Interlinkages Between Economic Diversification and Energy Transition in Oman: A Long-Run and Short-Run Analysis

Abstract

The economies of Gulf Cooperation Council (GCC) countries, including Oman, have historically depended on hydrocarbon resources for growth, which has introduced significant vulnerabilities such as exposure to global oil price fluctuations and sustainability concerns. As global energy transitions toward decarbonization, hydrocarbon-dependent economies face the dual challenge of economic diversification and energy transition. This paper investigates whether economic diversification or the transition to clean energy leads the change in Oman, providing insights into how these interrelated transformations are shaping Oman's progress under Vision 2040. Utilizing econometric models, including Cointegration tests and error correction models, the research explores the long-term equilibrium relationships and short-term dynamics between variables such as carbon emissions, economic diversification, and energy use. The findings highlight the challenges Oman faces in achieving both diversification and sustainable energy, including financial constraints and regulatory barriers. By understanding these dynamics, the study offers strategic policy recommendations for fostering sustainable growth and enhancing resilience in Oman, contributing to the broader sustainable development goals of reducing carbon dependency while driving economic diversification.