The Oil-Price Threshold Effect on External Balances in Saudi Arabia, Russia, and Canada: Accounting for Geopolitics and Environmental Sustainability

OPEC+ has set a goal of establishing a stable oil market and achieving a reasonable oil price that benefits all industry stakeholders and the global citizenry. But what price is reasonable? We examine the effect of the oil-price threshold on external balances with the aim of evaluating a country’s ability to finance its external deficits. The results would enable policy makers to gauge the outcome of Saudi–Russian led negotiations which affects the global economy and high-cost oil producers. Building on Gnimassoun et al.’s (The International Economy 152:63–78, 2017) work, we adopt a macroeconomic approach to explore the impacts of geopolitics and account for cyclical movements using threshold analysis. Results show that a reasonable oil price is greater than approximately USD 61–65/barrel for Saudi Arabia, USD 57–58/barrel for Russia, and USD 74–76/barrel for Canada. When incorporating in the model a net national savings variable adjusted for expenditure on education and for environmental damage and depletion, as a sustainability measure, the oil-price threshold increases to approximately USD 72/barrel for Saudi Arabia, USD 67/barrel for Russia, and USD 85/barrel for Canada. Russia has been able to weather the effects of Western sanctions and pipeline politics. In Canada, an increase in oil prices provides benefits that overcome “Dutch disease” under a high oil-price regime, but not under a low oil-price regime; the low oil-price regime accentuates challenges the oil sector faces; and the high oil-price regime reveals the need for policies to achieve macroeconomic energy security.