What COP28 Says About Geopolitics, US-UAE Relations And Fate Of The Oil Sector

The launch of COP28 on Thursday is the latest glimpse at the ongoing effort to decarbonize the global economy.

Whether its goal is to be a force for good or, as the BBC recently revealed, serve "as an opportunity to strike oil and gas deals" remains unclear.

Either way, the so-called “Conference of the Parties” says a lot more than what's coming from its climate talks: it's lending a view into geopolitics, political alliances, power friendships, and the fate of the oil sector.

Earlier this month, a report by the UN’s Environment Program warned that the emissions goals set during the landmark Paris Agreement of 2015 are not enough to keep global temperatures under the established limit of 1.5°C (2.7°F) below pre-industrial levels.

Current projections put the course of average temperatures at a catastrophic 2.9°C (5.2°F) rise above pre-industrial levels before 2100.

The UAE Paradox: The designation of Sultan Al Jaber as president of the climate conference has been a major source of controversy. After all, he is the CEO of the Abu Dhabi National Oil Company, a UAE state-owned oil company that ranks as the 12th largest producer in the world and 14th largest greenhouse gas polluter.

The BBC, citing leaked documents, reported this week that the UAE intends to use its role as host as a way to close fuel deals with 15 other nations.

The paradox of having an oil baron at the helm of the world's most important summit on climate change, which itself is being held in Dubai, a city built by wealth made from oil extraction, has been pointed out by several high-profile critics as outrageous.

Al Gore, climate activist Greta Thunberg, and hundreds of climate organizations from around the globe signed a collective letter in January. The letter denounced the Abu Dhabi National Oil Company as a major entity responsible for greenhouse gas emissions.

Production and use of oil and gas are top contributors to climate change. They contribute to a combined 55% of greenhouse gas emissions, according to the International Energy Agency.

"This decision threatens the legitimacy and efficacy of COP28," wrote the signing parties, adding that the company has launched programs to expand its oil output in years to come.

What some climate activists have found even more worrying is the friendly relationship between Al Jaber and former Secretary of State John Kerry.

Kerry’s work under the Obama administration was key in securing the Paris climate deal in 2015.

"It may or may not work," Kerry told Time magazine earlier this month. "Some might call it an experiment to have an oil-and-gas-­producing entity host COP. That's the big question."

According to Politico, Kerry and Al Jaber met 22 times in the two-and-a-half years since Kerry took the job of U.S. Special Presidential Envoy for Climate under Biden.

Their unusually tight relationship has become a cause for concern for climate activists, who fear that economic incentives from oil production could come in the way of climate goals.

As the first and seventh-largest oil and gas producers in the world, respectively, the U.S. and the United Arab Emirates have more than enough reasons to maintain good relations.

"The U.S. has much more interests aligned with the Emirates than we do," said a senior European diplomat to Politico.

The push towards reducing carbon emissions will have its effects on stocks from several sectors, including oil and gas, as well as those associated with ESG (Environmental, Social, and Governance) policies.

The world needs to reduce its carbon emissions by 42% by 2030 to keep on track toward Paris Agreement goals. This means a huge drop in sales for oil and gas producers. 

While Al Jaber has publicly expressed the need to reduce carbon emissions, the Abu Dhabi National Oil Company which he leads continues to have the largest expansion plans for oils and gas production of any other company in the world, according to data from the Global Oil and Gas Exit List quoted by The Guardian.

Last year, the company's board presented a $150 billion plan to upsize oil production to 5 million barrels a day by 2027. These expansion plans put it at the top of a list of companies whose expansion plans go against goals to reduce carbon emissions.

In this top-five are also Chevron Corporation CVX and Exxon Mobil Corp XOM.

According to the data, the 1600 largest oil producers have spent $170 billion in the search for new fossil fuel resources since 2021.

Optimists expect the COP28 to give birth to real commitments and plans to reach the needed reduction in greenhouse gas emissions. These plans would go directly against the current business models of major oil companies, whose transition to a renewables-based market is still not a guarantee of maintaining the profitability levels of today.

ConocoPhillips COP, Devon Energy Corp DVN, Phillips 66 PSX are also liable to shifts related to climate policy.

The largest ETFs in the oil sector, by amount of assets, are:

• United States Oil ETF USO
• ProShares Ultra Bloomberg Crude Oil ETF UCO
• Invesco DB Oil Fund DBO

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