards the western Trans-Afghan railway route. The relative cost-effectiveness of the Kandahar Corridor, compared to the railway via Kabul, could serve as a catalyst for such a shift. Although the Mazar-i-Sharif-Herat-Kandahar-Chaman route (1,468 km) is longer than the Kabul Corridor (647 km), it offers advantages in terms of terrain and security. Additionally, the route can branch towards Iran through the border province of Nimroz in south-western Afghanistan, providing a valuable strategic link for future transport corridors.

Another important factor is the growing security risks in Pakistan, coupled with increasing tensions in Afghan-Pakistani relations. These dynamics may prompt Tashkent and its external partners to reconsider their preferences on the trans-Afghan track, favouring the Kandahar Corridor instead. In this context, prioritising a transit route that connects to the southern regions of Pakistan—those closest to the ocean—would be more appropriate.

Given the growing significance of Afghan transit in transregional logistics, Central Asian countries will need to balance the interests of all stakeholders to prevent the emergence of intensified geopolitical rivalries along these evolving trade corridors. Harmonisation of the trans-Afghan routes currently under development appears to be both the most likely and most favourable scenario for the future. In such a case, the key stakeholders, particularly Uzbekistan, Turkmenistan and Kazakhstan, could pool their resources to establish a unified transregional railway corridor through Afghanistan.

This collaborative approach would enhance the prospects for attracting external investment and accelerating project implementation. Moreover, a consolidated approach is vital for strengthening the region's role in shaping the emerging architecture of trans-Afghan connectivity. If done successfully, Afghanistan could gain a genuine opportunity to position itself as a new transit hub at the heart of Eurasia.

Photo: Asian Development Bank

Iraq Begins to Adjust to Syria’s Post-Assad Reality

On Friday, Iraqi Prime Minister Mohammed Shia al-Sudani met with Syrian President Ahmad al-Sharaa in Qatar—their first encounter. The meeting placed regional security at its core. Talks focused on border control and counterterrorism and shared concerns over instability along the Iraqi-Syrian frontier. 

The collapse of Bashar al-Assad's regime in Syria in early December 2024 ushered in a new geopolitical reality for the Middle East. Syria’s neighbours, such as Iraq, have been prompted to reassess their approach to Damascus. While Baghdad had no deep affinity Assad, the Assad regime at least provided a degree of predictability while also maintaining close ties with Iraq's strategic partner, Iran.

In this new era, the rise of Syria's interim President, Ahmad al-Sharaa—a former al-Qaeda militant in Iraq—has sparked some alarm among Iraq’s security establishment. Iraq's stance on Syria is shaped by its own civil war experience, when cross-border militancy exacerbated sectarian tensions and fueled years of conflict.

Today, Iraqi officials fear that renewed instability in Syria could provide fertile ground for an Islamic State (IS) resurgence, jeopardising Iraq's already fragile security situation. Securing Iraq’s 600-kilometer border with Syria remains the top priority in the midst of ongoing challenges such as cross-border smuggling, extremist infiltration, and refugee flows. At the same time, Baghdad must assess if Syria’s new leadership can be reliable partners and whether deeper political and economic cooperation can be pursued.

In the immediate aftermath of Assad’s departure, Iraq’s leadership adopted an approach of measured pragmatism. Rather than rushing into full diplomatic engagement like several other Arab states, policymakers in Iraq opted for a security-first strategy. This entailed dispatching intelligence officials to Damascus and extending a cautious invitation to Syria’s new foreign minister for talks in Baghdad. Prime Minister al-Sudani reaffirmed Iraq’s commitment to Syria’s sovereignty while swiftly moving to reinforce border security.

The hesitation among Iraq’s leadership reflects both uncertainty over the stability of Syria’s new government as well as internal political debates over normalising diplomatic relations. Al-Sharaa’s past ties to jihadist networks in Iraq has prompted unease. His record is especially sensitive in Baghdad, given the Al Qaeda’s role in orchestrating sectarian atrocities during the 2006-2007 civil conflict.

Having endured a grueling counterinsurgency campaign against IS from 2014 to 2017, and still facing monthly attacks by IS sleeper cells, Iraq remains deeply wary of any potential spillover that could revive insurgent networks within its borders. The continued porousness of the Iraq-Syria border remains a primary vector for IS mobilisation, heightening Baghdad’s concerns.

In the lead-up to the meeting between Sudani and al-Sharaa, Iraq’s initial steps towards engagement with Syria focused on security coordination. In late December 2024, Baghdad repatriated 1,905 Assad-era soldiers who had fled across the border. Around the same time, Iraq’s National Intelligence Director, Hamid al-Shatri, was dispatched to Damascus for talks with Syria’s transitional government, focusing on counterterrorism and intelligence-sharing.

A central issue on the agenda was the al-Hol detention camp, which holds over 40,000 IS-associated detainees—many of them Iraqi nationals—amid deteriorating security conditions. The continued instability in northeastern Syria, where IS remnants remain active, coupled with the uncertain future of the US-backed Syrian Democratic Forces (SDF), pose an immediate risk that Baghdad cannot afford to ignore.

The 10 March 2025 agreement between Damascus and the SDF, which outlines a framework for the eventual integration of Kurdish forces into Syria’s national security apparatus, represents another critical variable in Iraq’s evolving defence calculus. Baghdad is closely monitoring how the deal unfolds, particularly its implications for Kurdish armed groups operating along the Iraq-Syria border. While security officials in Iraq see the agreement as a potential step toward stabilising the area, they remain wary that unresolved tensions between the SDF and Turkish-backed factions could trigger further conflict, with possible spillovers into Iraqi territory.

Damascus has responded with public commitments to closer coordination and has agreed to expand joint counterterrorism efforts. This message was reinforced during Syrian Foreign Minister Asaad al-Shaibani’s first official visit to Iraq in mid-March 2025. During the visit, Shaibani called for the restoration of formal border operations and described enhanced bilateral trade as a priority. 

He also underlined Syria’s readiness to cooperate with Iraq against remnants of IS, framing national safety as a “shared responsibility.” Baghdad, for its part, expressed respect for the Syrian people’s political choices while urging Damascus to ensure the safety of Syrians residing in Iraq. This was motivated by rising tensions following acts of violence targeting Syria’s Alawite minority. Syria’s new leadership has also signalled interest in rejoining regional forums and hinted at deeper future engagement. Nonetheless, it is likely to prioritise security coordination and economic lifelines as initial steps in its post-Assad foreign policy.

Discussions reportedly included the potential reopening of formal border crossings to bolster trade and economic ties, though no official confirmation has been issued. Prime Minister Sudani also extended an invitation to al-Sharaa to attend the upcoming Arab League Summit in Baghdad on 17 May 2025, which would mark Syria’s first participation since Assad’s fall. The encounter underscores both countries’ interest in renewing coordination while also highlighting Qatar’s expanding role as a facilitator of regional dialogue.

Though no formal security pact exists between the two states, the Iraq government has taken proactive steps to fortify its defences. Additional units from the Popular Mobilisation Forces (PMF) have been deployed to reinforce Iraqi Armed Forces positions along the border, aiming to prevent militant infiltration. Iraq has also stepped up its border control operations, targeting smuggling networks and intensifying surveillance of cross-border movements—measures deemed crucial for curbing terrorist activities and illegal trade.

A further issue shaping Iraq’s relationship with Syria is the illicit narcotics trade, particularly the trafficking of Captagon pills, which has long been a highly lucrative industry linked to Syria. Iraqi authorities have escalated anti-smuggling efforts, resulting in several major drug seizures in recent months. These efforts reflect not only Baghdad’s commitment to combating organised crime but also its broader apprehension over how Syria’s new government will handle such networks.

While Iraq’s security forces have intensified enforcement measures, it remains unclear whether Syria’s transitional leadership will actively cooperate in dismantling the entrenched drug trade that flourished under the previous regime. For decision-makers in Iraq, tackling the Captagon crisis is not merely a matter of law enforcement; it serves as a litmus test for the credibility of Syria’s new leadership in managing governance and perimeter control.

Beyond defence issues, Iraq is also entangled in Syria’s unfolding humanitarian crisis. With over 270,000 Syrian refugees residing in Iraq, the government has initiated discussions with Damascus on the possibility of voluntary repatriation. Yet, given Syria’s fragile political transition, the feasibility of such efforts remains highly uncertain. 

Iraq has also expanded its humanitarian aid to Deir ez-Zor and other northeastern Syrian regions, recognising that stabilising these areas is not only a moral imperative but also a strategic necessity to prevent them from becoming breeding grounds for renewed insurgency. Still, the extent of Baghdad's direct involvement in Syria's reconstruction remains ambiguous as the Iraqi government carefully weighs the financial and political risks of committing to more substantial interaction with its fragile neighbour.

While security and political apprehension dominate the immediate landscape, Iraq’s long-term interests in Syria extend to broader economic and infrastructural considerations. The reopening of trade corridors, enhancement of cross-border infrastructure, and development of joint energy projects remain possibilities, but these initiatives all hinge on the stabilisation of Syria’s internal situation. The Iraqi government is closely monitoring whether Damascus can establish a functional administrative and legal framework capable of supporting such cooperation.

Despite deep historical and economic ties between the two countries, reviving meaningful economic connectivity remains a long-term goal rather than an immediate priority. Some Iraqi officials have floated the idea of restoring the long-defunct Kirkuk-Baniyas oil pipeline, which could provide the country with a valuable Mediterranean export route. However, the project remains highly speculative due to political uncertainties and infrastructural constraints. The mutability of post-Assad Syria, combined with an unclear regulatory environment, makes any large-scale economic venture premature at best.

Similarly, Iraq has historically been a key trading partner for Syria, particularly in sectors such as agriculture, pharmaceuticals, and textiles. Yet current trade volumes remain limited, constrained by logistical hurdles, sanctions-related restrictions, and widespread uncertainty regarding Syria’s economic trajectory under its new leadership. Until greater political and security clarity emerges, Baghdad is unlikely to pursue major cross-border infrastructure projects or economic initiatives with Damascus.

Dialogue between Iraq and Syria does not occur in a vacuum. It is heavily influenced by broader regional dynamics, particularly the actions of Iran, Turkey, and the United States. Tehran, which has long been reliant on both Iraq and Syria as strategic buffers and conduits to the Mediterranean, is recalibrating its approach following Assad’s fall. Iran-aligned factions within Iraq’s Popular Mobilisation Forces (PMF), some of which fought alongside Assad’s forces, are navigating a complex transition. While some have cautiously opened channels with Syria's new leadership, others remain sceptical, wary of the new rulers’ Sunni Islamist orientation.

Turkey’s growing presence in northern Syria adds further complexity to Iraq’s calculations. Ankara’s confrontations with the SDF, its broader regional ambitions, and its evolving posture in Kurdish affairs should all factor into the Iraqi government’s strategic planning. 

Recent peace overtures between Turkey and the Kurdistan Workers’ Party (PKK) have also raised questions about Kurdish dynamics across the Iraq-Syria border. Iraqi-Kurdish factions are monitoring these developments closely, as any shifts in Turkey’s Syria policy could directly impact their own force readiness and political leverage.

Meanwhile, the uncertain future of US policy in Syria also weighs heavily on decision-makers in Iraq. While American forces continue counterterrorism operations in northeastern Syria, primarily in coordination with the SDF, the long-term sustainability of this presence remains in doubt. A potential US drawdown—currently projected for September 2025—could have significant repercussions for Iraq. Should Washington scale back its commitment, a resulting security vacuum could embolden IS remnants, compelling Iraq to step up its border control efforts to prevent the instability from spilling over. 

For now, Iraqi officials are expected to continue pursuing a phased, security-first approach when it comes to relations with Syria. As regional actors, including Turkey, Iran, and the United States, readjust their positions on Syria, Iraq must carefully navigate its own path, ensuring that its national security remains the cornerstone of its Syria policy.

The trajectory of Iraq-Syria relations in the coming months will hinge on whether Syria’s new leadership can establish stability, contain security threats, and lay the groundwork for meaningful regional cooperation. Until then, Iraq’s engagement is expected to remain cautious, pragmatic, and primarily focused on safeguarding its own frontiers.

Photo: Getty Images

Gulf States Offer Development Assistance in Central Asia as Western Donors Step Back

Recently, bilateral and multilateral relations have intensified between the five Central Asian republics and the six member states of the Gulf Cooperation Council (GCC). In addition to a surge in diplomatic visits and meetings at the state level, there are also signs of increasing GCC investment plans in Central Asia. This is accompanied by growing people-to-people and business  contacts; operators report a rise in travel between the two regions, while experts highlight the GCC as a potential labour migration destination for Central Asian workers. 

Against the backdrop of a seemingly encouraging overall picture, it is also important to consider development assistance. In Central Asia, Kazakhstan, and Turkmenistan are upper middle-income countries, with Kyrgyzstan, Tajikistan and Uzbekistan being lower middle-income countries. The latter three Central Asian republics receive development assistance to a larger extent, while Kazakhstan has started developing its own development agency. Nonetheless, all five countries remain assistance recipients. 

Traditional development assistance providers are based in the Global North, particularly among Western states. As such, many of the world’s leading development actors, such as the United Kingdom and France, are also former colonial powers. This often raises debates on how to approach aid and ensure historical injustices are addressed. So-called ‘new development assistance’ includes recently emerged major economic powers, who have received development aid themselves in the past, including China, India, and Brazil, among others. 

