WE HAVE A SERIOUS PROBLEM93National oil companies take the hit. Their cash flow is reduced, which
damages their wherewithal to reinvest.
If petrostates cannot reduce growth in demand for oil and gas, then,
simply put, their exports will be displaced along with the all- important
rents they generate. If no one intervenes, the entire system will fail. In
fact, the outcomes of oil subsidization resemble the effects of the so-
called resource curse but with a second stage that compounds the dam-
age. First, as that theory holds, oil helps perpetuate autocratic rule by
providing regimes with rents and subsidies to exchange for political sup-
port.^20 States that follow these practices tend to subsidize energy, which
brings about the second- stage effect of raising per capita energy demand.
Thus, the resource curse also works in reverse. Oil supports autocrats
in power and, in turn, autocrats support demand for oil. It’s a two-
way curse. Oil- exporting states tend to be both autocratic and energy
intense.^21
Adding to the litany of evils attributed to fossil fuel subsidies is the
unnecessary environmental damage they encourage. Cheap gasoline and
diesel fuel incentivize driving. Civil servants in Saudi Arabia, Qatar,
Bahrain, and the UAE spent 1 percent or less of their monthly salary to
fill their SUV’s fuel tank in 2016; an equivalent civil servant in the United
Kingdom had to devote ten times as much salary to fuel up.^22 Increased
driving exacerbates traffic congestion, pollution, and accidents, which,
in turn, raise public health costs. Higher consumption of fossil fuel also
increases carbon dioxide emissions, contributing to the warming of
Earth’s climate. Per capita carbon emissions from the Gulf already lead
the world.
Combined, the Gulf monarchies are sending nearly as much CO 2 into
the atmosphere as Japan, despite a population less than a third the size.^23
The IEA and IMF have begun stressing the role of fossil fuel subsidies
in climate change. In 2015, the IEA called on Middle Eastern govern-
ments to take action on carbon by reducing energy subsidies, oil’s use
in power generation, and the flaring of natural gas.^24 The subsidy prob-
lem is shifting from the domestic to the global arena.
The climate damage wreaked by the Gulf ’s energy intensity is start-
ing to hit uncomfortably close to home. As temperatures rise, the region