Digital Innovation and Circular Economy: A Nexus for Sustainable Oil and Gas Sector Transformation in Saudi Arabia

Abstract

Amid mounting global pressure for transition to renewable energy sources, the survival and sustainability of the oil and gas sector are under threat. Relying inherently on non-renewable energy, the oil and gas sector is in dire need of competitive strategies to ensure a sustainable future while mitigating adverse environmental impacts of its operations. This study endeavors to examine the combined impact of two important factors: the circular economy and digital innovation, which can provide the needed sustainability to the oil and gas sector. It investigates how resource efficiency and environmental and social commitment as dimensions of the circular economy and cost reduction and operational efficiency as dimensions of digital innovation can contribute to a sustainable oil and gas sector in the context of Saudi Arabia—the second-largest oil producer in the world. Employing a quantitative design, the data was collected from 348 executives from the oil and gas sector through an online questionnaire survey and was analyzed in SmartPLS4 using the partial least square structural equation modeling. The findings confirmed the statistical significance, indicating that by implementing circular economy principles and adopting digital innovation, the oil and gas sector can effectively overcome the sustainability challenges it faces and remain competitive in the market. Based on the findings, this study provides important theoretical and practical implications for future researchers, the oil and gas sector, and policymakers.

1. Introduction

The oil and gas sector (hereafter OGS) is a significant pillar of the global economy as it offers the required energy for numerous domestic, commercial, and industrial activities [1]. In addition to being the primary source of energy, this sector is a major source of revenue and economic development for many countries, particularly Saudi Arabia. The OGS heavily relies on the processes that produce greenhouse gas emissions and consume non-renewable resources. Moreover, OGS operations lead to resource depletion, carbon emissions, and ecological degradation, adversely contributing to overall climate change, environmental degradation, and social challenges [2]. In addition, a global transition to renewable energy sources, a circular economy, and greener production add to OGS’s challenges and threaten its sustainability [3]. The growing concerns about OGS sustainability prompted oil-producing countries, researchers, and practitioners alike to explore innovative strategies to ensure long-term viability while addressing environmental and social responsibilities. This requires a transition to an environmentally friendly and sustainable energy model for energy consumption and production [4]. This led to growing interest in the circular economy and digital innovation to achieve OGS sustainability [5]. Where a circular economy seeks to lower waste and make effective use of resources, digital innovation assists in cost-cutting, mitigating environmental impact, and optimizing operational efficiency [6].

The sustainability of the OGS is particularly critical for Saudi Arabia, as it is one of the largest producers of crude oil globally and heavily relies on oil exports as a primary source of national revenue. The OGS has been serving as the backbone of Saudi economic development since the discovery of massive oil reserves in 1938 [7]. Given its heavy dependence on oil exports, Saudi Arabia’s Vision 2030 is a national drive for economic diversification, innovation, and sustainability. The vision has a strong focus on the circular economy and digital innovation [5]. However, Saudi Arabia faces the dual challenge of continued economic growth through OGS while mitigating its environmental impacts and aligning with global sustainability goals [1]. Thus, OGS sustainability is crucial for Saudi Arabia to sustain its economic growth and achieve its Vision 2030 objectives. In addition, OGS sustainability is important for Saudi Arabia’s global reputation as a responsible energy producer and to attract foreign direct investment.

Though OGS inherently relies on non-renewable fossil fuels, sustainability can be pursued by mitigating adverse environmental and social impacts, reducing waste, recycling, and optimizing resource use through digital innovation [2]. Such transitional strategies not only reduce the ecological footprints of OGS but also support the shift toward cleaner energy alternatives [3]. Particularly, by adopting circular economy principles and digital innovations, OGS can achieve incremental improvements in efficiency, resource recovery, and emission reductions while preparing for a more sustainable energy future.

In recent years, the existing scholarly literature recognized the importance and recommended circular economy principles and digital innovation to achieve OGS sustainability [3]. While a circular economy entails two critical dimensions, including resource efficiency and environmental and social commitment, digital innovation offers transformative solutions for cost reduction and operational efficiency [8]. Though ample research has been conducted in the fields of circular economy, digital innovation, and sustainability, the existing body of knowledge lacks sufficient empirical evidence on the combined effect of circular economy and digital innovation on the sustainability of OGS. This study addresses this empirical gap by examining the interplay between circular economy practices and digital innovation in driving OGS sustainability. It extends the resource-based view (RBV) and triple bottom line (TBL) frameworks, which underpin this research, while offering practical strategies for the oil and gas sector. In addition, from a contextual perspective, a leading oil-producing country like Saudi Arabia remains underexplored with respect to examining the impact of adopting these strategies for OGS sustainability.

Hence, it is imperative to fill these gaps and examine the impact of the circular economy and digital innovation on the sustainability of OGS in the context of Saudi Arabia. Therefore, this study endeavors to address these gaps by pursuing specific objectives, including (1) to investigate the impact of circular economy practices, specifically resource efficiency and environmental and social commitment, on the sustainability of the oil and gas sector in Saudi Arabia, (2) to examine the influence of digital innovation, including cost reduction and resource efficiency, on sustainability outcomes, and (3) to develop and validate an integrative conceptual framework that highlights the interplay between circular economy dimensions, digital innovation, and sustainability.