The GCC states thus represent an emerging wave of development assistance providers, having only recently begun to establish their profiles as global development donors. Central Asia, on the other hand, offers opportunities to engage in development aid in a politically safe and transparent manner. Having long been a recipient of development assistance, Central Asia still requires external support but has also accumulated sufficient knowledge and experience to engage with donors efficiently and transparently. 

The United Nations recommends developed nations to allocate 0.7 percent of their gross national income (GNI) to development assistance. The leading development assistance providers in the GCC—Saudi Arabia, Kuwait, Qatar and the United Arab Emirates—collectively contributed $9.2 billion in development aid in 2022 alone, concretising the region’s role in global development. Moreover, these states have established formal aid agencies and report significant outbound assistance

At the regional level, the GCC states have contributed to multilateral organisations such as the Islamic Development Bank, where they are major stakeholders. These efforts are often announced at GCC summits or ministerial meetings, with funding decisions aligning their collective strategic priorities. According to a 2023 report by the Center for International Policy Research, in 2021, the UAE provided $47.2 million in development aid to Central Asia, while Qatar allocated $5.2 million. Saudi Arabia contributed $43.6 million, and Kuwait distributed $33.3 million in further development assistance to the region. 

Inter-regional multilateral relations are becoming increasingly substantial and regular. The inaugural GCC-Central Asia Summit took place in the Saudi city of Jeddah on July 19, 2023. The next summit is scheduled to be held in May 2025 in the Uzbek city of Samarkand. In between these two milestone meetings, there have been a series of ministerial meetings, where cooperation in trade, economic, investment, transport and communications, cultural, humanitarian, environmental, and tourism sectors were discussed.

However, there remains a gap in the regional landscape in climate finance in Central Asia that must be addressed. The Trump administration’s recent suspension of all foreign aid sent shockwaves across the global development sector, sparking confusion and panic. While the full impact of this decision is yet to be realised and analysed, it is clear that at least some areas of economic development and welfare worldwide—including Central Asia—will require additional support. 

In addition, the GCC states, alongside other development donors, have a unique opportunity to carry out a conceptual overhaul of the global development aid approach. Conventional development assistance has faced significant criticism, ranging from neocolonial allegations to concerns about inefficiency. The GCC has both the resources and the strategic positioning to create something new, innovative, and more effective. Entering Central Asia as a relatively neutral actor, the GCC is unburdened by a complicated shared past, unlike Russia, or politically motivated aid, as seen with the EU or the US. This neutrality could help facilitate a mutually beneficial and more equitable partnership between the two regions. 

Engaging in development assistance in Central Asia provides the GCC with an opportunity to boost its soft power in the region. There are numerous avenues for bilateral and multilateral cooperation to choose from, including, but not limited to, public healthcare, education, tourism, and poverty alleviation. 

However, two key challenges may impede smooth development cooperation between the GCC and Central Asia. First, the GCC lacks a designated agency focused on multilateral development cooperation and the pooling available funds to support developing countries. In contrast to certain nations and other international entities that have separate organisations—such as USAID or EU AID—there is no specific GCC development assistance agency with a distinct name and brand. Branding is crucial in international development, particularly for visibility and public support on the ground. Development assistance serves various objectives, one of which is to build a positive image of the donor, thereby strengthening its soft power on both global and local levels. 

The closest equivalent to a dedicated development agency within the GCC is the coordinated effort under the GCC Secretariat General, often linked to initiatives like the Gulf Programme for Development (AGFUND). However, the execution of these efforts is largely delegated to national entities like the Saudi Fund for Development or Kuwait Fund for Arab Economic Development. National institutions within the GCC's member states occasionally collaborate in distributing development assistance and work with regional mechanisms or funds set up under the GCC's guidance.

Second, there is a clear lack of in-depth knowledge and understanding of the local and regional context in Central Asia, as well as the specific needs on the ground. It is no secret that, until recently, the GCC-CA interaction has been fairly limited; both regions have prioritised closer partnerships elsewhere in the world. However, the high-level GCC-C5 Summit in 2023 and the upcoming Summit in Samarkand this year signal a growing commitment from both sides to deepen ties. 

Policymakers in the GCC might consider streamlining regional development assistance, channelling it through intra-regional cooperation paths. This approach will help donor coordination, on one hand, and increase the visibility and impact of development assistance on the other. Meanwhile, policymakers in Central Asia could prepare and pitch ready-made proposals on how external national donors might contribute to the region’s economic development and welfare. Clear and transparent requests would make it easier for willing donors to justify their contributions domestically and internationally, creating the space for growth within this delicate dynamic.

While there is limited recent history of deep and meaningful interaction between the GCC nations and the Central Asian republics, the future of inter-regional cooperation appears cautiously bright. As the conventional development partners, such as the US and the EU, either withdraw completely from the international development sector or turn their focus to regions like Ukraine, the GCC countries are emerging as the new key actors in development assistance. 

At this stage, Central Asia has accumulated notable experience and expertise in engaging with development cooperation. Countries like Kazakhstan are on the verge of a transition from being recipients of development assistance to becoming providers themselves. But the majority of the region still requires external support, especially in the areas of economic development and transition to renewable energy. In light of this, the GCC could become a much more powerful player in this field.

Photo: Presidential Administration of Uzbekistan

Facing New Alignments, Iran and Tajikistan Relaunch Partnership

Earlier this month, Mahmoud Khosravi Vafa, the head of Iran’s National Olympic Committee, met with Shamsullo Sohibov, Vice-President of Tajikistan’s National Olympic Committee, to discuss improving sports cooperation. The meeting was more than just a consultation between two bureaucrats, it marked the latest step in the recent rekindling of the relationship between Iran and Tajikistan, two countries with deep linguistic and cultural ties.

Once described as “one spirit in two bodies" by the ex-president of Iran, Mahmoud Ahmadinejad, the relationship between Iran and Tajikistan underwent an unexpected breakdown in the mid-2010s. Now, as Iran continues to struggle under Western sanctions, contend with a new hostile US administration, and adapt to its weakened position in the Middle East, it is again turning east. For its part, Tajikistan is pursuing a multi-vector foreign policy, diversifying relations with as many international partners as possible to secure economic and political assistance.

After the collapse of the Soviet Union, Iran was the first country to recognize Tajikistan’s independence and establish an embassy in the capital, Dushanbe. Tajikistan reciprocated by opening one of its first foreign embassies in Tehran in 1995. Subsequently, during the civil war in Tajikistan between 1992 and 1997, Iran was part of a foreign coalition that helped mediate the conflict. In this period, Tehran also cautiously supported the Islamic opposition to the current regime in Dushanbe.

After Tajikistan’s civil war ended, Iran made lofty pronouncements of friendship but took few concrete steps towards collaboration. But following the September 11 attacks and the deterioration of Western economic and political relations with the Middle East and its surrounding countries, Iran began to reinvigorate foreign policy towards Tajikistan to compete with the growing Western influence in West Asia.

During two terms in office, former Iranian President Mohammed Khatami committed to funding large-scale infrastructure projects in Tajikistan, such as the strategically significant Anzob Tunnel and Sangtuda-2 hydropower plant. Total trade between the countries tripled from $40 million in 2000 to $140 million in 2007. However, the relationship rested primarily on economic diplomacy; politically, Iran was more focused on counterbalancing the US presence in Afghanistan and on deferring to Russian decisions in Central Asia due to Russia’s support for Iran’s nuclear program.

Mahmoud Ahmadinejad’s presidency led to a complete reorientation of Iran’s foreign policy towards its eastern neighbors and against the Western agenda in the region. While in office, Ahmadinejad met annually with Tajik President Emomali Rahmon, whose government remained quietly wary of Iran, given its role in the Tajik civil war, the accelerating nuclear program, and the desire to avoid being dragged into Iran’s conflicts with Israel and the US. Prioritization of economic diplomacy over politics remained the foundation of Dushanbe’s foreign policy, allowing it more flexibility in playing its allies against each other and extracting more concessions. However, at the time, Tajikistan accepted Ahmadinejad’s overtures, lacking better options in the face of minimal Western economic assistance.

Nonetheless, Iran’s investments proved to be problematic. The Anzob Tunnel was shoddily and hastily finished just in time for President Ahmadinejad’s first visit to Tajikistan in 2006, and poorly maintained even a decade after its construction. Moreover, the construction of Sangtuda-2 was finalized only in 2013—significantly behind schedule—and the power plant was shut down briefly over Tehran’s concerns that Dushanbe could not eventually repay the construction loan. Finally, the US government turned its attention to Iran’s use of Tajikistan’s then largely unregulated financial sector to circumvent Western sanctions and to launder money for Iran’s Islamic Revolutionary Guard Corp (IRGC), as exemplified in the case of Iranian businessman Babak Zanjani.

Zanjani, who owned a bank, an airline, a taxi service, and a bus terminal in Tajikistan, was sentenced to death in Iran for allegedly embezzling over $2.7 billion from the country’s state-owned oil industry. His foreign investments were expected to be seized and returned to Iran’s government. But the Tajik authorities denied having any of Zanjani’s assets, angering counterparts in Iran.

In December 2015, Iran, which supported Tajikistan’s moderate Islamic Renaissance Party (IRPT) during the country’s civil war, invited its leader Muhidin Kabiri to an Islamic conference where he was warmly welcomed by the Supreme Leader Ali Khamenei. The government of Tajikistan, which had accused IRPT of an alleged coup attempt just a few months prior, arrested several of its members. Moreover, the Tajik authorities designated the only religious political party in Central Asia a terrorist organization, immediately issuing a note of protest to Iran. The Foreign Affairs Ministry of Tajikistan angrily summoned the Iranian ambassador. The head of the Council of Ulema of Tajikistan described Iran's invitation of Muhidin Kabiri as "abetting terrorism."  

Dushanbe’s reaction echoed not only the tensions of the civil war but also the country’s deep commitment to secular government, a legacy of the Soviet Union. The Tajik government distinguishes between traditional Islam, which it supports as part of Tajik social life and culture, and political Islam, which it views as a potential threat to state power. Dushanbe’s secular stance allows it to play up the threat of religious extremism to crack down on political rights domestically. The avowed opposition to political Islam has also allowed the country to seek Western aid–a strategy that always stood in conflict with theocratic Iran’s politics.

In response to Iran’s reception of Kabiri, Tajikistan halted the imports of Iranian food products, including poultry, cooking oil, and tea, for the alleged poor quality of these products, as well as a lack of compliance with Tajikistan’s language regulations for product labels. In July 2016, the Transportation Ministry of Tajikistan publicly accused Tehran of violating the terms of the contract to build a key regional railway. Later, the authorities suspended the Tajik branch of the Imam Khomeini Relief Committee, a charity organization supported by the government of Iran. 

Arguably, the most significant blow to the countries’ relationship landed in August 2017. In a 45-minute documentary aired on Tajik state television, the Internal Affairs Ministry accused Tehran of fomenting the civil war in Tajikistan, providing financial assistance to the now-pariah IRPT, and training Islamist militants on Iranian soil to then be sent back to Tajikistan to carry out political assassinations—claims the government of Iran vehemently denied. 

At the time, it seemed as though the only pan-Persian alliance in the region was over. Yet the sudden American withdrawal in May 2018 from the Joint Comprehensive Plan of Action under President Trump once again highlighted Iran’s urgent need to continue building relationships with its eastern neighbors. Supreme Leader Ali Khamenei has repeatedly emphasized that Iran must “look to the East” for strategic allies who can help Iran resist Western pressure and overcome the banking and trade issues brought on by Western sanctions.

Thus, in 2019, Tehran and Dushanbe resumed communications. The volume of bilateral trade rose from around $55 million in 2020 to $121 million in the following year. Former Iranian president Hassan Rouhani visited Dushanbe in June 2019. In September 2021, the late Iranian president Ebrahim Raisi made Dushanbe the destination in his first foreign trip.

In May 2022, Iran inaugurated a drone production factory in Tajikistan, the first such facility that Iran has built in a foreign country. The factory builds and exports Ababil-2—a reconnaissance and combat drone that has been widely used by Russia in Ukraine—and represents not only Iran’s resumed security cooperation with Tajikistan but also attempts to counter its regional rivals’ influence in the country. This comes in response to Saudi Arabia taking advantage of the preceding period of ruptured relations between Iran and Tajikistan. During this time, Saudi Arabia invested in several economic and development projects in Tajikistan, pure geopolitical opportunism from Riyadh seeking to deprive Tehran’s position as a key ally and investor in Tajikistan. Iran’s drone factory is also an attempt to outrun both Turkiye, who reportedly sold its Bayraktar TB2 drones to Tajikistan in April 2022 during a brewing border conflict with Kyrgyzstan, and Israel, who regularly attacks Iran’s domestic drone-producing capabilities but will likely avoid doing so outside of Iran’s borders.   

A few months later, in September 2022, Iran signed a memorandum of accession to the Shanghai Cooperation Organization (SCO) at the organization’s summit in Samarkand, Uzbekistan, becoming a full member in July 2023— a development that Russia and China strongly favored. Soon after, President Rahmon and President Raisi held talks on the margins of the 78th session of the United Nations General Assembly, where they discussed further expansion of bilateral cooperation. A flurry of high-level visits and signed agreements followed, including a historic establishment of a visa-free regime between the countries in November 2023.  

