Quietly and without fuss, one of the key claims unionist economics, that Scotland is overly dependent on oil, has lost its menace. The referendum battle lines on oil revenues were clearly drawn, oil price volatility was a vital unionist scare story. The No campaign claimed that Scotland’s economy wasn’t viable without a steady $100 a barrel and that any fall in prices would herald an economic disaster. Claims of ‘armageddon’, ‘cataclysm’, ‘black-holes’, ‘tax rises combined with massive cuts in services’ were all based on fears of $70 oil prices then considered to be the worst case scenario. Today $70 would be a desirable price for the industry – so outside of Aberdeen and the North East why hasn’t the sky fallen in?
Make no mistake, the oil price has fallen dramatically and now fluctuates between the mid $40s and high $60s a barrel, arguably beyond the worst case scenario predictable from historic data. The low price is bad news for Aberdeen, the North East and the whole oil and gas sector. Tens of thousands of jobs are being cut as oil companies try to adjust to the price slump and every single job lost is a catastrophe for the individual concerned. There has also been a significant fall in Scottish Government revenues and, as a result, our short-term (one year) notional operating deficit is 8.1% of GDP versus 5.6% for the rest of the UK. However, this is still a significant improvement on the previous year’s 9.7% so, rather than ‘Armageddon’, lower oil prices have just meant that Scotland’s economy, despite taking a sizable hit has proven it is strong, sustainable and has a manageable deficit, even with oil prices falling to the worst case scenario.
Devastated by the electoral meltdown in Scotland of the unionist political parties, it is only natural that tribalised unionists would seize on the fall in oil revenues as vindication but they are clutching at straws. The crowing goes something like “Ha! Ha! Ha! If you had voted for independence you would be bankrupt right now”. This argument fails fundamentally on two levels; firstly, the often overlooked fact that Scotland wouldn’t have become independent until 2016 and lower asset values during an asset negotiation could actually be useful. Secondly, recent economic data shows that Scotland’s economy is still strong, growing and, in some key areas, even outperforming the rest of the UK; not only that, the IMF have stated that UK economic growth is being held by low oil prices driving down manufacturing costs and inflation – go figure.
But what about Scotland’s growth, given the oil price was supposed to affect us so badly? Contrast the armageddon argument with the fact that Scotland has just experienced the longest period of continuous economic growth on record since devolution in 1998, having enjoyed ten quarters (Q4 2012 – to Q1 2015) of continuous growth.
Surely with oil and gas job losses impacting disproportionately on Scotland the latest job figures will show Scotland underperforming? Not a bit of it, last weeks show that the UK jobless total increased by 25,000 in the last quarter whilst Scotland’s fell by 13,000, the best performance in all 12 UK regions. Figures for the full year show that employment in Scotland rose by 28,000, unemployment fell by 19,000 and economic inactivity fell by 6,000 since June 2014 and that the Scottish economy matched UK growth in 2014.
This stands in direct contrast to the unionist Armageddon argument and tallies with the pro-independence position that oil and gas was a bonus to Scotland’s economy. However, the oil sector has taken a hit and that demonstrates comprehensively the negative impact of Westminster’s error in not creating an oil fund to deal with pricing volatility. Additionally, it adds weight to calls to invest now to turn the North East into a world centre for renewables energy, preparing for the time when oil does become depleted.
The oil industry will be heartened by news that BP is investing $1bn to extend the life of its UK North Sea assets; their Eastern Trough investment will secure the future of the field for the next 15 years. Recently, 41 new licenses were awarded for oil and gas operations in the North Sea, making the recent licensing round the largest in five decades, with 175 licenses covering 353 blocks. Oil and Gas Authority chief Andy Samuel said “The UK continental shelf remains a world-class hydrocarbon province where significant resources and economic value remain to be realised and that the good level of interest in the 28th round highlights the continued attractiveness of the UK’s oil and gas resources”.
The current price of oil curtails the North Sea revenue bonus to Scotland’s finances but that we are seeing prolonged low prices now (due to geopolitical influences rather than supply and demand) makes it more likely that the price will rise in 2016. The World Bank and IMF forecast steady rises to around the $70 mark in 2020 with the EIU more bullish at $90.
The argument that Scotland’s post-independence economy would be dependent on the price of oil has been totally debunked by the fact that the price has fallen to unforeseeable lows and yet our economy in many areas has outperformed the rest of the UK. An independent Scotland could invest for growth rather than wait for Westminster austerity to slow the economy and create a new economic crisis.
Hearing again that oil production increases have boosted the UK’s economy, I can’t help but wonder, if Scotland didn’t have oil would we already be independent?
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