These research objectives are also aligned with Saudi Vision 2030 which promotes economic diversification, sustainability, and digital transformation, particularly in OGS. It emphasizes resource efficiency, environmental responsibility, and operational excellence, which directly relate to the focus of our study on circular economy principles and digital innovation. Through the integration of AI, automation, IoT, and blockchain, it aims to reduce waste, lower emissions, and enhance cost-effectiveness, fostering a more sustainable industry. Accordingly, this study contributes to these goals by examining how cost reduction, operational efficiency, and social commitment drive sustainability, reinforcing Vision 2030 for a technology-driven, environmentally conscious economy.

The rest of the paper is organized as follows: Section 2 discusses the state of literature in the oil and gas sector. Section 3 develops hypotheses and illustrates the conceptual framework. Section 4 provides details on the methodology employed. Section 5 reports the results. Section 6 provides discussion on the results and their implications. Section 7 provides limitations and future research direction, and Section 8 presents the conclusion of the study.

2. Literature Review

2.1. Sustainability of the Oil and Gas Sector

The sustainability of the oil and gas sector (OGS) is at a crossroads mainly due to its detrimental effect on the environment, society, and ecosystem [9,10]. In addition, the growing demand for renewable energies further dents its long-term survival and sustainability [11]. Coping with this dual challenge is the fundamental concern of OGS, which requires transformation and a radical shift in its current business model and operations. Among numerous alternative solutions, OGS researchers [2,3,12,13,14] agree on two inevitable strategies—circular economy and digital innovation—that can essentially provide it with the needed competitive survival and ability to achieve sustainability goals.

The implementation of digitalization and the circular economy provide opportunities as well as challenges for the sector. In OGS, digitalization possesses the potential for optimizing resource usage, improving operational efficiency, and lowering costs [15]. The adoption of digital technologies such as artificial intelligence, data analytics, automation, and the Internet of Things assists in streamlining operations efficiently [16]. The circular economy practices, on the other hand, ensure waste reduction, resource efficiency, and the development of new business opportunities [17]. Implementation of a circular economy assists in fostering recycled raw material consumption, integrating circular supplies, and extending the life cycle of the product. Through all this, the oil and gas sector can lower environmental influences and enhance long-term sustainability [18].

The scholars focusing on OGS research have agreed in their recent articles [2,9,11,13] that the implementation of circular economy and digital innovation in OGS is a way forward amidst the sustainability challenges it faces. They argued that OGS’s transformation from its existing operational practices to the circular economy principle and digital innovation requires significant investment and a radical shift in the business model [19]. Kottmeyer [20] highlighted that the transformation requires increased potential linked to the disruption of conventional business models. This is because the circular economy requires a transformative shift in the approach toward waste management, resource usage, and the design of the product [21]. In addition, OGS experiences increased regulatory barriers and cultural barriers impeding the adoption of digitalization and the implementation of the circular economy model [15]. Though these barriers and competitive pressure from the renewable energy sector pose multifold challenges for OGS, the situation also provides opportunities for survival and sustainability through the adoption of a circular economy and digital innovation. Government policies and support can play a pivotal role in the sustainability of OGS. For instance, the Saudi government, through its Vision 2030, provides OGS with the support it needs for its transformation through a circular economy and digitalization to achieve sustainability goals [22].

2.2. Saudi Vision 2030 and Sustainability

Saudi Vision 2030 is an ambitious and transformative plan for unlocking the vast potential of the Kingdom by developing an innovative, diversified, and leading nation for future generations and its benefit [3]. The plan aimed to transform governance, society, and the economy to foster environmental protection and promote sustainability. Sustainability is the central theme of Saudi Vision 2030 since it focuses on environmental conservation, renewable energy, circular economy principles and practices, and water resource management [5]. NEOM and the Red Sea Project are prime examples of Saudi green initiatives showing its commitment to a sustainable future [23]. NEOM is a smart and sustainable city project worth $500 billion in the northwest of Saudi Arabia [24]. The project integrates cutting-edge technologies, renewable energy, and environmental sustainability to create a futuristic hub for innovation, tourism, and economic development [24]. These projects position Saudi Arabia as a leader in green technologies and sustainable economic growth, as its vision is perfectly aligned with global sustainable development goals (SDGs).

The oil and gas sector (OGS) is one of the potential pillars of Saudi Vision 2030, and the sustainability of the sector is important for the attainment of the objectives [5]. The key element of sustainability considering the 2030 vision is that the Kingdom aims to achieve a net-zero future by the year 2060 [25]. Vision 2030 includes a nuanced program concerning renewable energy to increase localization in the sector by about 40 to 75% [26]. It also includes the adoption of a circular economy and digital innovation for fostering sustainability and lowering environmental influence in OGS.

