Oil-Price Volatility and Renewable-Energy Transition in the Gulf Cooperation Council Countries: Does Financial Development Mitigate Energy Transition Risk?

Oil-price volatility represents a major challenge for hydrocarbon-dependent economies pursuing renewable-energy transition. In GCC countries, fluctuations in global oil markets may influence renewable-energy deployment through their effects on fiscal revenues, investment conditions, and long-term energy planning. While previous studies have largely examined the direct effects of oil prices, renewable energy, and financial development separately, limited evidence exists on whether financial development can mitigate the adverse implications of oil-market uncertainty for renewable-energy transition in GCC economies. Using annual data for six GCC countries over the period 1990–2024, this study investigates the links among oil-price volatility, financial development, and renewable-energy transition within a second-generation panel econometric framework that accounts for cross-sectional dependence and heterogeneity. The analysis employs Pesaran cross-sectional dependence tests, CIPS unit-root tests, Westerlund cointegration, common correlated effects mean group (CCE-MG), augmented mean group (AMG), and error-correction modeling. The results support the existence of a stable long-run relationship among the variables. Oil-price volatility is negatively associated with renewable-energy consumption, with a long-run coefficient of approximately −0.21. Financial development exhibits a positive association with renewable-energy transition, while the interaction between oil-price volatility and financial development remains positive and statistically significant. This finding suggests that stronger financial systems may partially reduce the adverse effects of oil-market instability. The short-run estimates also support the presence of a stable adjustment process toward long-run equilibrium. Robustness checks based on alternative financial-development proxies, lagged regressors, Driscoll–Kraay estimations, leave-one-out country analysis, and alternative volatility measures confirm the stability of the main findings. The findings suggest that financial development may strengthen the resilience of renewable-energy transition strategies in GCC economies exposed to volatile energy-market conditions.