Saudi Arabia’s economy is passing through a phase of transformation in which some resources will be freed from existing usages and allocated to new development opportunities. Making decisions based on an incorrect assessment of the opportunity cost or value of these resources could lead to incorrect capital allocations toward investment in various projects. For instance, the international oil price may not reflect the true value of oil for Saudi Arabia, due to its position as a major oil exporter and the distortions existing in its domestic economy.
This workshop continues the discussions from a previous workshop, held at KAPSARC in July 2018. A core feature of the workshop is an interactive session that provides insights into how distortions impact the opportunity cost of oil, while also sharing outputs of the dual research track conducted by KAPSARC and the Baker Institute since our previous workshop. More specifically, we will discuss the following topics:
- To what extent do the specific circumstances of an oil exporter impact the opportunity cost of its domestic oil consumption?
- When production is constrained, what is the opportunity cost of oil under different domestic pricing schemes?
- What are the practical implications for Saudi Arabia?
- How might real option frameworks be used to better understand opportunity cost for an oil-exporting nation, such as Saudi Arabia?
- What can observed production and pricing data reveal about the opportunity cost of oil, and how might this vary with time?