3. Hypotheses Development and Conceptual Framework

3.1. Circular Economy and Sustainability of OGS

Resource efficiency and environmental and social commitments are two main dimensions of a circular economy [27] that play a critical role in the sustainability of OGS. Resource efficiency includes optimizing resources, lowering waste, and enhancing material recovery across the entire life cycle of a product [28]. According to circular economy principles, adopting circular supply chains, such as bio-based materials, renewable energy sources, and increased reliance on recycled raw materials, substantially reduces the environmental footprint while fostering long-term sustainability [27]. One of the key strategies for improving resource efficiency is extending the life cycle of products through repair, refurbishment, and maintenance that align with circular economy principles [8]. By reducing resource depletion and promoting sustainable consumption patterns, resource efficiency plays a pivotal role in helping the sector diversify beyond its reliance on finite oil reserves [29]. Despite depending on non-renewable resources, OGS can contribute to sustainability by optimizing resource use and waste management [30]. Dua and Dadsena [9] argued that while addressing the pressing environmental concerns, OGS can repurpose its waste materials into valuable resources, creating a circular, self-sustaining economic model. Overall, the literature revealed that resource efficiency notably influences sustainability in the oil and gas sector. Thus, we propose the following hypothesis:

H1. 

Resource efficiency, as a key component of the circular economy, has a positive impact on the sustainability of the oil and gas sector.

The environmental and social commitment dimension of the circular economy is fundamental to the sustainability of the OGS [10]. Sharma, Joshi [12], argued that, on one hand, the circular economy enhances waste reduction and minimizes pollution by designing systems that ensure materials and products remain in continuous use; on the other hand, it enhances resource efficiency and mitigates adverse environmental impacts. These practices are well-aligned with global sustainability goals. Moreover, circular economy principles drive business innovation and create new market opportunities while reinforcing CSR initiatives. Thus, OGS, while capitalizing on these principles, enhances its environmental stewardship while fostering social well-being by encouraging sustainable practices [31].

The role of environmental imperatives in the circular economy is particularly significant for Saudi Arabia, where the transition to a more sustainable economic model is a strategic priority under Saudi Vision 2030 [25]. The country seeks to reduce its reliance on fossil fuel revenues through circular practices: waste can be transformed into valuable economic resources, contributing to a sustainable OGS [27]. Moreover, businesses that actively engage in environmental and social initiatives build stronger stakeholder trust, improve regulatory compliance, and gain a competitive edge in the global market. Thus, by reducing pollution, enhancing resource utilization, and fostering social responsibility, environmental and social commitment strengthens the long-term sustainability of the OGS. Therefore, we propose the following hypothesis:

H2. 

Environmental and social commitment, as a key component of the circular economy, has a significant positive impact on the sustainability of the oil and gas sector.

3.2. Digital Innovation and Sustainability of OGS

Saudi Vision 2030 emphasizes digital transformation as a key driver to modernize industries, improve efficiency, and foster a knowledge-based economy. Digital innovation can play a leading role in the sustainability of OGS through the use of modern technologies such as artificial intelligence, automation, the Internet of Things, and blockchain [32]. It can significantly optimize resource utilization, reduce GHG emissions, and improve operational efficiency, ultimately leading to cost savings and enhanced sustainability [33]. Digital technologies have been instrumental in improving cost efficiency across industries [34]. For instance, predictive maintenance, powered by AI and IoT, has been widely adopted in OGS, manufacturing, and transportation to extend the life cycle of critical assets, minimize downtime, and reduce maintenance costs [35]. Specifically, in the OGS, predictive maintenance allows real-time monitoring of drilling equipment and pipelines, preventing costly failures and unplanned shutdowns [36]. Similarly, In OGS, blockchain technology improves the efficiency of supply chain logistics by reducing paperwork, expediting transactions, and lowering administrative costs [37].

Hence, OGS can optimize the allocation of resources, streamline the possible operations, and identify the opportunities for cost-saving adequately [38]. For instance, predictive maintenance, which has been powered by digital innovation, assists in extending the overall life cycle, lowering downtime, and lowering the cost of maintenance [29]. Moreover, the digital tool allows real-time control and monitoring, which reduces the overall cost and resource waste. According to Dua and Jain [2], digital innovation toward cost reduction is well aligned with the 2030 vision, which focuses on the economic diversification need, cost optimization, and operational efficiency in the oil and gas industry. Thus, we propose the following hypothesis:

H3. 

Cost reduction achieved through digital innovation has a significant positive impact on the sustainability of the oil and gas sector.

Operational efficiency is considered an effective outcome concerning digital innovation in Saudi Arabia’s oil and gas sector. Digital technologies allow firms to improve productivity and operational procedures while lowering their overall environmental influence [39]. According to Naveed, Ammouriova [40], the execution of the digital solution toward remote control and monitoring assists in optimizing energy consumption, ensuring compliance, and lowering emissions. Moreover, digital innovation promotes the integration of IoT devices and other smart sensors, which allows for real-time data analysis and collection for informed decision-making. Operational efficiency and the pursuit of this factor through digital innovation are closely linked with the principles of the circular economy, as they foster the optimization of resources, sustainable practices, and waste reduction [41]. Hence, embracing the use of digital innovation is imperative for improving operational efficiency. The firms can therefore advance their agenda of sustainability, as it would contribute potential toward environmental stewardship and would drive a transition to a circular economy on a large scale [39].

