Oil producers face costly transition as world looks to net-zero future

Oil producers face costly transition as world looks to net-zero future

Ali Allawi, Iraq's finance minister, found himself in a quandary last year as the spread of coronavirus cut demand for oil and prices tumbled. Allawi's treasury, which receives more than 90 per cent of its revenues from crude sales and spends 45 per cent of its total budget on salaries and pensions, suddenly didn't have enough money to pay millions of public employees and retirees.

Opec's second-largest producer borrowed billions of dollars, mostly from local banks, to bridge the shortfall. But public anger boiled over. The fallout of the virus then battered businesses as their most important customers “” public employees “” cut their spending.

Iraq's economic fragility was laid bare: the hit to both public and private sectors caused the country's gross domestic product to shrink 11 per cent in 2020 according to the IMF, and poverty rose amid worsening unemployment.

Yet this scenario “” a huge fall in revenues as demand for Iraq's oil drops “” is not just a pandemic phenomenon, it is the future for oil producing countries.

Last year's oil crash coincided with an unprecedented focus by global governments, corporations and the public on committing to net-zero emissions targets by 2050. For producers, a global shift towards cleaner fuels