KAPSARC details mechanisms to counter energy prices shocks


RIYADH — The King Abdullah Petroleum Studies and Research Center (KAPSARC) has published a research paper entitled "Sheltering the Economies of Oil Exporting Countries From Energy Shocks". The paper discusses three methodologies adopted by some oil-exporting countries to protect their economies from price shocks of global markets: sovereign funds; diversification of the domestic energy mix; and economic diversification of the sectors that affect gross domestic product regardless of the proportion of oil exports.

The workshop brief outlined the details of these methodologies. For example, sovereign wealth funds have been able to protect the economy during price crises. One type of sovereign fund is known as a long-term intergenerational fund, such as the Public Investment Fund; and another is a fund that focuses on the continuity of support for key sectors and has mid-term horizon. Finally, there is a so-called stabilization fund, which has a short-term horizon and is used to reduce budget fluctuations, such as the reserves held by the Saudi Arabian Monetary Authority.

In the long run, global climate governance may limit demand for oil. This would be equivalent to a permanent oil price crisis which exceeds the capability of either stabilization funds or even long term intergenerational funds to protect the economy. Only a wholesale transformation to a more diversified, less resource-dependent economy can protect against such an outcome.

The paper was published following a workshop held by KAPSARC in Riyadh. The workshop was attended by representatives of the Ministry of Energy, Industry and Mineral Resources; King Abdulaziz City for Science and Technology; King Abdullah City for Atomic and Renewable Energy; and the General Authority for Investment. It was also attended by representatives from George Washington University, the IE University in Spain, the International Monetary Fund and the Bank of Canada.

Workshops held by KAPSARC provide opportunities for the Center’s researchers and decision makers locally and internationally to exchange ideas and expertise. KAPSARC is dedicated to research into energy economics, policy, technology and the environment, across all types of energy. The Center is focused on finding solutions for the most effective and productive use of energy, creating added value that contributes to the welfare of both energy exporting and consuming societies. — SG