H4. 

Operational efficiency achieved through digital innovation has a significant positive impact on the sustainability of the oil and gas sector.

3.3. Conceptual Framework

The conceptual framework of the study presented in Figure 1 is supported by two main theories: resource-based view (RBV) and triple bottom line (TBL), in addition to scholarly literature support in the previous subsections. The resource-based view is a managerial framework used for analyzing the strategic resources that are exploited to attain a sustainable competitive edge [42,43]. In the context of this study, the theory is used as it offers a lens concerning the role of digital innovation toward operational efficiency and cost reductions [44]. Focusing on the theory, it can be understood that digital technologies and their use are effective for streamlining processes, optimizing resource allocation, and improving overall decision-making in the oil and gas sector [41,45]. The RBV theory underpins our study by emphasizing how firms leverage strategic resources (such as digital innovation) to achieve a sustainable competitive advantage. In our framework, digital technologies are conceptualized as valuable, rare, and inimitable resources that enhance operational efficiency, cost reductions, and resource optimization in the oil and gas sector. These efficiency gains, in turn, contribute to sustainability outcomes, forming the basis for our hypothesis that digital innovation positively impacts OGS sustainability.

On the other hand, the aspect of circular economy can be framed through the TBL theory lens. TBL incorporates three potential performance dimensions, such as financial, environmental, and social dimensions [46,47]. The focus on resource efficiency as the antecedent of the circular economy well aligns with the economic pillar of the theory. This ensures that the OGS is operating appropriately within ecological limits and reducing waste appropriately. Additionally, the environmental and social commitment of the circular economy is critical for promoting a sustainable balance between societal and economic development and its well-being [31,48]. The overall theoretical framework has offered a nuanced foundation to investigate the association of circular economy and digital innovation with the goals of sustainability in OGS. Thus, the TBL framework supports our study by integrating the economic, environmental, and social dimensions of sustainability. This perspective aligns with the circular economy principles, which emphasize resource efficiency, waste reduction, and long-term sustainability. Our framework builds on this by hypothesizing that circular economy practices drive sustainability across all three TBL dimensions, ensuring economic viability while minimizing environmental impact.

4. Methodology

This research is explanatory by its nature, as it tests the existing theory and examines the causal relationships between the study variables. Thus, a quantitative research design was employed to collect primary data from respondents through an online questionnaire survey.

4.1. Population and Sampling

The population included executives working in various organizations and entities that oversee the exploration, production, refining, distribution, and regulation of the oil and gas sector in Saudi Arabia. We chose Saudi OGS to examine the impact of digital innovation and circular economy on the sustainability of OGS mainly because of two reasons. First, Saudi Arabia is the second largest producer and exporter of crude oil in the world after the United States. It holds around 17% of the world’s proven petroleum reserves and produces around 10.2 million barrels per day. Second, our access to markets and contacts in the industry helped us overcome the challenges of data collection.

We used non-probability-based purposive and snowball sampling techniques to collect data from the respondents due to a lack of a sampling frame, as an exact estimate for the total population of the respondents was not readily available. This technique involves initially identifying a few participants who meet the study’s criteria and then asking them to refer other eligible individuals, creating a “snowball” effect of participant recruitment. Though snowball sampling suffers from potential biases of over-representation of a closely connected network of participants, it allows reaching the desired participants who might otherwise remain inaccessible when using the convenience of judgmental sampling. In the context of our study, participants were hard to reach due to the absence of a sampling frame, making snowball sampling the most appropriate choice. To reduce over- or under-representation bias, initially, we approached the participants who belonged to different subgroups of the population. In addition, data was analyzed in SmartPLS, which produces reliable results despite limitations in the sample.

To determine the minimum sample size required for this study, we used the 10:1 method recommended by Hair, Hult [49]. In this method, for each item of the questionnaire, 10 responses should be collected. Our questionnaire contained a total of 15 items, leading to a minimum sample size of 150 responses.

4.2. Research Instrument

The questionnaire was developed following guidelines by Bell, Bryman [50]. The questionnaire consisted of two main sections: a demographic profile of respondents and 15 research questions or items. The study included two independent variables: circular economy (with two dimensions, resource efficiency and ‘environmental & social commitment’), digital innovation (with two dimensions, cost reduction, and operational efficiency), and a dependent variable, sustainability of OGS. We operationalized these variables by extracting relevant items from various previous studies. The scales were tailored to capture the participants’ responses in the context of OGS. After adaptation, the reliability and validity of the measurement instrument were re-established (see Section 5.1).