The relationship between the two countries reached a new high in January 2025 during President Masoud Pezeshkian’s three-day visit to Dushanbe. Pezeshkian was warmly received as the guest of honor at the Tajikistan-Iran Trade, Economic Investment, and Tourism Forum. The two sides signed two dozen agreements on security, combatting drug trafficking and corruption, simplifying trade and customs, and improving transportation and education links. But while President Pezeshkian spoke of discussions between the sides covering the situation in Afghanistan and the war in Gaza, President Rahmon of Tajikistan emphasized developing cooperation in mining, pharmaceutical, industrial, and agricultural sectors, a reflection of Dushanbe’s continued desire to avoid controversial political topics and stick to economic and cultural collaboration.

Notably, the two presidents reopened the Institute of Tajik-Persian Culture in Dushanbe, which had been shut in the mid-2010s during the nadir in bilateral relations. President Pezeshkian also laid a wreath at the statue of Ismoil Somoni–a significant figure in Persian culture and history–and visited the Avicenna Tajik State Medical University, where he received an honorary professorship. The concluding government statements called on both sides “to find new and profitable ways of cooperation.”

The rekindling of the partnership between Iran and Tajikistan benefits both sides. Iran gains access to a largely untapped, albeit minor, market for its exports and diversifies its trade relations, allowing it more flexibility in the face of Western sanctions on Tehran and Moscow. A presence in Tajikistan brings Iran even closer to Russia and China, the two major geopolitical players in Central Asia, and provides Iranian leaders another avenue for security collaboration on Afghanistan. Finally, a foothold in Tajikistan allows Iran to counter the growing influence of Saudi Arabia and Turkiye in Central Asia after major losses in its political weight in the Middle East since 2024.

For Tajikistan, Iran is another source of foreign direct investment and a minor opportunity to ease its labor migration, trade, and economic assistance dependence on China and Russia, especially as the war in Ukraine and its fallout drag into its fourth year. Access to Iran’s regional transportation links and especially its security capabilities is another important consideration as Tajik authorities prepare for a long-awaited presidential transition. As President Rahmon prepares to transfer power to his son Rustam, his regime is looking for as many allies as possible to ensure stability during the transition.

Rekindling ties with Iran has its benefits. But it will also force Tajikistan into an old dance of balancing Iran’s internal and external politics with its own relationship to political Islam and its desire to stay neutral on the world stage. The two countries may share the same spirit, but they do not yet appear to share the same interests.

Photo: IRNA

GCC and Central Asia Want More Trade, But Connectivity Remains a Hurdle

Over the course of the past five years, the six countries of the Gulf Cooperation Council (GCC) and the five republics of Central Asia have taken several important steps to expand their economic and diplomatic relations. In addition to the advancement of bilateral relations among members of these two blocs, efforts have also been made at the regional level involving multiple countries from both sides. This includes several gatherings at the ministerial level, as well as the 2023 GCC-C5 summit that convened the six GCC and five Central Asian countries—Kyrgyzstan, Kazakhstan, Uzbekistan, Tajikistan, and Turkmenistan—in Saudi Arabia. The high-level summit resulted in a joint statement on the framework for economic relations. Preparations are currently underway for a follow-up summit in May 2025 in Samarkand.

The volume of trade between the two blocs is currently small. According to data compiled by the World Bank, the share of GCC countries in total exports of goods by Central Asian countries was only 0.8 percent in 2022. The ratio was even smaller for Central Asia’s largest economy, Kazakhstan, which exported only $462 million to GCC countries. This amounted to 0.55 percent of its $83.5 billion total goods exports in that year.

Trade relations are expected to expand from this low base if the forthcoming summit in Samarkand is fruitful. Not only is the GCC interested in the minerals, metals, and agricultural commodities that Central Asia can offer, but both regions are moving toward economic diversification. This will increase the range of manufactured and semi-processed goods that they can exchange.

While both sides have expressed a strong desire to expand their investment and trade relations in many sectors, transit routes and transportation costs pose important considerations for their respective political leaders and business communities. In their July 2023 summit, the leaders of GCC and Central Asia were already mindful of this issue. Connectivity was addressed in the Article 12 of the Summit’s Joint Statement: “The leaders stressed the importance of developing connected transportation routes between the two regions, building strong logistical and commercial networks, and developing effective systems that contribute to the exchange of products.”

The transport networks between GCC and Central Asia cross through several countries. Three distinct transport routes can potentially provide land connectivity between the regions in the coming years. These are the North-South Transport Corridor (NSTC) that runs mainly through Iran, the Development Road Project (DRP) that runs through Iraq, and the Trans-Afghan Corridor. Each of these multi-modal routes presents its own unique opportunities and challenges.

Firstly, it is important to consider the NSTC route through Iran. Currently the Central Asian countries have access to highway and rail transit through Iran to the Persian Gulf and the Gulf of Oman. With cooperation of Iran, Russia, and several Central Asian countries the rail connectivity has been operational since 2016. The trans-Iranian Railway connects the Sarakhs railway station on Iran-Turkmenistan border to the Bandar Abbas port on the Persian Gulf and this route is already in use by the Central Asian countries. 

Highway transit for cars and trucks is also operational; Iran’s network of roads and highways connects the Iran-Turkmenistan border crossings to several seaports in the Persian Gulf, from which containers can be transported to GCC countries by ship. The railroad transit will expand further with the completion of the Sarakhs-Chabahar railway line. Nearly two thirds of this route is already complete. The only remaining piece is the Chabahar-Zahedan segment which is currently under construction, though progress is slow due to economic sanctions. Iranian government officials expect this project to be completed by late 2025.  

These transit routes through Iran are safe,  offering the shortest and most cost-effective routes for GCC-CA connectivity. However, many GCC economic operators will avoid using this route in compliance with the U.S. economic sanctions against Iran. GCC countries have demonstrated high compliance with the U.S. sanctions against Iran because of their heavy reliance on American security and military protection; this cooperation is likely to continue in the future. 

Another transit route that can be used for trade between the GCC and Central Asia is the proposed north-south Development Road Project, which will, using rail and highway, connect Iraq’s Faw port at the tip of the Persian Gulf to Turkey’s broader transport network. This project is currently in its final planning stage according to Iraq’s Transport Minister, Razzaq Muhibis Al-Saadawi. After the recent improvement of diplomatic relations between Iraq and GCC countries, Qatar and the UAE have expressed an interest in providing additional financial support, assisting Iraq and Turkey in the endeavor. 

The DRP offers a significantly longer transit route compared to the Iran option. Additionally, it requires greater international coordination, as it passes through multiple countries—Iraq, Turkey, Georgia, and Azerbaijan—before requiring sea transport across the Caspian Sea to reach either Turkmenistan or Kazakhstan for connections to Central Asia. The Turkey-Turkmenistan segment, which is part of the Belt and Road Initiative’s middle corridor between Asia and Europe, is already operational. If Azerbaijan and Turkey can convince Armenia to provide them with a transit corridor, this route will become shorter and more cost efficient, yet still less economical than the Iran option. 

The DRP also faces several geopolitical and governance challenges. Kurdish militias that are in war with Turkey operate in the mountainous regions of Northern Iraq, near the Turkish border, posing a security risk to the road both during its construction and after completion. The Iraqi government’s opposition to the participation of the Kurdish Regional Government (KRG) poses another obstacle to the viability of this project as disagreements between Baghdad and KRG can lead to more disruption. 

Another challenge is the many governance issues in Iraq’s fragmented government structure, which has reduced the government’s efficacy and ability to implement long-term plans. Fortunately, Iraq’s political system has become more stable in recent years, contributing to better conditions for the implementation of the DRP. A recent security agreement between Turkey and Iraq might also reduce the security risks in northern Iraq.

A third land transit route between the GCC and Central Asia is the Trans-Afghan option, which will offer rail transit from Uzbekistan to Pakistan’s Karachi and Gwadar seaports on the Arabian Sea through Afghanistan. Cargo would be able to be transported from these ports to various GCC destinations in the Persian Gulf by ship. The Trans-Afghan Corridor has received support from Kazakhstan and Uzbekistan as the primary Central Asian stakeholders. Uzbekistan has also approached Qatar and the UAE for financial investment in this project, which is estimated to cost $7 billion.

Under the previous Afghan government, the Taliban posed a security risk to the Trans-Afghan Corridor. Now, in a turn of events, the Taliban-led government is a strong supporter, engaging in active negotiations with all stakeholders to expedite the project. In 2024, Afghanistan signed an agreement with Uzbekistan and the UAE to launch a feasibility study for the project. Pakistan is also lobbying the Central Asian countries, Qatar, and the UAE for support. 

Another important tailwind behind this project is the support of several other countries, including Russia and Belarus, which are also interested in development of the Afghan route. For Russia, which faces sanctions and security risks along its Baltic and Mediterranean transit routes, the Trans-Afghan Corridor will serve as an additional branch of the already operational NSTC route through Iran. In addition to the Uzbek option, Russia is also advancing an alternative branch of the Trans-Afghan railway via the Turkmenistan-Afghanistan border, further expanding the capacity of transit routes through Afghanistan.

The transit corridor competition that is currently underway between Iraq, Iran, and Afghanistan will increase the land connectivity options among the GCC and Central Asian countries in the coming years, reducing exposure to the risk factors in any single country that lies between the two blocs. While at present the only operational route is via Iran, it is encumbered by sanctions risks. The completion of the DRP and the Trans-Afghan Corridor will provide valuable alternatives despite being lengthier and hence more expensive. Their development will be reassuring to both the GCC countries and the Central Asian countries as they seek to boost trade ties as part of a process of West Asian integration.

Photo: Leonid Andronov

New Climate Financing Targets Present Opportunity for the Gulf

Following two weeks of COP29 negotiations, exhibitions, and panel events, delegates representing governments around the world reached a major consensus. Most significantly, they agreed wording on a new climate financing target for developing countries, international carbon market standards, and a support programme for national adaptation plans (NAPs) for the least developed countries.

These three key victories for the climate agenda present great opportunities for the Gulf states, particularly Saudi Arabia, the United Arab Emirates, and Qatar—collectively referred to as the Gulf 3—to play a leading and supportive role in investing in a 1.5C-aligned and resilient future, which was the fundamental aim of the 2015 Paris Agreement.

At the 2009 Copenhagen Climate Summit (COP15), developed countries agreed to mobilise $100 billion of annual climate financing for developing countries by 2020. This target was unfortunately never met, with the deadline extended to 2025 during the Paris Agreement signifying a commitment to updating the target to increase its ambition by the end of the decade. This brings the focus to 2024’s negotiations, which culminated in this target being updated to $300 billion annually by 2035.

This target and metric are highly contested. Developing countries want to increase the target further as their financing needs are much greater than this amount. The Overseas Development Institute has estimated that the need is closer to $1.3 trillion per year by 2035, which is the new cumulative goal. Moreover, much of this financing is currently provided in the form of debt rather than grants, adding to existing debt obligations, which is especially challenging for small and developing nations.

The new agreement requires the 24 developed nations, across Europe, the United States, Japan, Australia, and New Zealand, to deliver on this target. A broader climate financing target of $1.3 trillion has also been set by 2035, and “voluntary” contributions from countries outside the original 24 are allowed to be included in this figure.

Fossil-fuel-dependent states, including the Gulf 3, have faced criticism for their role and influence over the talks, but the opportunity remains for them to contribute further, as part of this new metric for South-South financing.

Documenting and disclosing existing investment flows can build transparency and show the world that the Gulf 3 are serious about contributing to global climate finance flows. Once this reporting infrastructure is in place, the next opportunity for the Gulf 3 would be to demonstrate their leadership and commitment to South-South climate financing by increasing financial flows from the baseline to help meet the $1.3 trillion annual funding target by 2035.  Alongside the likes of China and Korea, this effort will help to further increase South-South climate financing.

According to the World Investment Report released earlier in 2024 by the UN Conference on Trade and Development, foreign direct investment outflows from the Gulf 3 totalled some $38.2 billion in 2023, down from its peak  of $58.2 billion in 2022. While a more detailed breakdown of the share of these investments that can be considered climate financing and the proportion  allocated to other developing countries is not available, this demonstrates the scale of capital available from the Gulf 3 for this opportunity.

A significant chunk of this financing came from Saudi Arabia’s sovereign wealth fund, known as the Public Investment Fund (PIF), with some $620 billion in assets under management. Of the thirteen “vital and strategic" investment sectors PIF has identified for the upcoming five years, seven are crucial to climate financing going forward: food and agriculture, metals and mining, transport and logistics, automotives, real estate, construction and building, utilities and renewables.

A similar sector focus can be seen in the investment portfolios of the UAE and Qatar. The Abu Dhabi Investment Authority (ADIA), Mubadala Investment Company (MIC), Emirates Investment Company (EIC), and Qatar Investment Authority (QIC), which boast a combined portfolio of $1.8 trillion, are responsible for driving investments that can help to fill this global green financing gap. In particular, the Abu Dhabi Fund for Development has a designated mandate for concessional and sustainable financing to local and global emerging economies.

COP29 also led to defined rules for both Article 6.2 and 6.4 in relation to carbon markets. The International Emissions Trading Association estimates this can raise $1 trillion of additional financing for developing countries by 2050, by channelling funding into nature-positive projects, particularly in developing nations. Article 6.2 defines the framework for countries to make bilateral agreements to exchange and trade carbon credits. Article 6.4 creates a centralised international carbon market, supervised by the UN who then validates, issues, and verifies carbon credits.

