Oil-exporting countries stand to lose nearly $13 trillion in revenue by 2040 as global economies continue to decarbonise their power systems, according to a report by Carbon Tracker.
As countries around the world lower their carbon footprint and energy companies set net-zero emissions targets over the coming decades oil exporting economies will face an existential crisis.
Around 40 oil exporters surveyed by the UK-based think tank will require $9tn to bridge the gap in income shortfalls amid structural changes in energy consumption.
Around 400 million people could see their livelihoods affected as a result of lower revenues from declining fossil fuel sales. The most affected will be oil exporters based in Africa. Nigeria, the continent's biggest producer, will be the hardest hit as a 70 per cent drop in oil revenues will slash government income by a third. Angola, a southern African country will also stand to lose over 40 per cent of government revenue, endangering the standard of living of nearly 33 million people.
"Government oil revenues will shift dramatically as the market shakes out during the energy transition," said Andrew Grant, the head of climate, energy and industry and a co-author of the report.
The key to tackling the looming crisis for populations living in oil-exporting nations would be to understand the scale of the challenge.
"Cushioning the landing for hundreds of millions will deliver better outcomes for both climate and human development," he added.
An orderly drawdown of fossil fuel production would prevent a hard landing for populations living in producer economies, while quick monetisation of resources and oversupply is likely to destroy value for crude, the report said.
Several Middle Eastern exporters such as the UAE and Saudi Arabia have already set in motion efforts to diversify their rentier economies. The UAE derives revenues from tourism and manufacturing and is looking to generate three quarters of its electricity from clean sources by 2050.
Abu Dhabi also has a substantial renewable energy industry, which has recently pivoted towards the production of hydrogen. The country's leading industrial and financial players, including the national oil company, formed an alliance earlier this year to manufacture hydrogen.
Saudi Arabia, the world's largest exporter of crude, is undertaking plans for a multibillion dollar, carbon-neutral city, as it plans to phase out fossil fuels from its utilities and become an exporter for hydrogen.
Mexico, Iran and Russia are vulnerable and could lose up to a fifth of their revenues.
Angola and Azerbaijan could see a hit to 40 per cent of government income from oil. However, Norway and Malaysia, which have diversified economies, are less exposed to energy transition risks and will face losses of up to 5 to 10 per cent of crude income.