Specifically, the indicators for circular economy scales were extracted from Portilla [3] and Moraga, Huysveld [51]; digital innovation from Hildebrandt, Valta [52], Lokuge, Sedera [53], and Khin and Ho [54], and sustainability of OGS from Yusuf, Gunasekaran [55] and Cherepovitsyn, Rutenko [56]. The scale for circular economy included sample items such as “Promoting resource efficiency and minimizing waste is one of the top priorities for our firm operations” and “Our firm is committed to lowering pollution and waste through designs and making use of materials and products”. The sample items for digital innovation included “Digital innovation has a notable contribution to improving resource efficacy and waste reduction in the firm” and “Digital innovation can assist the overall performance and innovation of the oil and gas sector”. The sustainability of OGS was measured through items such as “The circular economy and digital innovation largely assist in the promotion of sustainability across the oil and gas sector”. The participants’ response was gauged through a five-point Likert scale, with 1 indicating strongly disagree and 5 indicating strongly agree.

4.3. Data Collection

To ensure the content and face validity, the questionnaire was sent to three professors in the field. Their feedback was incorporated, and a pilot test was conducted with 25 respondents. The questionnaire was fine-tuned based on pilot test results. The final data was collected from executives working in various OGS operating in Saudi Arabia. Using purposive sampling, we contacted the respective respondents through their official emails retrieved from official websites and requested that they fill out an online survey. In addition, we approached our contacts in the industry and requested them to snowball our online survey to their relevant contacts in the industry. In three months, we received 578 total responses. After initial screening, 230 incomplete and unengaged responses were excluded, yielding a final dataset of 348 responses. The final dataset was assessed for data distribution and common method bias in the pre-analysis. The analysis showed that the data did not suffer from common method bias. However, the results showed a non-normal distribution.

The demographic statistics of the respondents (presented in

Table 1. Demographic Statistics.

Category		Count	Percentage (%)
Gender	Male	310	89%
	Female	38	11%
Education Level	Undergraduate Degree	198	57%
	Graduate Degree	118	34%
	Other Education Level	32	9%
Age Group	Under 25 years	35	10%
	26–45 years	212	61%
	46–60 years	91	26%
	Above 60 years	10	3%
Total Participants		N = 348

) showed that of 348 complete responses, the majority were male (89%) with 57% having an undergraduate degree and 34% having a graduate degree. The male majority of the respondents is representative of gender distribution in the labor force of Saudi OGS. This is also aligned with women’s participation in the national labor force, which is less than 15%; however, it is significantly increasing under Vision 2030 [57]. In terms of age, most (61%) respondents were aged between 26 and 45 years, having substantial experience in OGS (9 and 15 years). A small portion of the respondents were under the age of 25 years (10%) or above 60 years (3%). Overall, this shows that this study included diverse and experienced respondents who provided valuable opinions on the study variables.

4.4. Data Analysis

The final data was analyzed in SmartPLS4 software using the partial least square approach of structured equation modeling (PLS-SEM). We used PLS-SEM due to non-normal data distribution and the existence of reflective constructs in the model. In a such situation, Hair, Hult [49] recommended the PLS approach over the covariance-based approach, which focuses on model fit. PLS-SEM provides more robust results on validity and reliability statistics of latent variables in addition to focusing on variance explanation (R²) and predictive accuracy, making it ideal for analyzing multiple interrelated variables. Due to its robust results, numerous other scholars used the PLS-SEM approach on non-normally distributed datasets. See, for instance, to name a few, Ahmad and Iqbal [58], Bajwa, Bajwa [59], and Mahmood, Ahmad [60].

5. Results

The final dataset was analyzed in SmartPLS4 at a 95% confidence interval to establish the reliability and validity of latent variables and to assess the statistical significance of hypothesized paths. This two-step approach is mandatory, as Hair, Hult [49] recommend establishing the reliability and validity for measurement scales of the latent constructs prior to testing the research hypotheses and assessing the coefficient of determination.

5.1. Reliability and Validity of Scales

Following the recommendations, we first assessed the reliability of scales through confirmatory factor analysis (CFA), Cronbach’s alpha (α), and composite reliability (CR), each with a value greater than 0.70. Following that, convergent and discriminant validity were established. Convergent validity was established through average value extracted (AVE) scores greater than 0.50 and comparing the CR values with AVE scores, where CR values should be greater than 0.60 and AVE scores should be greater than the corresponding CR value for each latent construct. The discriminant validity was established through the HTMT ratio, for which the threshold is below 0.85 [61].

As shown in

Table 2. Construct Reliability and Validity.

Latent Variable	Code	Outer Loading	Cronbach’s Alpha	Composite Reliability (CR)	Average Variance Extracted (AVE)
Cost Reduction	CR1	0.835	0.894	0.897	0.826
	CR2	0.783
	CR3	0.861
Environmental and Social Commitment	ESC1	0.895	0.879	0.883	0.805
	ESC2	0.816
	ESC3	0.880
Operational Efficiency	OE1	0.899	0.9031	0.903	0.837
	OE2	0.793
	OE3	0.891
Resource Efficiency	RE1	0.793	0.807	0.803	0.716
	RE2	0.889
	RE3	0.853
Sustainability of OGS	SUS1	0.904	0.929	0.933	0.875
	SUS2	0.882
	SUS3	0.784

, all the values of outer weights as a result of CFA ranged between 0.783 and 0.904, which is significantly above the threshold of 0.70. Likewise, values of Cronbach’s alpha and CR also surpassed the threshold of 0.70 and ranged between 0.783 and 0.929 and 0.803 and 0.933, respectively. Thus, all three criteria were met, indicating that measurement scales for all latent constructs, including cost reduction, environmental and social commitment, operational efficiency, resource efficiency, and sustainability of OGS, are reliable.

