Saturday, 20 December 2014

Oil tales

Currently we have a lot of stories in the press about the falling price of North Sea oil, which is currently worth around $60 dollars per barrel, down from $109 per barrel on average last year, and predicted to see a further fall next year before recovering.  This is one example.  Many of the stories are crowing about how this will blow a huge hole in Scotland's budget, given threatened redundancies of around 10% of the workforce, thus reducing the tax take from those jobs just when the Scottish Government is due to take over some of the tax powers currently controlled by Westminster.  It's all doom and gloom, with a side helping of schadenfreude.

There's all sorts of glee about how the situation would have blown apart Scotland's economy had we voted for independence.  However, as Wings over Scotland points out,  we would currently still be under Westminster rule, since independence would have taken at least 18 months to implement in practice, so the problem would still have been Westminster's.

However, let's assume that they're right, and that Scotland is at this point independent.  Just how much of Scotland's income comes from North Sea Oil?  The latest figures I can find (2012/13) show that it accounts for about 16% of Scotland's income from tax receipts.  So yes, it's a reasonable-sized chunk, but it's nowhere near the bulk of our income.  Also, the receipts will be less, not non-existent.

So there would be a problem.  The papers declare that Alex Salmond and his colleagues would therefore be facing an economic crisis.  Note the hidden assumption here, that Mr Salmond and his colleagues would be unable to cope and would immediately run back to Westminster to bail them out.  It's a variation on the 'too stupid' meme regarding the reasons why Scotland can't be independent.  We also get 'too wee' and 'too poor' with the heavy implication that Scotland relies on North Sea oil and nothing else for its income.

But they seem to have forgotten a couple of things.  Firstly Mr Salmond is not unacquainted with economics in general, and oil economics in particular, given that he was an oil economist with RBS before he became a politician.  We also have John Swinney, a man who has managed to balance Scotland's budget every year while in the role of Finance Minister.  I think between the two of them they would find a way to cope with the problem. There is also an assumption that the Scottish Government would deal with the situation by taking exactly the same decisions as Westminster.  I don't think that's a valid assumption, but we can't know for sure.

Why is the price of oil falling?  This article from the Economist explains it.
Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.
So really there is nothing the UK or Scottish governments can directly do about it.  Nevertheless, all the stories push this as Scotland's problem when in reality it's Westminster's problem as things stand, thus following the Unionist agenda.  Sounds to me like Westminster fears another referendum on independence and is keeping up the propaganda.

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