The defining of Article 6.2 and 6.4 market mechanisms means that legal and regulatory frameworks now exist for the Gulf 3 to partner bilaterally and multilaterally with countries around the world to improve the supply and demand for these carbon credits, working towards a high-quality and high-price carbon credit market.

In Baku last month, Saudi Arabia’s PIF launched a carbon credit exchange called the “Regional Voluntary Carbon Market Company,” with the auctioning of 1 million tons of carbon offset credits. Last year, the UAE Carbon Alliance announced targets to buy USD450m of Africa’s carbon market initiative, with the UAE additionally considering developing its own Emission Trading System. At the same time, Qatari firm Emsurge has announced a public-private partnership to fuel its own carbon market development.

The outcomes of COP29 present a critical opportunity for the Gulf 3 to align their financial resources with global climate goals. By scaling investments through sovereign wealth funds like PIF, ADIA, and QIC, these nations can help close the global climate financing gap and drive South-South cooperation. Transparent documentation and a commitment to increasing flows will showcase their leadership in building a resilient, 1.5C-aligned future.

Photo: WAM

New Agreement Boosts Prospects for Connected Grids in the Gulf

The October 9 agreement to finally connect Iraq to the Gulf Cooperation Council Interconnection Authority (GCCIA) marks a significant step toward greater energy integration in the region. Originally established to link the power grids of the six GCC states—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—the GCCIA has been gradually expanding its reach. Iraq’s inclusion in this regional grid highlights the growing importance of cross-border energy cooperation to address the rising electricity demands in the Gulf. Iraq’s existing energy ties with Iran, however, suggest that the region could be on the verge of an even more ambitious project: a Gulf-wide power grid that includes all eight Gulf states. 

Energy demand in the Gulf has surged over the years, driven by rapid population growth, industrialization, and the region’s heavy reliance on energy-intensive processes such as water desalination. Between 2010 and 2023, the Gulf's population grew from 153 million to 194 million, with projections indicating it could exceed 300 million by 2050. This population boom has placed immense pressure on power generation systems, which remain dominated by fossil fuels. In 2022, electricity demand alone accounted for about 15% of the total energy consumed in the region, with per capita electricity consumption growing by 74% between 2000 and 2022. This rise in demand is largely the result of increased industrial and commercial activity, infrastructure development, and economic growth, all of which require significant amounts of electricity.

Moreover, most regions surrounding the Gulf experience extremely high temperatures during the summer months, often reaching 50°C. As a result, space cooling has become essential, further driving up electricity consumption. The scarcity of freshwater in the region also leads to heavy dependence on desalination, which is a highly energy-intensive process. Reverse osmosis, one of the commonly used desalination technologies, is particularly reliant on electricity for mass production. Additionally, Gulf governments have historically subsidized electricity, making it relatively cheap for consumers. While this has helped meet public demand, it has also encouraged inefficient consumption patterns.

As of 2023, the Gulf’s combined installed power capacity stood at 272 gigawatts, with 70.4% of electricity generated from natural gas, 25% from oil products, 2.2% from nuclear, 2.2% from renewables (hydro, solar, and wind), and 0.2% from coal. The residential and commercial sectors are the largest consumers of electricity in the Gulf, accounting for 40% and 30%, respectively. In contrast, the industrial and agriculture sectors make up 22% and 6%. In 2022, the total carbon emissions from electricity generation in the Gulf amounted to about 700 million tons, representing 38% of the region’s total energy-related carbon emissions.

Cross-border electricity trade has also become an important feature of the Gulf’s energy landscape to meet rising demand. Between 2016 and 2022, the accumulated electricity trade in the region amounted to 126.5 terawatt-hours (TWh). Notably, about 55% of this trade involved Iran, which exports electricity mainly to Iraq while importing from countries such as Armenia, Azerbaijan, and Turkmenistan. Iraq accounted for 40% of the region’s electricity trade, all of which was imported from Iran. The GCC countries accounted for the remaining 5%, exporting and importing electricity among themselves through the GCCIA grid.

Iraq, in particular, has struggled with chronic electricity shortages. Despite an installed generation capacity of around 29.4 GW, inefficiencies and under-maintenance have reduced Iraq’s available capacity to just 15.7 GW. In 2022, peak electricity demand reached 30.5 GW, nearly double the available capacity, leading to regular power outages. Iraq has long relied on electricity and natural gas imports from Iran to help meet its energy needs. In 2022, Iran exported 3.5 TWh of electricity to Iraq through four transmission lines, and the two countries signed a five-year agreement in 2023 to import 50 million cubic meters of Iranian gas per day. These imports have been especially crucial during the summer months when electricity demand peaks.

However, Iraq’s reliance on Iranian energy is complicated by US sanctions on Iran. Since the US withdrew from the Joint Comprehensive Plan of Action (JCPOA) in 2018, Iraq has received waivers to continue importing Iranian electricity and gas. Yet, delayed payments and mounting debt—estimated at $11 billion—pose significant challenges. Iraq spends about $4 billion annually on Iranian energy, but US sanctions have delayed the country’s ability to make timely payments, leading to substantial debt accumulation. To settle this debt, Iraq proposed an oil-for-gas barter deal in 2023, allowing it to repay Iran through crude oil. However, opposition from the US Congress and ongoing conflicts in the Middle East continue to hinder the smooth functioning of Iraq-Iran energy cooperation.

Iran itself faces significant domestic energy challenges, including infrastructure problems and environmental factors such as droughts that have reduced its hydroelectric output. In 2021, Iran faced a 12 GW gap between peak summer electricity demand and supply. These domestic issues highlight the potential benefits of integrating Iran into the broader GCCIA grid, which could help stabilize Iran’s power system while benefiting the region as a whole. Iran’s vast land area and renewable energy potential—particularly in solar and wind—could complement the Gulf’s energy needs. By connecting Iran to the GCC grid, the region could also better manage electricity demand across different time zones, as argued by Robin Mills, leveraging the 1.5-hour time difference between eastern Iran and western Saudi Arabia to extend the availability of solar power during peak hours.

The potential for a Gulf-wide energy grid that includes Iran, Iraq, and the six GCC states presents significant opportunities for enhancing energy security, sharing resources, and balancing electricity supply and demand across the region. However, significant challenges remain. 

Expanding the GCCIA grid to include Iran would require substantial investment in infrastructure, including new transmission lines and modern grid management systems. Iran’s aging power infrastructure would need to be upgraded to ensure reliable connectivity with the Gulf states. Additionally, coordinating electricity markets and pricing across such a diverse group of countries would require careful negotiation and planning. Geopolitical tensions as well as US sanctions, pose other major obstacles to integrating Iran into the GCCIA grid. 

Despite these challenges, a Gulf-wide grid could foster greater political and economic cooperation. Energy interdependence could reduce regional tensions and encourage collaboration on other critical issues, such as water security and climate change adaptation. The Gulf is particularly vulnerable to the effects of climate change, including extreme heat, water scarcity, and rising sea levels, all of which could destabilize power grids. Multilateral cooperation on energy could play a key role in mitigating these risks in the Gulf.

The agreement to connect Iraq to the GCCIA represents a turning point in the Gulf’s energy landscape, opening the door to broader regional cooperation. With regional diplomacy expanding between Iran and the Arab states of the Gulf, the possibility of integrating Iran into a Gulf-wide electricity grid becomes an increasingly tantalizing prospect. 

Photo: GCCIA

Iraq and Turkey Seek Cooperation Through Connectivity

Spearheaded by Iraq and Turkey, the Development Road Project (DRP) is an ambitious trade route connecting the Persian Gulf to Europe through rail, road, and port infrastructure. The project intersects with other regional connectivity efforts which aim to transform the Middle East’s from a region beset by insecurity and conflict into a hub of trade and economic opportunity. In essence, the DRP offers a vision for future regional cooperation.

Iraq and Turkey view the project as a foundation for a new partnership based on shared economic interests. Iraqi officials believe that the DRP will have "great impacts on Iraq’s bilateral relationships with its neighbours," allowing Iraq and its neighbours to develop relations "on the basis of common interests." Turkish President Recep Tayyip Erdogan has heralded the project as "the new Silk Road of our region." Both governments have high hopes that the DRP open a new chapter in their bilateral relations, while also elevating their geopolitical stature as a central node connecting Asia and Europe.

Altogether, the DRP consists of three phases, set to be completed by 2028, 2033, and finally 2050. The total investment in the project is expected to be around $24 billion in the next three decades. The United Arab Emirates and Qatar have agreed to contribute financially to the project, alongside investments from the other partner countries. 

The route starts at Grand Al Faw port in Iraq’s Basra, which is only now finishing its first stages of completion as it prepares to enter operation in 2028. It will follow the Euphrates River to Nasiriyah, pass through the holy Shia pilgrimage cities of Najaf and Karbala, continue to the capital Baghdad, and then proceed to Mosul. From there, it will reach the southern Turkish border city of Mersin before finally extending to Europe.

However, the project faces numerous obstacles. For Turkey, the project is contingent Iraq’s support for curtailing the PKK, a Kurdish militant group. For Iraq, the project depends on progress in disputes with Turkey over water rights. Meanwhile, Iran could act as a spoiler for the project if it sees its interests undermined. 

Mutual Benefits

To bring the DRP to fruition, Iraqi and Turkish policymakers will need to learn from the failed connectivity projects of the past. A shared oil pipeline running from Kirkuk in Iraq to Ceyhan in Turkey has been shut for over a decade due to disagreements over how the two countries should share export revenues. But the stakes for cooperation may be higher now than before.

 Turkey is striving for better relations with Baghdad after years of disputes over water-sharing agreements and its military operations in northern Iraq against the PKK actions mostly taken without Baghdad’s go-ahead. This is central to Ankara’s new regional strategy to expand its diplomatic footprint by offering economic and security dividends to its potential partners, in a bid to make diplomatic cooperation more attractive. Additionally, the DRP allows Turkey to position itself as a gateway for Gulf countries to access European markets. Turkey has been vocal about its exclusion from other regional connectivity schemes, especially the India-Middle East-Europe Economic Corridor (IMEC), which will passes through Saudi Arabia and Israel.  

For Baghdad, the DRP represents a golden opportunity to diversify its oil-dependent economy—oil exports currently account for 90 percent of government revenues. Iraqi Prime Minister Mohammed Shia al-Sudani is keen to reshape Baghdad from a site of regional competition to a regional mediation hub—leveraging its 'middle position'. Addressing the United Nations General Assembly last year, Sudani expressed his desire for Iraq to be “part of the solution to any international and regional problem.” Sudani also aims to take advantage of Iraq’s strategic location at the mouth of the Persian Gulf to attract new trade and investment projects. Of course, success in these arenas would also boost his popularity ahead of the national elections to be held  in 2025, should he seek a second term.

The DRP has two main selling points. First, according to one estimate, the rail route will save around two weeks compared to the Red Sea-Suez Canal route to Europe, which takes approximately 26 days from Asia—thereby reducing fuel and freight costs associated with shipping goods. Second, the project will reduce regional dependence on the Suez Canal. Since November 2023, commercial vessels travelling to the canal through the Red Sea have been targeted by Houthis forces, under the pretext of the group’s support for Palestine. Consequently, ships have been forced to take the costly detour around the Cape of Good Hope to reach European customers, adding a staggering up to 10 days to the overall shipping time.

Mismatched Expectations

For Ankara and Baghdad, the deals being negotiated alongside the DRP are arguably more important than the project itself, as they attempt to resolve long-standing disagreements. As a condition of its support for the DRP, Ankara is seeking more concessions from Baghdad regarding the PKK, which Turkey has designated as a terrorist organisation. The PKK has long maintained a presence in Iraq’s northern stronghold, allowing it to operate close to the Turkish border. Curtailing the PKK has a practical purpose as well—the group has repeatedly targeted the Kirkuk-Ceyhan pipeline and could pose a threat to DRP infrastructure.

Following his visit to Iraq on April 4, his first since 2011, Erdogan claimed to have signed a security pact with Sudani against the PKK. Erdogan emphasised that Iraq had finally recognised the PKK as a “terrorist” organisation. However, the Iraqi central government designated the group as a “banned” organisation, stopping short of labelling it a “terrorist” group. It is conceivable that Ankara made these initial claims to pressure Baghdad into adopting a full designation. A source with knowledge of the Turkish position told the author that Ankara understands and does not expect Iraq to combat the PKK in its strongholds or engage in direct confrontation. Instead, Ankara suggested that the Iraqi central government could implement alternative measures to curb the PKK’s operational abilities in Sinjar, such as increasing checkpoints in the areas and prohibiting permits for PKK offices

These more pragmatic requests contrast starkly with the reality on the ground. In April, Erdogan threatened a major offensive to clear the PKK from Iraqi Kurdistan once and for all. Following through on these threats, Ankara launched a new offensive in Iraq in May, which accelerated in June. While the offensive has been more limited than observers expected, the Iraqi Ministerial Council for National Security declared that it “rejects Turkey’s military operations within Iraq.” Although this statement is likely more for public consumption than anything else, it indicates that a prolonged incursion could build public resentment. 