Similarly, the convergent validity criteria were also met, as given in Table 2. All the values for AVE exceeded the 0.50 threshold; CR values are greater than 0.70; and all CR values are greater than corresponding AVE values, thus establishing the convergent validity of the latent constructs’ measurement scales. The convergent validity ensures that all the indicators of a latent variable actually measure the same variables.

After assuring the convergent validity, discriminant validity of latent variable scales was assessed using the Heterotrait-monotrait ratio (HTMT), which is relatively a novel and stringent method developed by Henseler, Ringle [61]. The HTMT ratio determines that the indicators of a measurement scale are distinct enough and face multicollinearity issues [49]. It is generally considered that the ratio of HTMT should be less than 0.85. As

Table 3. Discriminant Validity.

Latent Variables	1	2	3	4	5
1. Cost Reduction
2. Environmental and Social Commitment	0.742
3. Operational Efficiency	0.378	0.346
4. Resource Efficiency	0.574	0.580	0.262
5. Sustainability of Oil & Gas Sector	0.379	0.480	0.466	0.319

showcases the result of discriminant validity, all the calculated values of the latent constructs ranged between 0.262 and 0.742, which were fairly below the threshold of 0.85. Thus, it can be interpreted that the indicators of each measurement scale of latent constructs were significantly different from each other and did not face multicollinearity issues, thus establishing the discriminant validity and allowing us to perform the structural model assessment for hypotheses testing.

5.2. Structural Model Assessment

Once the validity and reliability of the measurement models were assessed, the structural model assessment was performed using bootstrapping of 10,000 subsamples to enhance the statistical robustness and reliability of the results. The structural model analysis included hypotheses testing and coefficient of determinant (R-square) assessment. As per Hair, Hult [49], the bootstrapping method is a resampling technique used for the assessment of the statistical significance of the research hypothesis. The statistical significance of the path coefficients (β) value is assessed through t- and p-values. At a 95% confidence interval, a t-value greater than ±1.96 with a p-value less than 0.05 demonstrates the statistical significance of the hypothesis. As shown in

Table 4. Hypotheses Testing.

Hypothesis	Path Coefficient (β)	T-Values	p-Values	Decision
H1. Resource Efficiency → OGS Sustainability	0.112	3.991	0.003	Supported
H2. Environmental and Social Commitment → OGS Sustainability	0.305	4.946	0.000	Supported
H3. Cost Reduction → OGS Sustainability	0.228	4.832	0.000	Supported
H4. Operational Efficiency → OGS Sustainability	0.320	5.949	0.000	Supported

and Figure 2, circular economy positively influences OGS sustainability, as both dimensions have shown statistical significance: resource efficiency (β = 0.112, t = 3.991, p = 0.003) and environmental and social commitment (β = 0.305, t = 4.946, v = 0.000). Thus, providing empirical evidence for supporting our hypotheses 1 and 2, though the impact of resource efficiency on OGS sustainability relative to environmental and social commitment was a bit weaker.

Similarly, cost reduction and operational efficiency, two dimensions of digital innovation, have also shown statistically significant effects on OGS sustainability, with respective values of β = 0.228, t = 4.832, p = 0.000, and β = 0.320, t = 5.949, p = 0.000. Thus, this provides empirical evidence for supporting our hypotheses 3 and 4. As Table 4 shows, operational efficiency appears to have the strongest influence on OGS sustainability compared to cost reduction, resource efficiency, and environmental and social commitment.

5.3. Predictive Relevance of Research Model

To assess the predictive relevance of the research model, we assessed the coefficient of determination (R-square) and effect size (f-square). Predictive relevance demonstrates the degree to which independent variables predict the dependent variable, collectively through R-square and individually through f-square. Hair, Hult [49] suggested a threshold for R-square values of 0.25, 0.50, and 0.75 as weak, moderate, and substantial variance, respectively. As shown in

Table 5. Coefficient of Determination and Effect Size Statistics.

Dependent Variables	R-Square	Effect Size (f-Square)
		Resource Efficiency	Environmental and Social Commitment	Cost Reduction	Operational Efficiency
OGS Sustainability	0.289	0.192	0.265	0.210	0.329

, the independent variables, including resource efficiency, environmental and social commitment, cost reduction, and operational efficiency, moderately explain the variance (28.9%) in the dependent variable—OGS sustainability. This indicates the existence of numerous other factors contributing to OGS sustainability.

While the R-square measures the overall predictive power for the dependent variable, the f-square provides the individual contribution of each independent variable to the R-square of the dependent variable. Hair, Hult [49] provided f-square values of 0.02, 0.15, and 0.35 as small, medium, and large effects. As presented in Table 5, while resource efficiency, environmental and social commitment, and cost reduction cast a moderate individual effect, the effect of operational efficiency is large on OGS sustainability. This indicates that among these factors, operational efficiency is the most powerful tool for OGS sustainability.

