Solar energy, Vision 2030 and Middle East instability

A key theme driving our energy series is to emphasise how external geopolitics frequently impact energy projects.

The ongoing conflict between Israel and Hamas has the potential to significantly disrupt the regional stability of the Middle East, thereby affecting the broader strategies of the relevant governments. Of particular interest is the case of Saudi Vision 2030, and more specifically, how the ongoing conflict could impact this strategy.

Al Shuaibah Solar Plant

In May of this year, it was announced that the Water and Electricity Holding Company (Badeel), which is a subsidiary of the Saudi Public Investment Fund (PIF), and ACWA Power signed power purchase agreements to develop the largest solar energy plant in the Middle East.

The solar facility which will boast 2,060MW will be built in Al Shuaibah, Saudi Arabia and is expected to become operational by the end of Q4 2025. Once built, the facility is expected to power around 350,000 homes.

Vision 2030

The project aligns with Saudi Arabia's overarching Vision 2030 strategy, which has a focus on sustainability and aims to achieve net-zero emissions by 2060. This includes diversifying its energy sources and having 50% of the energy supply derived from renewable sources by 2030.

Furthermore, it is worth noting that external geopolitical factors, particularly related to energy, have already played a significant role in Saudi Arabia's economy.

A recent example is the country benefitting from Russia's invasion of Ukraine, leading to a surge in global energy prices. As a result, in August 2022, the IMF projected that Saudi Arabia would exhibit the highest economic growth rate among major economies, with a forecasted increase of 7.6% in 2022.

A fundamental component of Vision 2030 rests on the stability and greater integration of major economies in the Middle East. This is to achieve the aim of “new growth and investment opportunities, greater global engagement and enhanced quality of life”.

Before the recent Israel/Hamas conflict, external commentators had already raised that one potential barrier to Vision 2030 was the political instability in the region.

Throughout 2023, the Biden administration spent some effort bringing Saudi into the Abraham Accords, which are bilateral agreements on Arab Israeli normalisation signed between Israel and the United Arab Emirates and Bahrain on 15 September 2020, however on 2 November 2023 Bahrain suspended bilateral economic relations with Israel. In addition, Saudi itself has expressed that in line with Vision 2030 is a thriving Israel, as well as a thriving Palestine.

Despite an economic boost following the invasion of Ukraine, according to the World Bank, Saudi’s economy is expected to shrink this year, owing to oil production cutbacks. Consequently, the country has been actively seeking increased foreign investments. Meanwhile, Saudi Arabia has observed the impressive technological advancements achieved in Israel.

Compounding this, the UAE and Israel implemented a free trade agreement on 26 March 2023, building on a bilateral trade deal in 2022 that exceeded USD2.5 billion. Given these developments, Saudi Arabia may have been inclined to accelerate its normalisation with Israel to achieve similar economic growth.

Israel-Hamas conflict

The events that unfolded on and after 7 October have thrown the regional stability component of Vision 2030 into jeopardy. While Saudi officials denounced Israel’s siege and called for a ceasefire, compared to some regional counterparts, a stronger condemnation of Israel’s actions was largely absent.

At the same time, immediately after Hamas’ attack on 7 October, Iran’s supreme leader, Ayatollah Ali Khamenei, warned against any Gulf states “which prioritise the gamble of normalisation with the Zionist regime will incur losses”.

This leaves Saudi Arabia at a crossroads, as Palestine is an important and heartfelt issue for the country. Saudi could come under fire from the Islamic community and the Saudi people themselves for any actions that are perceived as not fully prioritising Palestinians.

Iran is also one of Saudi’s greatest rivals, and it is alleged that Iran had a role in aiding Hamas in the attack, as well as several of its regional proxies since carrying out attacks in Lebanon, Syria, and Iraq, further unravelling regional stability.

Saudi’s other foe, the Houthis in Yemen are increasingly engaging in the conflict, with several instances of the group firing missiles and drones towards Israel, including on 27 October, when a Houthi drone/missile damaged a building in Taba and a projectile/debris fell near Nuweiba, Egypt, and more recently on 31 October, when the group claimed to have fired a “large number” of ballistic missiles and drones towards Israel. Israel then reported that they destroyed an unidentified target over the Red Sea, with the incident triggering air raid sirens in the Red Sea tourist resort of Eilat.

In recent months, Saudi has made real progress in trying to pacify its war with Houthi rebels and in September 2023, hosted a Houthi delegation in the capital, Riyadh for five days of talks. If Houthi rebels become further entrenched in the Israel conflict, this could also complicate Saudi’s peace efforts with the group.

For now, Saudi Arabia needs to exercise caution in its dealings with the US and Israel, as the exact opposite of what they want is to lose years of diplomatic relations with Arab actors and receive backlash from the Arab community. Doing so, would put Vision 2030 and its associated projects—such as energy—at risk.

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