For its part, Iraq has focused its demands surrounding the DRP on services and water management rather than security. Baghdad has long condemned Turkish dams for reducing water levels in Euphrates and Tigris rivers—crucial for Iraqi irrigation. In a positive development, both countries signed a framework agreement to resolve the water issue during Erdogan’s visit. But ongoing meetings between bilateral working groups, formed after Erdogan's visit, have yielded little progress, making it unlikely that Baghdad will receive its fair share of water anytime soon.

Pushback from Iran

In Iraq, the DRP has also faced local opposition from Iran-backed groups who could scuttle the project—Ankara and Baghdad have done little to secure broader buy-in for the project among these groups. The new revenue streams associated with the DRP could stir-up competition among the different groups comprising the Popular Mobilisation Forces (PMF)— an umbrella organisation comprising various military groups in Iraq, many of which are backed by Iran.

The spokesman for the Iran-backed Shia paramilitary group Kata’ib Hezbollah announced that the road “remains a concern” without specifying the reason. Kata’ib Hezbollah has demanded “guarantees” about the project from Iraqi authorities sparking fears that they could hinder the DRP’s progress. Meanwhile, an official from the parliamentary bloc representing the Iran-backed Asa’ib Ahl al-Haq took to social media to state that the project represents a “stain in the history of Iraqi politicians.” However, Asa’ib Ahl al-Haq is unlikely to act as a spoiler given its growing role within the PMF that may increase its chances of receiving substantial revenues from the DRP project.

Ultimately, Iraqi paramilitary groups might be tempted to target the DRP if they are not included or perceive their interests to be at risk. In the past, the PMF have attacked Turkey’s interests, including energy export infrastructure, in response to its military operations in Sinjar– a hotspot of competition between Ankara and Tehran.

Given Iran’s deep ties to Iraq and its significant sway over several armed groups in the country, its stance could make or break the project. The role it chooses will also depend on the fluctuating state of Iran-Turkey relations. Iran has shown wariness about connectivity projects that could rival its own aspirations to become the primary hub for transit routes, particularly with the development of the International North-South Transport Corridor (INSTC). Tehran’s support for the DRP is therefore conditional on its involvement. Specifically, Iran aims to complete its first railway link with Basra soon. If this railway connects to the DRP—a possibility Iran is pursuing—it would enhance trade with both Iraq and Turkey. This point was made clear during a meeting in June between Iranian Acting Foreign Minister Ali Bagheri Kani and Sudani, where Iran expressed its willingness to "contribute" to the project.

Looking Ahead

Importantly, the Iraqi government has yet to conduct a comprehensive feasibility study to assess the mega project's viability. Turkey and Iraq seem comfortable with the delay, viewing it as a confidence-building measure that could eventually lead to greater economic consolidation. However, the real challenge lies ahead: addressing the longstanding issues that have strained Iraq-Turkey relations for years, rather than skirting around them with vague promises that will only resurface later and derail the project. In the absence of security-focused negotiations to address these issues, they risk becoming bigger obstacles to the DRP’s success.

Much of the diplomatic burden unfairly falls on Iraq to rally support among the different armed groups and governorate-level political groups—who may act as spoilers if their interests are not met. Baghdad should engage seriously with groups likely to feel excluded, while both countries should adopt a multi-pronged diplomatic approach to secure regional buy-in.

Before this can happen, both nations urgently need to flesh out the funding details and conduct a feasibility study to align expectations among the many stakeholders. Ultimately, in a region where infrastructure projects too often get caught in the crossfire—and considering the unpredictable nature of the Iraqi political sphere—this venture requires a more proactive approach to succeed. Political will alone is not enough.’

Photo: AK Party

Accelerating the Gulf's Energy Transition in the Wake of Russia's War

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The 2022 Russian war against Ukraine has been both a gift and a curse for oil producers in the Persian Gulf. In the short term, the war has created restraint for the development of renewables, contributed to the high oil demand, and in doing so demonstrated the need for more international investment in oil exploration and drilling. High oil prices and the resulting profits enabled the member states of the Gulf Cooperation Council (GCC) to partially offset financial losses from previous years—and also benefitted the economies of these member states. However, the transition to a new model of global energy consumption has not been cancelled—it has only been delayed.

This conflict clearly demonstrated the economic risk of excessive dependence on hydrocarbon-based resources, and as a result the leading GCC countries began to develop clear action plans for speeding up the energy transition. For the Gulf’s traditional oil producers, this is a huge challenge: after the short hiatus forced by the war, the race to switch to renewable energy will restart and force the Gulf states to once again work against time to prepare the oil sector for the “post-oil” era.

In general, most GCC states base their current strategy on an understanding of two contradictory but coexisting trends in the global energy market—trends created by the war in Ukraine. The first relates to national security issues: individual countries may find it necessary to extend their hydrocarbon use. The second and conflicting trend is that some players may accelerate their transition to renewables for the same security considerations and to reduce their dependence on fluctuating hydrocarbon prices.

Economic Development and Political Considerations

If the GCC countries are to reduce their current economic dependence on hydrocarbon exports, they need to diversify on a large scale into renewable energies. Alongside this, there is a need to maximise income from oil exports—something which can be achieved by simultaneously reducing domestic consumption and increasing oil output. However, GCC members will need to avoid increasing the volume of CO2 emissions, as these damage the health of the population and cause environmental damage.

But the political considerations are tied to the rentier social contract model of the states in the GCC. This model is now becoming too costly; budgets are uncertain against a backdrop of fluctuating oil prices. The fourth energy transition—and related processes, such as decarbonisation, digitalisation, and the development of renewable and alternative energy sources—will enable Gulf states to generate additional sources of income to finance government subsidies and social programmes. The development of the renewables sector will additionally contribute to preserving the social contract, provided that  its growth will also lead to the provision of new and high-paying jobs for the citizens in the public sector.

 External Influences

Other countries are placing increasing pressure on GCC states to accelerate their energy transition—and to make the oil they export more environmentally friendly (a marketing requirement formulated by the global push for energy transition). To maintain the competitiveness of their oil in the global market, Gulf producers are forced to take steps to reduce the environmental harm that can be caused by the production and transportation of hydrocarbons. The active spread beyond the United States and the European Union (including in Asian countries, who have been the traditional sales market for the GCC countries) of what some term the “green agenda” further increases the importance of presenting hydrocarbon products as green and minimising the negative impact on the environment.

Moreover, GCC countries will inevitably be pressured by the international community to implement international climate agreements. In 2022, the Arab states took an active part in the COP 27 climate summit in Egypt, and again in 2023, when they held the COP 28 summit in the UAE. The latter was a major milestone: its final document not only summed up what the international community had done within the framework of the Paris Agreement, but also recognised the need to phase out energy derived from fossil fuels. In light of these developments, by early 2024, almost all GCC states had put forward their own net-zero emissions targets.

Circular Carbon Economy

It is important to note that the final COP 28 document calls for a gradual phase-out of the use of oil in energy systems but emphasises that this process should be carried out without prejudice to hydrocarbon producers. This duality fully meets the needs of the Persian Gulf countries. They are ready to provide consumers with hydrocarbons for as long as they are needed—for example, the European Union, which seeks greater independence from Russian supplies—and cooperate with the international community in preparing for a “post-oil” world. Under these circumstances,  most GCC states now speak not only about the need to increase the proportion of energy generated by renewables, but also about the goal of creating a special form of the Gulf’s circular economy that could still be built on the base of the region’s hydrocarbon riches.

Thus, the so-called circular carbon economy concept promoted by Saudi Arabia does not reject the further development of oil and petrochemical industries of the Kingdom but implies the introduction of obligatory compensation measures for emissions through the active use of carbon capture technologies (CCUS). It also argues about the increased role of renewable energy sources in the production and transportation of hydrocarbons. Alongside these plans, the Gulf countries are also developing a strategy to become world-leading hydrogen producers.

Options for Cooperation

In Iran, deteriorating climatic conditions and attendant ecological problems are creating extra incentives for the government to increase its efforts to make the energy transition and restructure its economy. In a sense, the country started investigating ways to develop its own renewable sector long before the idea became popular among its neighbours. Possessing substantial hydro, wind, and solar energy-producing potential, Iran achieved substantial progress in developing these in 2000–2010. Unfortunately, any further progress was substantially slowed and in some areas even prevented by the sanctions placed on the country from 2010 onwards, although by 2022 Iran was still among the top five countries in the Middle East in terms of how much electricity is generated by renewables. Its experience in the renewables development field can still be of interest to other Gulf countries, and Tehran itself can learn a lot from the GCC member states about the use of CCUS technologies and renewables in the production and transportation of hydrocarbons.

The current situation might intensify levels of cooperation among the Gulf countries, and also between these countries and international partners. There is a good incentive to cooperate—between both the Gulf players within OPEC and those on the bilateral track—as the GCC economies and oil sectors will have a lot of challenges in common that they need to prepare for. Meanwhile, the Gulf states need to ensure a stable and long-term demand for Gulf hydrocarbons, which means regional players must invest more in Asian economies and attract Asian investments. Moreover, an important element of the Gulf countries’ economic strategies is now to attract and allocate in-house and international investments in both the traditional and renewable energy sectors.

Alongside other developments, the war in Ukraine has led to a clear intensification of European diplomacy in the Gulf and a revision of some past practices. Traditionally, European concerns about Gulf domestic policies limited the interaction between EU countries and GCC states in the energy field, but many of these concerns have been pushed aside. Instead, the European Union has demonstrated its readiness to help the GCC countries in their own transition to renewable energy sources, making it clear that it expects the Gulf to help the EU move away from its dependence on Russia’s oil and gas and ease the influence of geopolitical factors on oil prices.

 Road Ahead

It is worth noting that the GCC countries do not intend to entirely replace the hydrocarbon sector with renewable energy production or to phase out oil usage or the development of petrochemicals. Instead, the Gulf states see the sustainable energy sector (as well as those industries accompanying the fourth energy transition) as a complement and addition to their hydrocarbon-based economies. The wealth they have accrued through hydrocarbons will allow them to accelerate diversification and make the “old” oil industry look eco-friendly. None of the Gulf states has abandoned plans to develop petrochemical production, seeing in it an opportunity to conveniently and easily diversify GCC economies and as a response to the question of what to do when oil is not in demand as feedstock for fuel production. As oil market analyst Tsvetana Paraskova puts it: “Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil.” This is well understood in the Persian Gulf, and the various crises have shown that fluctuations in demand for hydrocarbons have not always depended on the demand for fuel.

In the medium and long term, adaptation to a new energy order would require Persian Gulf oil producers to restructure their economies and revise their social contracts to withstand a decline in demand and a reduction in prices for oil resources. They would need to rebuild their energy systems for a lower-carbon future while simultaneously ensuring the survival of their oil industries. Moreover, the Gulf states clearly understand the need to adapt to the growth of competition in traditional markets, particularly in Asia, and will need to consider multilateral cooperation to offset some challenges.

Looking into the future, the hydrocarbon production and petrochemical sectors will remain the backbone of the Gulf countries’ economic structure. The main motivations that shape the development plans in the region are twofold: to increase sources of income through diversification, including the development of hydrogen exports; and to ensure the profitability of the traditional oil sector for as long as possible. The likely success factors in this quest will be the reduction of the cost of producing both hydrocarbon-based and sustainable energy, the reduction of harmful emissions from traditional industries, and the maintenance of the necessary level of investment in both the oil sector and the new energy sources. As UAE Minister of Energy and Industry Suhail Mohammed Almazroui succinctly put it, “drop the cost, drop the carbon, maintain the investment.”

Photo: Dubai Protocol Department

Fostering a New Energy System for the Gulf, the Red Sea, and the Mediterranean

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Through investments in solar and wind power, grid connections, and hydrogen, energy transition in the Middle East is well under way. This transition is urgent for large countries such as Saudi Arabia and Egypt, since their rapidly growing economies and populations have vastly increased their consumption of domestic energy. Continuing to burn oil and gas for domestic energy could lead to Saudi Arabia struggling to export oil by as early as 2030, and therefore the Saudi transition to renewables alongside cutting fossil fuel subsidies has been a significant milestone in the economic development of the Arab region as a whole. The story is similar in Egypt; alongside its transition away from fossil fuel subsidies, the country has cut its energy import bill by investing in renewables.

The neighbouring regions of the Gulf and Europe have shown a strong interest in cooperating with North Africa on energy transition. Both regions see economic opportunities here, as well as the potential to advance their own transition from fossil fuels to renewables. With renewables now more economically feasible, this type of energy is no longer simply about electricity and is penetrating other sectors, for example desalination, agriculture and hydrogen production. Interregional cooperation on renewable energy is complex and embedded within visions for the wider economic development of the Middle East. However, cooperation is in its early stages and faces challenges.

Cooperation between Egypt and the Gulf states will also benefit Europe, which is promoting increased grid connections with Africa and the development of green hydrogen in Egypt. Looking at the parallel pushes for energy transition in the Gulf and Mediterranean regions, one can envision cooperation between the Gulf, the Red Sea, and the Mediterranean in the field of renewable energy.

The North African countries have announced ambitious renewable energy targets. By 2030, Morocco, Tunisia and Algeria aim, respectively, for 52% (of power capacity), 35% (of power generation), and 27% (of electricity) to come from renewable sources, while Egypt is aiming for 42% (of electricity) by 2035. The Gulf countries have similar ambitions, and Saudi Arabia’s target of 50% of electricity by 2030 seems significant considering its status as both the largest economy and heaviest energy user in the region.