6. Discussion

The purpose of this research was to examine the role of the circular economy and digital innovation on the sustainability of the oil and gas sector (OGS) in Saudi Arabia. The OGS is currently facing multi-fold challenges of long-term survival and sustainability. This is mainly because OGS inherently relies on non-renewable resources, and its operations and products possess severe and derogatory impacts on the environment and society. Hence, it is imperative to investigate how resource efficiency and environmental and social commitment as core elements of the circular economy and cost reduction and operational efficiency as core elements of digital innovation can contribute to OGS sustainability.

For this purpose, data was collected from 348 executives working in Saudi OGS and analyzed in SmartPLS4. The results showed that resource efficiency plays a significant role in OGS sustainability, confirming our first hypothesis (resource efficiency, as a key component of the circular economy, has a positive impact on the sustainability of the oil and gas sector). This result is aligned with previous research such as Salvioni and Almici [8], Birat [28], Ekins, Domenech Aparisi [27], Skrypko, Popadynets [30], and Bressanelli, Adrodegari [29] as well as with TBL framework. From a TBL perspective, resource efficiency contributes to environmental sustainability by reducing waste, emissions, and resource depletion, thereby minimizing the sector’s ecological footprint. Economically, improved resource efficiency leads to cost reductions and long-term profitability, ensuring financial sustainability. For instance, Ekins, Domenech Aparisi [27] argued that the environmental influence on the oil and gas sector has been lowered through the resource efficiency factor of the circular economy as it improves sustainability. Similarly, Bressanelli, Adrodegari [29] exhibited that resource efficiency measures and adoption assist the sector in diversifying its dependence on the resources of oil.

However, Gupta [62] reported an insignificant influence of resource efficiency on OGS sustainability and argued that the low competition in the industry raises the possibility of organizations being engaged in unethical practices, indicating the unique industry characteristics that influence the efficacy of sustainability initiatives. Overall, most research has shown a significant positive impact of resource efficiency on OGS sustainability, supporting our hypothesis.

The findings also confirmed the statistical significance of our second hypothesis (environmental and social commitment as a key component of the circular economy has a significant positive impact on the sustainability of the oil and gas sector), indicating the crucial role of organizational commitment to environmental and social obligations. This result is also aligned with the existing literature [12,31,63], indicating that the circular economy assists largely in dealing with environmental challenges, including lowering gas emissions and pollution, while also contributing toward the 2030 Vision agenda. On a similar note, Kamboj, Hejazi [25] indicated that the circular economy largely assists in creating opportunities for businesses and fostering social responsibility, which enhances OGS sustainability in addition to contributing toward the national 2030 vision. Overall, our findings and previous empirical evidence suggest that environmental and social commitment can serve as driving forces for OGS sustainability.

The third hypothesis, “cost reduction achieved through digital innovation has a significant positive impact on the sustainability of the oil and gas sector”, was supported by the findings of this study. Cost reduction has been conceived as a core dimension of digital innovation that enables OGS to compete with the producers of non-renewable sources. Existing literature [2,29,38,62] supports these findings and contends that with the help of modern technologies, oil and gas sector can significantly reduce its production and supply, minimize waste, and improve resource utilization. Modern technologies and digital innovation, viewed as strategic resources within the Resource-Based View (RBV) theory, play a crucial role in enabling firms to achieve a sustainable competitive advantage, which in turn enhances OGS sustainability. For example, Cherepovitsyn, Tsvetkov [38] argued that digital technologies such as artificial intelligence, automation, and data analytics assist firms in optimizing their overall resources and streamlining their operations, which assists in identifying the opportunities linked to cost-saving appropriately. Thus, cost reduction achieved through digital innovation can effectively assist OGS in sustainably competing with renewable energy producers.

Our fourth hypothesis posited that operational efficiency achieved through digital innovation has a significant positive impact on the sustainability of the oil and gas sector. This hypothesis was statistically supported by the empirical results of our study. This is consistent with RBV theory and existing literature. Specifically, Akarsu [41] reasoned that operational efficiency can be enhanced through digital innovation, which enables OGS to maximize output while minimizing input cost, waste, and resource usage. Similarly, Naveed, Ammouriova [40] advocated for the implementation of digital solutions for monitoring and control that assist in energy optimization along with reducing emissions. In addition, operational efficiency through digital innovation streamlines the processes, improves productivity, and reduces costs, leading to OGS sustainability [39]. Overall, the findings suggest that operational efficiency through digital innovation is one of the most effective ways to achieve sustainability in OGS.

Overall, the results showed that circular economy practices and digital innovation are the two main drivers capable of bringing in much-needed sustainability in OGS, which is facing survival threats amidst a global shift towards alternative renewable energy sources. While circular economy practices primarily depend on resource efficiency and environmental and social commitment, digital innovation drives cost reduction and operational efficiency. These findings have profound theoretical and practical implications for contributions to the existing body of knowledge, the oil and gas industry, and the government, as discussed below.

