Economics of decarbonisation / The unusable wealth of nations: Petrostates and macroeconomic transition risks in the Persian Gulf region

To achieve the Paris Agreement, the world must reduce fossil fuel consumption dramatically over the next few decades. However, the reduced global demand for fossil fuels will likely result in "unanticipated or premature write-downs, devaluations, or conversion to liabilities" - otherwise known as stranded assets. This could have serious implications for petrostates, many of which suffer from significant macroeconomic challenges, low human development levels and are heavily dependent on fossil fuel rents for economic development (i.e., transition risk).

Given the myriad of existing political economy challenges that are often present within petrostates (i.e., low human development, weak institutions, macroeconomic instability, etc), a revenue shock in the form stranded assets could generate serious implications for these countries and their societies. Therefore, from a domestic economic and human welfare standpoint, this topic is extremely important. Moreover, given the sheer size of these states' fossil fuel endowments and their relatively significant geopolitical influence, their actions are also likely to have significant implications for the rest of the world. Therefore, at a systematic level, the extent to which these states are exposed to transition risk and how they will manage their remaining fossil fuel assets will likely have serious consequences for the net-zero transition. This poses the question: What set of economic policies and mechanisms can reduce the transition risk in petrostates, while also ensuring compliance with their international obligations under the Paris Climate Agreement?

To answer this question, the thesis will develop new analytical frameworks and methods to measure, compare, and model transition risk in petrostates. A subset of these countries will also be selected as case-studies and their economic responses to transition risk will be carefully analysed, modelled, and evaluated. The goal is to identify the policy packages and roadmaps which could enable states to pursue risk mitigation and decarbonisation strategies simultaneously and efficiently.