Motivations for energy transition in the two regions are similar—lowering emissions and meeting increasing domestic demand. However, in carbon-rich countries such as the Gulf states or Algeria, energy transition is also seen as a vehicle for economic diversification. Many of these countries still depend on carbon revenues and the public sector. Renewable energy can free up resources in North Africa by importing less fossil fuels and in the Gulf by decreasing domestic consumption and expanding exports. These resources can be invested in modernising industries or giving financial incentives to encourage innovation.

For concurrent energy transitions to work, cooperation among neighbouring states is necessary. For example, grid connections are essential in improving energy efficiency and grid stability once renewables are deployed. The $1.8 billion grid connection project between Egypt and Saudi Arabia will start trial operations in 2024, linking the two major economies in the region and two different continents. Another key project is the ongoing Euro-Africa interconnector, joining Egypt to Cyprus and Greece. Alongside the existing connections between Morocco and Spain, this project creates further connections between North Africa and Europe.

Regional partners are also involved in the Middle East’s transition to renewable energy, and European interests are particularly important as the continent explores clean hydrogen importers and energy suppliers in the wake of the war on Ukraine. However, there are also valid concerns that allowing big European corporations (such as Italy’s Eni, Germany’s Siemens, Denmark’s Maersk, Norway’s Equinor, or Netherland’s Vitol) to invest in green hydrogen projects in North Africa may lead to resource grabs and exploitation of the region. The Gulf states are also investing in blue and green hydrogen for export to Europe and Asia. Asian companies—for example, Japan—have long industrial legacies in the Gulf Cooperation Council, whether in building desalination plants or in energy projects such as the Saudi–Egypt grid connection mentioned above, which is being built by Hitachi Energy.

The relationship between Egypt and the Gulf states is nowadays embedded within a broader vision for redefining the regional economy of the Middle East through new cities, and improving the water energy infrastructure. While Egypt is building its New Administrative Capital (a city with a population of 6.5 million) eastwards of Cairo, Saudi Arabia is investing $500 billion in constructing the world’s largest urban megaproject, NEOM, on the Red Sea, which will eventually accommodate 10 million people. NEOM uses the most advanced sustainability technologies and already involves companies from all over the world, including European countries such as Germany. The region from NEOM to Egypt’s New Administrative Capital, and perhaps northwards to Jordan and Israel, will constitute a new regional economic centre—alongside the region of Riyadh and the surrounding Gulf cities—which requires major new desalination, renewable energy, and hydrogen projects.

Cooperation between Egypt and the Gulf on clean energy is set to increase. Saudi Arabia is investing in renewable energies that will provide for NEOM’s entire energy and desalination needs. At the same time, it is building the world’s largest green hydrogen plant in NEOM, at a cost of $8.4 billion. Saudi companies have also committed billions of dollars to investments in Egypt in the areas of desalination, renewable energy, and, increasingly, green hydrogen. Similarly, the UAE is using its strong experience in desalination and renewables to profit from the highly attractive Egyptian market. One example of this is the Masdar-led consortium which is set to build a $10 billion wind project in Sohag, Egypt. During COP27 in 2022, Egypt’s Suez Canal Economic Zone signed $83 billion in green energy deals with investors from Saudi Arabia, UAE, Norway, and the UK.

The Red Sea, particularly the Ain Sokhna port area, is touted to host many of Egypt’s green hydrogen projects, adding to this region’s importance. However, as the country’s economy has been unstable in recent years, Gulf investors have been reluctant to invest in Egypt before a deal is reached with the International Monetary Fund. However, since this deal has been formalized in in early 2024, this could be an opportunity to to realise the projects that have already been announced. It is worth noting, though, that as of January 2024, European-Gulf consortia, India, and China have all expressed interest in investing in renewable energy projects in Egypt. The country has set an ambitious goal of becoming a regional energy hub, and plans to achieve this by investing in clean energy and gas, improving transport, and refining its infrastructure. One of its key infrastructure projects is the $23 billion high-speed train connecting the Ain Sokhna port to the Mediterranean, which is being delivered in collaboration with Germany’s Siemens and has been dubbed a “Suez Canal on rails.”

Due to differing interests and expectations, it is difficult to predict the outcomes of cooperation between the Gulf, North Africa, and Europe on sustainable development issues. While the Gulf is seeking economic diversification via investments, Europe is mainly driven by its energy and climatic goals. Some North African countries suffer from weakened institutions and political instability. Therefore, for some countries, a cautious green hydrogen approach might be necessary. Such an approach should aim to create local value, prioritise domestic energy transition, and address social, human, and sustainability requirements. North African countries might have weaker negotiating positions compared to Europe or the Gulf due to inequities in finance, capacity for negotiation, or geopolitical power. The competition between the Gulf and Europe for renewable energy projects can mobilise funds and offer more choice for North Africa, but it is important to also consider ownership of clean energy projects in the destination country.

Interregional cooperation between the Gulf, the Red Sea, and the Mediterranean is complex, and it is reasonable to assume that legacies and outcomes of joint investment in clean energy will be mixed. In the case of Egypt, cooperation on renewables has some distinctive characteristics. Egypt’s renewables projects are embedded within an economic vision by Saudi Arabia and Egypt to create a new regional center in the north of the Red Sea connecting the Gulf to Europe. In addition, relative political stability is likely to further the energy transition of the Arab region’s largest country which can serve as gateway for investors into the Arab region. While this transition will solicit both local and foreign investments, the domestic will to decarbonise and create job opportunities is essential if energy cooperation is to succeed.

Photo: Stuart Rankin

The Case for Cooperation on the Energy Transition in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Regional security and economic development among the Gulf states—Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—can improve if cooperation is fostered in the energy, minerals, and water industries, by encouraging joint exploitation of resources, establishing neutral regional zones, and creating energy sources that are interconnected. The positive diplomatic environment of 2023, particularly after the rapprochement between Iran and Saudi Arabia after seven years, holds the key to unlocking a new era of cooperation in the region across the resource mix.

Fostering Renewable Energy Cooperation

The region’s geographic location means it receives some of the highest annual amounts of solar energy in the world—more than 2,100 kilowatt-hours (kWh)—and a wind speed that can reach about 10 meters per second (m/s). These natural clean energy resources could be exploited regionally and also exported beyond the region, benefitting the economy both directly and indirectly and encompassing many sectors of industry, including energy, manufacturing, and information technology.

The Gulf Cooperation Council Interconnection Authority (GCCIA) envisions establishing a robust interconnected power grid. This would leverage the region’s abundant solar and wind resources and further position the are to become a hub for producing and exporting clean energy. As of early 2024, part of the region is already interconnected through this grid—from Oman in the south through the UAE, Saudi Arabia, Qatar, and Bahrain, and then to Kuwait in the north. In addition, Iraq recently signed an agreement with the GCCIA to join the grid. GCCIA has an ambitious plan to extend to Eurasia and East Africa. Iran is also part of this planned grid, as is Turkey. Such interconnection would give domestic power grids more reliability and stability in the face of increasing challenges, such as unexpected electric load rise, as well as blackouts due to natural disasters or equipment failures.

Envisioning a Gas Network

Expanding the gas sector across the Gulf is a potential solution to some of these problems. Doing so would pave the way for a joint gas pipeline network that could facilitate hydrogen transmission—which is key to achieving net zero carbon emissions. Several Gulf countries have either not fully developed their gas production sectors or have insufficient resources. Iraq, Kuwait, and the UAE are net gas importers, and in 2022 imported 50%, 40%, and 20% of their gas demand respectively (see chart below). For example, Iraq imports most of its gas from Iran, and the UAE sources much of its gas from Qatar through the Dolphin pipeline.

Kuwait is the only Gulf country to source a large percentage of its imported gas (46%) from non-Gulf regions, such as Africa, Europe, and North and South America. This sourcing of around 4 billion cubic meters of natural gas annually from faraway countries is deemed to be a lost economic opportunity for Gulf countries, including Iran and Qatar.

Expansion of the gas sector in the Gulf would play a key role in the region’s energy transition. Having a joint pipeline network capable of carrying hydrogen products could also pave the way for the region to become a world hub in the production and export of carbon-neutral (blue and green) hydrogen.

Gulf Minerals Powering the Future

The Gulf region’s mineral wealth, essential for energy transition, has come to the forefront. Recent discoveries of lithium, cobalt, nickel, copper, and other minerals mark a turning point in the global race to secure mineral supply chains. These minerals are essential components of renewable energy technologies and energy storage systems.

Recently, Iran announced the discovery of a huge lithium deposit—an estimated 8.5 million metric tonnes—on its territory. This makes the country the fifth lithium reserve resource holder after Bolivia, Argentina, Chile, and the United States. Moreover, Iran also revealed the discovery of additional vital minerals, among them manganese, nickel, and cobalt.

Saudi Arabia also recently announced the discovery of mineral reserves with an estimated market value of US $64 billion. Among the discovered minerals related to energy transition are copper, iron, and nickel. Oman, too, has announced an ongoing project to update its national geographical and geological minerals database with more discoveries of copper and iron reserves.

The envisioned regional collaboration would include joint investments in developing the infrastructure needed in the region for extraction, preliminary mineral processing, and export logistics. Joint efforts to invest in the management of mineral resources could position the Gulf as a key influencer in the global transition to clean energy. This could be pursued by establishing joint venture companies where investors include the Gulf states’ public and private sectors.

Working together, the Gulf states could pool resources, share costs, and achieve economies of scale. By doing so, the region would be able to collectively manage and mitigate risks associated with volatile commodity prices, environmental challenges, and geopolitical uncertainties. As a result, such collaborative ventures would contribute to political stability in the region. The Gulf countries would have broader access to markets and assert their role as key players in the energy transition agenda.

It is worth noting that Iran’s current economic sanctions may discourage other states from establishing joint ventures. However, these restrictions do not prevent discussion of joint strategies for making the most of the Gulf’s mineral reserves and developing regional value chains.

Developing Shared Fields

The collective strength of Gulf countries lies in their vast natural resources, accounting for approximately 48% and 40%, respectively, of the world’s proven oil and natural gas reserves. Shared oil and gas fields, as illustrated in the table below, are poised for active development, offering potential solutions to regional energy challenges. 

In early 2022, Kuwait signed a memorandum of understanding with Saudi Arabia to develop the joint offshore Arash/Durra gas field in the partitioned neutral zone. However, Iran has objected to the agreement and demanded its share. Most likely the Arash/Durra field will not be exploited in the short term until an agreement is reached on the demarcation of maritime borders between Iran, Kuwait, and Saudi Arabia. However, joint exploitation of Arash/Durra could be achieved without compromising the territorial sovereignty of the three countries; Iran is already jointly exploiting oil and gas fields with neighboring Gulf states, including the South Pars/North Dome gas field with Qatar and the Esfandyar/Lulu oil field with Saudi Arabia. These joint models can provide lessons and open the door for pragmatic and logical negotiations to enable cooperation in exploiting other joint fields, including Arash/Durra.

Establishing a Regional Water Network

A region is labelled as water-scarce when the availability of natural renewable water (waterfalls, rivers, freshwater lakes, and aquifers) is below 1,000 cubic meters per person per year. This definition implies that all Gulf countries except Iran are under the natural water poverty line. Consequently, these countries depend on energy-intensive seawater desalination to meet their potable water demand. The power stations in these countries are mostly cogeneration systems that produce electricity and heat.

Addressing water scarcity is paramount for Gulf countries, especially those heavily reliant on desalination. Despite challenges including geopolitical tensions, a strategic imperative is to establish a regional water interconnection network. With this in mind, GCC leaders decided to carry out a water interconnection study in the year 2000. The proposed network would supply fresh water to all GCC states from desalination plants that would be built on the shores of certain states. Three desalination plants were proposed—to be built in Sohar, Oman; Al-Sila in the UAE; and Al-Khafji in Saudi Arabia. Unfortunately, there has been no tangible action on the project since 2013.

There is an urgent need for increased cooperation in the areas of seawater desalination, water treatment, water resource management, and water transmission across the Gulf region if its future is to be more sustainable. The latter of these in particular is a key survival strategy, and such a water network would make the region resilient to natural and changing environmental conditions challenges. The feasibility of a regional water grid should not therefore purely be based on financial profits—it also needs to consider the grave water scarcity challenges the region is poised to face in the years ahead.

Moving Towards Sustainable Horizons

While it may take time to achieve regional cooperation in energy, water, and environmental sustainability, diplomatic rapprochement between Iran and Saudi Arabia could pave the way for positive outcomes. Policies should focus on establishing interconnected regional infrastructures, including gas and water networks, and implementing a joint financing system to support balanced development across the Gulf region. It is essential to overcome political differences and address challenges through dialogue for these policies to succeed.

As we chart the course toward sustainable horizons in the Gulf, the call for cooperation echoes loudly. Embracing shared objectives, drawing on collective strengths, and navigating challenges with a collaborative spirit will propel the region towards a future defined by sustainability, resilience, and mutual prosperity.

Photo: Shams Power

Rising Electricity Demand Requires New Thinking on Gulf Grids

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The demand for power is rising in the Middle East and North Africa (MENA) region; the 2023 Electricity Market Report by the International Energy Agency (IEA) estimates that this demand will grow at an annual rate of 2 percent in the 2023–25 period. Most of this growth is driven by Iraq, Iran and Gulf Cooperation Council (GCC) countries, notably Saudi Arabia, Oman, and the United Arab Emirates (UAE). For these countries, the same report expects electricity consumption to increase, on average, by 2–3 percent between 2022 and 2025. The main drivers of this are population growth, and specific uses such as cooling and water desalination.