6.1. Theoretical Contribution

The overall theoretical contribution of the research lies in the integration of digital innovation and circular economy in the oil and gas sector while examining the challenges faced during the implementation of the initiatives. This study addresses the gaps in the existing literature by offering empirical evidence considering the factors that promote and drive the sustainability of the OGS, which can assist in informing future practice and policy. The major contribution of this study to theory is the development and testing of a research framework that examines the intricate relationship between the circular economy and digital innovation and their impact on OSG sustainability. This novel empirical piece of evidence is important since the previous research either examined circular economy and digital innovation in isolation or explored their relationship with other organizational variables such as performance, economic growth, success, etc.

Moreover, this study contributes to the RBV framework by demonstrating how digital innovation and circular economy practices serve as strategic resources that create a sustainable competitive advantage for firms in the oil and gas sector. Digital technologies enhance operational efficiency and cost reduction, making them valuable and inimitable resources that align with RBV principles. At the same time, this study extends the TBL framework by empirically showing how resource efficiency and digital innovation contribute not only to economic sustainability (cost savings and profitability) but also to environmental sustainability (reduced emissions and waste) and social sustainability (improved stakeholder engagement and regulatory compliance). By integrating these theoretical perspectives, the research provides a more holistic understanding of how firms can leverage internal capabilities and sustainable practices to achieve long-term viability.

Additionally, the utilization of SEM analysis adds a methodological advancement for studying the association between circular economy, digital innovation, and sustainability of OGS. The results of the research also showcase the requirement for further research to build a better understanding of the conditions under which cost reduction and resource efficiency can drive sustainability in OGS.

Furthermore, the study offers valuable information concerning the dimensions of digital innovation and the circular economy in the Saudi Arabian oil and gas sector. Therefore, by emphasizing the identified significant factors, such as resource efficiency, environmental and social commitment, cost reduction, and operational efficiency, the sector can contribute to Saudi Vision 2030, in addition to achieving sustainability.

Lastly, this study provides empirical evidence from a geographic context of Saudi Arabia, which is the second largest producer and exporter of crude oil in the world after the United States, holding around 17% of the world’s proven petroleum reserves and producing around 10.2 million barrels per day.

6.2. Practical Implications

The findings of the study offer actionable strategies for implementing circular economy principles and adopting digital innovation to sustain the OGS in the competitive global market. For the industry stakeholders, it is imperative to adopt resource efficiency and exhibit commitment to environmental and socially responsible behavior, along with cost-cutting and operational efficiency, to improve the sustainability of OGS.

Based on the findings, it is recommended that policymakers and industry leaders in the sector consider the integration of digital innovation and circular economy for driving sustainability while adhering to the 2030 vision agenda. Moreover, the circular economy model can assist in fostering sustainable resource use and lowering waste, while digital innovation improves productivity, streamlines operations, and lowers environmental influence at a wide level. Therefore, to attain this, the governmental bodies and the companies must appropriately design the waste-out services and products, along with the recovery, recycling, and reuse of the resources to a great extent. Policymakers should establish a national strategy and formal legislation toward the adoption and implementation of the circular economy to promote it. The implementation of circular economy principles can assist Saudi Arabia in reducing waste and diversifying its portfolio beyond its dependence on oil resources. Precisely, the integration of the circular economy and other digital innovations assists in driving sustainability, which contributes significantly toward Vision 2030 goals for the oil and gas sector.

In conclusion, this study lays the foundations for sustainable growth of OGS through an integrated approach, aligning circular economy principles and digital innovation with environmental and social goals.

7. Limitations and Future Research Directions

This study contains certain limitations in its scope that can be addressed in future research. First, the study has been conducted in the context of Saudi Arabia, where market dynamics could be very different than in other oil-producing countries. Using the research framework of this study, future researchers may explore other geographic contexts and draw a comparison among the nations. Second, analysis has shown that circular economy and digital innovation only explain around 29% of the variance in OGS sustainability, implying the existence of other important variables. This provides ample opportunities for future researchers to conduct further qualitative and quantitative research investigations to uncover the potential variables. Lastly, the respondents of this study included executives working in the OGS. Future research could involve other stakeholders to include diverse opinions to gain a deeper understanding of OGS sustainability challenges.

8. Conclusions

The study aimed to examine the role of circular economy principles and digital innovation in the sustainability of the oil and gas sector (OGS) in Saudi Arabia. Precisely, it aimed to investigate how resource efficiency and environmental and social commitment as core elements of the circular economy and cost reduction and operational efficiency as core elements of digital innovation contribute to OGS sustainability. To achieve this objective, the data was collected through an online questionnaire survey from 348 executives working in Saudi OGS and was analyzed in SmartPLS4 using the PLS approach in SEM. The results showed that circular economy principles and the adoption of digital innovation play a critical role in the sustainability of OGS in the context of Saudi Arabia. The findings conclude that the circular economy and digital innovation are the main drivers contributing to the sustainability of OGS. Therefore, by implementing circular economy principles and adopting digital innovation, the OGS sector can effectively overcome the sustainability challenges it faces and effectively compete in the market. Based on the findings, this research provided important theoretical and practical implications for future researchers, the OGS sector, and policymakers.