Oil markets are roiling as oil prices hit historic levels in the wake of attacks on Saudi Arabia’s largest oil production facilities. According to the Financial Post, in an extraordinary start to trading Monday, London’s Brent futures leaped almost US$12 in the seconds after the open, the most in dollar terms since their launch in 1988. Prices have since pulled back about half of that initial gain of almost 20 per cent, but are still heading for the biggest advance in almost three years.

While skyrocketing oil prices no doubt mean suffering in economies that rely on massive oil imports, oil exporting countries such as Canada would likely prosper from getting higher prices for our oil. Given Alberta’s economy, this could be one of those times where some kind of disaster or disruption brings oil prices up, sending oil revenues to both the private sector and the government soaring. The question is, will the Alberta government repeat the mistakes of the past and spend the windfall as we earn it? Or will the government use it to rein in the deficit and start reducing the province’s debt?

Researchers at the Fraser Institute have documented what happened in the last oil-price collapse in 2014/2015, showing that despite a steep decline in revenues the Alberta government continued to increase nominal spending, making the problems of budget deficits worse.

Of course, it didn’t have to be this way.

Alberta could have learned, for example, from the Saskatchewan NDP government of Roy Romano in the 1990s, which reduced and reformed spending to eliminate large deficits. But, as the researchers observe, rather than rein in government spending when revenues dropped, “Alberta’s government took what had become the status quo approach, and continued to increase spending. Partly because of its policy choices, the province’s large deficits have persisted.” To this day, Alberta’s current per-capita spending levels are substantially higher than those in British Columbia, Ontario and Quebec.

Another use for increased revenues from higher oil prices? The provincial piggy bank, also known as Alberta’s Heritage Fund founded in the 1976. In its most recent update, the trust reports an estimated market value of $18 billion. Of course, that only looks respectable when you face away from Norway where they bank away nearly all resource revenues in their Sovereign Wealth Fund, which was set up in 1996 and is now worth a cool US$1 Trillion. One can argue that it makes little sense to put additional revenues in the Heritage Fund while the budget remains in deficit, but again, better than spend as we earn.

While its natural to feel a bit of schadenfreude at the suffering of an international competitor, it’s important Canada be responsible with the potential increase in revenues (both private and public) to reinvigorate Alberta’s economy while there’s a chance. Whether that means cutting deficits and debt (which should be a priority) or banking more of Alberta’s natural resource revenues in the Heritage Fund.

Fraser Institute researchers found that if, by 2021/22, the Alberta government reduced program spending by 10.9 per cent from 2018/19 levels, it could eliminate the deficit one year ahead of schedule while also creating fiscal room for comprehensive pro-growth tax reform including supply-side tax cuts.

That would be money well spent.