The effects of climate change, such as a higher number days when maximum temperatures exceed 35 degrees Celsius, are driving demand upwards in the region. But measures to boost energy efficiency are also on the rise. A recent IEA study based on temperature projection models shows how these trends are particularly affecting the region. For example, Saudi Arabia has accelerated the roll-out of smart meters in the country while partially reviewing its electricity tariffs to support more rational consumption patterns. If these measures were maintained and widened throughout the region, the growth of demand for electricity would potentially be mitigated. The Emirate of Dubai currently has over two million smart meters installed. Oman also has a national smart meter programme overseen by the Authority of Public Services Regulation, which aims at installing 1.2 million smart meters by 2025, covering all of the country’s electricity consumers.

At the same time, oil and gas remain dominant in the MENA region, with natural gas playing a prominent role. During 2023–25, the IEA expects gas-fired power to generate the most electrical capacity. For instance, in 2024, the same IEA report predicts that two thirds of the 60 gigawatt (GW) capacity being added to the whole Middle East region are expected to come from natural gas, with the rest being split between nuclear and renewables. At the same time, these countries are seeing the effects of renewable energy sources being increasingly deployed, in particular solar photovoltaics (PV).

Between 2023 and 2028, the IEA predicts that the Gulf region is expected to increase its renewable power generation capacity by over 40 GW. This represents almost half of Saudi Arabia’s current power generation and is more than the total power generated by the UAE today. This growth is dominated by utility-scale solar PV. In addition, the report cited that hydrogen also represents around 13 percent of extra renewable power capacity, mainly enabled by government-backed incentives to stimulate hydrogen trade. Other factors supporting the growth of renewables for hydrogen include high levels of solar irradiation, land availability, and port infrastructure.

While this growth remains impressive, it could increase faster. Possible strategies to further accelerate growth might include encouraging more competition between utility providers, introducing domestic tariffs that reflect individual users’ costs, addressing contractual issues with existing fossil fuel providers, and better supporting power storage systems to be flexible.

Cross-border electricity trading can also improve the deployment of renewables. However, international connections in the Gulf today only represent a small proportion of each country’s electricity consumption. The six-member GCC Interconnection Authority, which has the remit to do this, was established in 2001, but as of 2024 has only been able to support 1.2 GW of capacity. The recent linking of Iraq to the network through Kuwait, and ongoing discussions about a Saudi–Iraqi connection, would strengthen the region’s interconnectedness in terms of power generation.

Of course, regional particularities need to be considered, for example consumption patterns related to climatic conditions. Innovative economic models are needed to address the need for system flexibility as a result of changes in peak demand between seasons, and between day and night. While leaders in the GCC are looking into the diversification of power supplies without compromising grid stability—whether through renewables or nuclear—leaders in Iran and Iraq face a growing mismatch between supply and demand.

For instance, in 2021, Iran had to face a 12 GW gap between peak summer demand and supply. Severe droughts limited hydropower in a country that generates 4.6 percent of its electricity from that source. Although there were also other factors at play, both domestic and external, the effects of climate change and limited diversification in the power generation sector cannot be discounted as factors limiting the overall resilience of the current system. Neighbouring Iraq also faced similar challenges, despite the domestic context being different. Nevertheless, both countries are investigating whether renewable power capacity can be developed faster. For example, Iran has set a 2025 target for 10 GW of renewables, while Iraq is looking into linking oil and gas investments with large-scale renewables projects. However, it is worth pointing out that reforms in the electricity market remain a key prerequisite to address the power sector crisis.

There can be no large-scale transformations in electricity markets without adequate reforms. In the Gulf, there remain vast opportunities related to tariffs and subsidies. While investments in renewables in the region have been enabled by the active involvement of governments (where land availability and permissions enable large-scale projects, such as in Oman and the UAE), tariff and subsidy reforms should remain a priority. Otherwise, current and future renewables projects will not be financially viable. Reforms such as these would also allow utility companies in the region to recoup their costs and allow for investments in the grid infrastructure. These investments would pave the way for further renewables to be developed and deployed, such as decentralised solar PV.

The dynamics surrounding power markets in the MENA region require addressing a series of priorities that sometimes come into conflict with each other. Governments are expected to provide secure, reliable, and affordable electricity to all. In a geographical area significantly affected by the effects of climate change, the need to mitigate these impacts is probably more pressing than in any other region. Climate change not only creates new patterns in demand, with a heightened need for cooling and desalination, but it also affects the resilience of the power system itself. Higher temperatures, droughts, higher sea levels, or flash floods can all significantly affect operations on the supply side and reduce output. This is not limited to conventional power generation (oil and gas); nuclear and solar PV units can also be affected.

In this challenging regional context, where priorities are continuously shifting, it remains important that the climate crisis increasingly plays a central role in how regional leaders think about their future energy systems. Climate change has significantly increased the complexity of power markets. It is essential to pay more attention to how systems are planned and designed, and how they must operate in the face of new demands.

Photo: Emirates Nuclear Energy Corporation

Climate Policy and Cross-Border Hydrocarbon Development in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The Gulf countries are leading global producers and exporters of oil and gas. They have long reserves lives at current production levels, well beyond 2050, and substantial potential to increase reserves through field development, enhanced recovery, and exploration. They are intrinsically low-carbon producers measured by upstream emissions per barrel, although this is obscured in Iran and Iraq by high levels of flaring of unused associated gas (a by-product of oil production) and leakage of methane. They have strong involvement of state oil companies in oil and gas production, though this varies from an effective monopoly (Kuwait) to a leading role for international operators (Iraq and Oman).

With the exception of Iraq, they have large domestic petrochemical industries. Saudi Arabia and, increasingly, the UAE, have extensive international investments in refining and petrochemicals across the US, Europe, and Asia. While this is mainly on their own account, Kuwait does have a stake in the important new Duqm refinery in Oman. The region’s oil exporters also make use of the extensive oil storage and bunkering facilities in the UAE and Oman. On the other hand, Qatar is the world’s biggest LNG exporter and has a major expansion programme to be completed during 2026-27, Oman and the UAE are smaller LNG exporters (the UAE also expanding), while Iran is an important supplier of gas by pipeline to Turkey and Iraq.

The role of the Gulf states as oil exporters has limited the potential for cooperation between them. The dominance of the state in the upstream industry means that cross-border hydrocarbon investment is very limited. Mubadala Energy, the energy arm of the Abu Dhabi government strategic development company, has some upstream assets in Qatar and Oman, and utility Taqa has oil operations in the Kurdistan region of Iraq. QatarEnergy recently entered a project in southern Iraq led by TotalEnergies for development of oil, gas, water injection and solar power. Sanctions and political disputes have prevented any GCC investment in Iran’s hydrocarbon sector. There has been some interest, for example, and various plans since the early 2000s for gas and electricity connections, and most recently, discussions between Saudi Arabia, the UAE, and Iran in July 2023 concerning investment and the development of shared fields.

Gas is more promising for cooperation, given that some of the Gulf states are relatively gas-short. The most notable project, Dolphin, exports gas from Qatar by pipeline to the UAE, with small volumes continuing to Oman. Dolphin faced opposition from Saudi Arabia, which argued that the pipeline crossed its own maritime territory. A similar plan to supply Qatari gas to Kuwait was entirely blocked by Saudi Arabia, which did not want the smaller GCC states to be linked beyond its influence. Although LNG exports from Qatar to the UAE stopped during the boycott of Doha between June 2017-January 2021, Dolphin continued operating as normal, a sign of its importance to both countries, and of the promise of energy projects to constrain conflict.

Some oil and gas fields in the Gulf lie across borders. In general, countries have developed them competitively, extracting as much as possible without an agreement with the neighbouring state. The most notable field affected by a boundary dispute is the large gas-field Dorra, known in Iran as Arash, which lies partly in Kuwaiti waters, partly in the Kuwaiti section of the Partitioned Neutral Zone with Saudi Arabia, and partly, in Tehran’s view, in Iranian waters. Kuwait’s shortage of gas leads to heavy domestic use of polluting and expensive oil. An agreement on Dorra, perhaps via a joint development zone without concession of sovereignty, could be a way forward. Such agreements have enabled Saudi Arabia to supply half of the oil from the Abu Safa field to Bahrain as part of a boundary settlement and Qatar and the UAE to divide the resources of the offshore Bunduq oil-field.

The most important cross-boundary field, not just in the Gulf but in the world, is called the North Field in Qatar and South Pars in Iran. It is world’s biggest gas field. The field, which also contains shallower cross-boundary oil resources, has been developed by each side without formal agreement, but there are tacit understandings to avoid one side moving too far ahead of the other on extraction levels. Qatar imposed a moratorium on further development of the North Field in 2005, and lifted it in 2017. Ostensibly this was for technical reasons, more plausibly for gas market management purposes, but it also gave Iran time to catch up to and even exceed relative Qatari production levels. As Iran’s own output from South Pars increased, so eventually Qatar was able to decide to raise production further, without risking tensions with Iran over unfair levels of extraction.

More intra-regional gas trade would enable reducing the use of oil in the power sector. Qatar, Iran (if its gas resources were properly developed), and the Kurdistan Region of Iraq, would be natural gas suppliers by pipeline to neighbours. This would require more regional trust, and transparency to put gas supplies on a reliable commercial basis. Cross-border investment in gas-using sectors such as petrochemicals, multi-country gas networks, and robust arbitration procedures, could create structures that would be more resistant to politically- or commercially-motivated cut-offs. Iran is, for example, a 10 percent shareholder in Azerbaijan’s important Shah Deniz gas field and in the South Caucasus Gas Pipeline from Azerbaijan to Turkey via Georgia, along with BP, Russia’s Lukoil and Turkish and Azeri state entities. But the recent history of Russian gas supplies to Europe, and the interruption of federal Iraqi and Kurdistan region oil exports through Turkey, reveals how even long-standing pipeline deals with strong mutual profitability can be derailed.

As COP28 in Dubai signalled, climate policy will exert ever-greater influence on the oil and gas industry: first through requirements to zero-out its own emissions, second through a longer-term reduction in demand, at least for oil. The Gulf countries present a wide spread of economic and environmental vulnerability, and sophistication of climate policy ranges from the very limited (Iraq) to the relatively advanced (UAE). The Oil and Gas Decarbonisation Charter (OGDC) concluded at COP28 was signed by the national oil companies of Abu Dhabi, Sharjah, Bahrain, Oman, and Saudi Arabia, among others, but not by Iran, Iraq, Kuwait, or Qatar.

With the exception of Qatar, all of the Gulf countries are members either of OPEC or the OPEC+ alliance. OPEC and the OGDC, as well as other structures such as the Oil and Gas Climate Initiative, offer potential to foster cooperation on decarbonisation paths within the petroleum industry, which include ending flaring and methane leakage, improving energy efficiency, electrifying operations, and incorporating renewable and nuclear power, implementing carbon capture and storage, piloting carbon dioxide removal technologies, producing sustainable aviation and maritime fuels, and developing hydrogen and its derivatives.

Specific cooperation would include aligning standards and regulations; sharing technological learnings and best practices; conducting joint studies on regional carbon dioxide storage capacity or satellite monitoring of methane leakage; and possibly some shared infrastructure, though this is more challenging and probably not essential. Joint investments, either within the Gulf countries or in third countries, could include the production of low-carbon hydrogen and sustainable fuels.

This collaboration can also include policy-related and diplomatic endeavours, on areas such as carbon caps, prices or taxes, international carbon trading under the Paris Agreement’s Article 6.4, dealing with the growing use of carbon border tariffs, and appropriate certification and regulation for low-carbon hydrogen.

The global energy market has been evolving rapidly, notably with the rise of Asia as the world’s key importer and consumer of energy and emitter of greenhouse gases, and the evolution of the natural gas business into a truly internationalised market via LNG trade. Most recently, the Russian invasion of Ukraine, the elimination of most of its pipeline gas exports to the EU, and a near-total ban on imports of Russian oil by the EU and other Western countries, have reshaped the global energy market and the patterns of trade in Gulf energy. The increasing US-China tensions, and the moves towards more diversity and robustness in supply chains and greater domestic self-sufficiency in key energy-related materials and technologies, is another emerging and evolving theme.

Greater Gulf cooperation on hydrocarbons, as a part of balanced strategies incorporating climate protection, could manage some of these threats and promote longer-term cooperation solutions to problems facing the region’s critical economic sector.

Photo: Aramco

Pipelines and the Challenges of Energy Integration in the Middle East

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Energy cooperation in the Middle East has long been pursued through the establishment of petroleum pipelines, built with the goals of connecting to energy markets in the broader Eurasian context, diversifying oil export routes, and reducing vulnerability. After several years of renewed regional diplomacy in the Gulf and an increase in the level of regional trade and investment, energy integration is once again on the agenda in bilateral and multilateral forums.

However, in a region characterised by both internal instability and external threats, most intra-regional energy trade agreements have been short-lived. The legacies of the Middle East’s major oil and gas pipelines offer important lessons for regional leaders hoping to integrate energy markets and infrastructure.

The region’s seven major pipelines have existed for a cumulative 445 years. But they have only been active for 168 of those years. In other words, the seven pipelines have been operational for just one-third of their lifetimes. Every international oil pipeline in the region has also shut down at least once, and the majority remain closed today.

Political conflicts within producing and transit countries, as well as interstate disputes, remain the primary reasons for pipeline shutdowns. While the mutual dependency stabilising factor ensures continued oil supply from the region, short-term interruptions persist due to geopolitical tensions. Historical events like the Arab oil embargoes and international sanctions against Iraq and Iran underscore the region's susceptibility to temporary disruptions. The military attacks during the eight-year war between Iran and Iraq (1980-88) prompted a reconsideration in pipeline strategies in the region as the conflict both underscored the vulnerability of the infrastructure to military attacks, but also their potential in assisting countries at times of isolation.

For example, Iraq, whose meagre Gulf coastline was blocked during the war and its export outlets through the Mediterranean (Syria and Lebanon) were shut down, sought to diversify its export channels through pipelines with Turkey and Saudi Arabia. Iran, on the other hand, facing security concerns due to sporadic Iraqi air strikes on its territories, also explored pipeline options to bypass vulnerable terminals. But the 1986 Iraqi strikes on Iran’s Larak and Sirri terminals raised doubts about the security and usefulness of such infrastructure, resulting in the postponement or cancelation of many pipeline projects.

In the 1980s, to reduce  dependence on the Strait of Hormuz and vulnerability to Iranian threats, Saudi Arabia built its main export pipeline “Petroline” from the oil-producing Eastern Province to Yanbu on the Red Sea. Yet, liftings at the Red Sea must transit through the Suez Canal which is controlled by Egypt or through the Strait of Bab Al-Mandeb which is controlled by Yemen. Oil could also be piped through the Sumed pipeline which links, within Egypt, the Gulf of Suez to the Mediterranean, or through the Eilat-Ashkelon pipeline in Israel. But these avenues pose their own challenges.

The Eilat–Ashkelon pipeline has recently gained attention, with press reports of the UAE considering it for transporting crude from the Red Sea to the Mediterranean. Interestingly, this pipeline was built in 1968 as a joint-venture between Israel and Iran to transport Iranian crude oil to Europe. However, Iran ceased using the pipeline following the 1979 Revolution and the subsequent nationalisation of the pipeline by Israel. Today, with the ongoing war in Gaza and the fate of Arab-Israeli normalisation agreements mean the future of this pipeline is uncertain.

Limited Success in Gas Cooperation

In the realm of gas pipelines, the Middle East has seen some limited success, but only few interstate gas pipelines have been built. The first interstate gas line in the region was built in 1986 linking Iraqi fields to Kuwait. This short-lived pipeline closed after the Iraqi invasion of Kuwait and switched to supplying water for Iraqi troops. Around the same time, a small gas link was constructed between Oman and the UAE’s emirate of Ras Al-Khaimah. That link later expanded and became the much larger Dolphin pipeline which came on stream in 2007, supplying Qatari gas to the UAE and Oman.

In the Eastern Mediterranean, a gas pipeline linking Egypt and Israel was initially built to channel Egyptian gas to Israel, before reversing its flow to supply Israeli gas to Egypt. On a more regional scale, the Arab Gas Pipeline (AGP), built in 2003, has been linking Egypt, Jordan, Syria, and Lebanon, and has plans to connect to the European network in Turkey. However, the AGP has faced serious challenges since its inauguration, including the acute shortage of gas feedstock from Egypt.

The development of liquified natural gas (LNG) has also dealt a blow to the prospects of increasing gas pipelines around the Middle East. In fact, Bahrain, the UAE, Kuwait, and Jordan are already operating LNG import terminals, while Oman, Saudi Arabia, and Lebanon are pursuing the same strategy as well. The LNG option has been favoured over gas pipelines as a result of many factors, including the security related factors as well as the competitive costs and prices for building the different parts of its chain, i.e. the liquefaction plants, transport vessels, and regasification units.

Revitalising Pipelines

Despite persistent challenges, international pipelines are needed in the region and they can be an efficient and secure way of energy trade, if operated properly. To turn a new page, addressing various issues is crucial. First and foremost, the issue of transit fees must be clearly resolved, especially if a third country is involved in the transit. Those fees, returned in cash or commodities, could well affect the entire economic feasibility of a pipeline network project.

Adherence to World Trade Organization (WTO) agreements is also a significant challenge. In fact, each member of the WTO has to give the owner or operator of any pipeline passing through its territories full and free access to its own domestic market. That right for market access has not always been admitted by all Middle Eastern countries.

There is also the question of “energy independency” which needs to be addressed. In the Gulf and the broader region, governments are hesitant to depend on neighbouring countries for their fuel supplies. At the same time, the psychological desire among oil-producing countries for self-sufficiency also promotes a greater willingness to burn more liquid fuels than import gas, despite their higher relative and opportunity costs and the damage they induce on the environment.

Trust building measures and gradual expansion of bilateral and multilateral engagements could contribute to increasing energy cooperation, in addition to increasing the interdependency between the countries along the routes of pipelines through transit fees and large reliance on the pumped supplies.

Gas pricing is a challenge which is further compounded by the fluctuations in demand throughout the year. Demand for electricity, and consequently for natural gas, peaks in the summer for the majority of countries in the region, and consequently gas sales fall in the winter. To offset these challenges, regional countries could either create storage facilities at the upstream producing end or at the downstream consuming side. This requires much closer regional cooperation on gas.

While the challenges are evident, the pursuit of energy cooperation through pipelines in the Middle East remains a complex yet vital endeavour, requiring continuous adaptation to geopolitical realities and global market dynamics. Despite the current favouring of LNG over gas pipelines, policymakers must keep the idea of building a regional gas network on the agenda.

Regional players need to learn from past failures and match infrastructure with institutions to provide platforms for dispute resolutions and enhanced cooperation. Such a way forward could bolster regional economic development, enhance intra-regional trade, and contribute to long-term political cooperation and economic integration in the broader region.

Photo: Aramco

Solar Power’s Water Problem in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Since the inauguration of the Mohammed Bin Rashid Al Maktoum Solar Park in Dubai in 2013, the Gulf Cooperation Council (GCC) has become home to an increasing number of solar power installations. Emirati leaders have so far invested the most in large utility-scale solar in the region, but their peers in Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain have also begun to set up new solar parks in recent years.

The Arabian Peninsula’s desert landscapes might seem to be perfect for large solar power facilities like those being developed in the GCC states. Vast and largely uninhabited, the Arabian Desert gets plentiful sunshine: it receives around 3400 hours of sunshine per year, compared with averages of around 1600 hours in Germany or 2900 hours in Spain.

But solar power needs much more than desert sunshine to work. Arid landscapes present various infrastructure challenges, including high temperatures that can damage solar arrays and remoteness from established energy transmission lines. And where sunshine is most abundant, water is not.

Indeed, water scarcity is the most important limit on the grand promises of GCC governments to overhaul and decarbonise the region’s energy system. The Arabian Desert is one of the most arid places on earth, typically receiving under 4 inches (100 mm) of rain per year, and already facing near total depletion of its groundwater.

Unfortunately, today’s solar technology requires substantial amounts of water. Celebratory discussions about solar power are often illustrated with photographs of sparkling PV arrays. These solar panels are always pristine, recently cleaned arrays. Unfortunately, such a scene is a rare encounter in the Arabian Desert, where dust and blowing sand is quick to cover the solar panels and mirrors of both PV (photovoltaic) systems and CSP (concentrated solar power) systems.

Aware of desert solar’s dust problem, companies like Arizona’s First Solar and Luxembourg’s SolarCleano have promoted waterless cleaning systems. Yet these technologies are still not advanced enough to employ on a large, industrial scale. Solar technology companies based in the Gulf are also aware of this problem and have tried to engineer their own solutions. For example, Saudi Arabia’s NOMADD has designed its namesake “NO Water ​Mechanical ​Automated Dusting Device” to address the challenge of cleaning of solar panels in the Arabian Peninsula.

While robotic PV-cleaning systems are deployed in some sites today, waterless cleaning technologies are expensive and have failed to scale up beyond small, pilot projects. As a result, the GCC’s small-scale solar installations and the large-scale solar parks continue to use water to clear dust and debris from their panels. Most of that water is desalinated sea water, which is produced with a huge energy cost and substantial CO2 emissions. In this case, then, solar energy produced in the Arabian Peninsula’s desert parks is far from green—it is actually incredibly wasteful.

Renewable energy’s water footprint

The water footprint of solar power extends beyond just cleaning. Water is also used in extracting diverse minerals needed to manufacture PV cells and batteries, such as lithium, cobalt, tellurium, and gallium, as well as in the manufacturing process itself. Mining for the renewable energy sector largely takes place outside of the Arabian Peninsula, but Saudi Arabia’s new investments in mining, described as advancing global efforts to “decarbonize,” will invariably expand this water footprint in the region.

Water is integral to all modern forms of electricity generation, including fossil fuels, and nuclear, alongside renewables. Required water inputs vary by the source, in large part because the infrastructures needed to generate, store, and transmit energy all have different geographies. The solar water footprint contrasts to the water demands for coal, for example, where water is first used to extract coal from the earth, and then in power plant cooling operations like all thermoelectric power systems (coal, natural gas, and nuclear).

Proponents suggest that the water demands of renewables are a significantly lower than those of traditional fossil fuels. This is probably true. But even so, estimates from the IEA (International Energy Agency) use absolute numbers that reflect a limited proportion of renewables in the overall global energy supply mix. These estimates also tend to neglect the physical geography of renewable energy installations siting—like whether a proposed solar park is located in a desert where it is liable to dust problems that increase its water needs.

Overpromising solar to hype hydrogen

Encouraged by partners in Europe and Asia, Gulf fossil fuel producers are increasingly keen to promote hydrogen energy and state-backed efforts to develop hydrogen are now found in the UAE, Saudi Arabia, and Oman. In many cases, these projects are framed as key to transforming the region into future “green” hydrogen hubs. Creating hydrogen energy requires vast amounts of energy and for it to be “green,” this energy must come from renewables.

To date, the amount of renewable energy produced in the Arabian Peninsula is so limited that none of the impressive green hydrogen targets in the Gulf are realistic. Local programs that position the Arabian Peninsula as a new green hydrogen hub overpromise their future solar energy capacity. They overpromise solar both in the present, because the production capacity simply is not there, and also in the future, because the region’s water supplies are insufficient to deliver on local renewable energy promises. Instead, the new Gulf hydrogen programs are on track to locally lock in natural-gas generated hydrogen. Meanwhile, the water limits of solar power’s expansion are a fundamental obstacle to any future for “green” hydrogen in the region.

Just like the solar power parks that they depend on, new hydrogen energy schemes can only represent an improvement on the CO2 footprint of traditional fossil fuel energy sources if the production site decisions take water into account. If any renewable energy project’s water footprint is not carefully evaluated, then the most likely outcome will be that it turns into a big “green wash,” a convoluted mess of energy infrastructure that is built in the name of being green, but does not actually result in any CO2 reductions. And perhaps the most tragic outcome of this green theater would be if it only exacerbates local water shortfalls that then exacerbate the climate crisis, as they are met with yet more carbon-emitting desalinated seawater.

Water and energy futures

Although water is one of the most forgotten elements in today’s discussions about energy systems, the water-energy nexus has come into sharper focus recently and has been integrated in the climate talks under the UAE COP28 presidency’s Water4Climate initiative. Yet, similar to how mainstream climate change discussions are defined globally, water is often just reduced to an issue of “water security” for vulnerable populations. This is, of course, an important issue. But it is almost entirely divorced from the problem of water use and planning in the implementation of high-tech energy infrastructure around the world.

Regardless of whether oil and gas is “phased out” or “phased down,” fossil fuels are on their way out. Yet high-tech energy infrastructure, including renewables, will continue to be prioritised by political and economic leaders in the Arabian Peninsula. The question is where those infrastructures will be located.

Since the Gulf’s energy leaders want to remain central to the post-oil energy system, they are already investing in renewable energy abroad. For example, the UAE’s Masdar has stakes in solar parks, wind farms, and geothermal energy operations all across the world, including in neighbouring Gulf states like Iraq. Likewise, UAE-based AMEA Power was set up several years ago with the express purpose of investing in foreign renewable energy projects – and is growing at breakneck speed. Renewables have also been major targets for foreign investment from Saudi Arabia’s ACWA Power, which has also been the most aggressive actor in setting up hydrogen partnerships with foreign partners in Eurasia and the MENA region, including in Morocco, Uzbekistan, Kazakhstan, China, and beyond.

These future energy partnerships are already fostering regional cooperation and they will continue to do so. However, it is essential that water be at the centre of all considerations about how renewable energy infrastructures are located. In particular, if solar parks are located in places that strain water resources in a partner country—such as with growing water problems from Morocco’s Noor solar plant—then they are likely to provoke local opposition and accusations of “water grabbing” and neocolonialism.

No map can answer the question of how renewable energy landscapes should be ideally configured, because all geography is political. But decision-makers in the GCC, in neighbouring countries like Iraq and Iran, and in countries spearheading climate action, must think critically about where to locate renewable energy infrastructures. To take serious, coordinated action toward scaling renewable energy in a way that actually reduces carbon emissions, water usage must be the primary consideration.

Photo: Canva