Commentary by Derek Bateman
One of the more illuminating aspects of the drastic oil price plunge has been the spiteful and counter productive reaction of the anti Scots. ‘And they wanted to go it alone. Ho ho ho,’ said one reader in the FT, encapsulating the phenomenon. It’s like a Road Runner cartoon where the crazy bird points and laughs at the Coyote while walking backwards towards the cliff edge…
To the small-minded Unionist this is an unexpected bonus to be relished – just remember to look suitably earnest when mentioning the thousands of job losses. (The implications for the loss of potential tax revenue to their own country simply doesn’t compute as they clearly don’t take pride in their country.) And imagine the irony of taking lessons from a country whose banks crashed and had to be subsidised.
If they take off the blinkers they will see that the fall is so severe and potentially enduring that the damage could be spread way beyond the North Sea and a political argument in Scotland. Although to date removing blinkers hasn’t been a Unionist strength.
A low oil price doesn’t just affect tax revenues, it reduces the rate of inflation which keeps interest rates low. That means savers don’t get a return and the share price of major companies is depressed. The fear now as the oil numbers combine with embedded low inflation from the financial crash is of deflation – when inflation goes below zero which helps our money go further but crucially has the effect of increasing debt, something the UK seriously wants to avoid with public and private sector debt soaring. The UK’s huge national debt heading for £1.6 trillion costs £43 billion or 8 per cent of all income tax just to service. It can never really be paid back so relies on inflation to eat away at the outstanding amount over the years.
DEFLATION
Central banks are all struggling to bring inflation to around 2% so as to avoid deflation, but thus far they have failed. If prices remain low for a considerable period of time, it may lead to another crisis with deflation at the core.
Eurozone goods have fallen in price which seems like a bonus but if it turns into deflation consumers stop spending and so do employers. Confidence drops and people save which slows the economy further. This affects us all. We need to be cautious too about the reaction of powers heavily dependent on oil revenues. There could be further instability in the Middle East. The position in Saudi seems volatile with a diplomatic stand off with Iran and its economy being transformed by deliberately letting oil prices fall to damage the US shale market – with some success. Most of the shale oil wells are profitable only when priced above $60 a barrel. Some have taken large loans to expand production and with prices low, these become unserviceable. That puts a strain on the lenders, the banks.
Also we may have cause to watch Russian reaction. As the oil slump depletes the economy hard man Putin is not adverse to fomenting trouble to deflect attention.
I know none of this seeps into the one-track mind of the zealots but it’s worth taking their case at face value and asking: If a low oil price rules out independence, does a high oil price do the opposite? If $30 a barrel is too low, how much should it be to guarantee economic stability? Spoiler alert: the answer is no price per barrel will ever be good enough for Scottish independence. Campbeltown Loch could be bubbling with the stuff and it wouldn’t be good enough for independence. The truth is that for the anti Scots we will never be capable of making our own way even if our underpants were made of gold. What they’re rejoicing at is the loss of revenue to their own country which if it continues threatens (another) serious economic crisis and could spark international tensions. Whoopee! Serves you right, Salmond…
BONANZA
At the same time, and because I’ll always be a believer, I find my hidden Inventive Scot coming through at times like this. First of all, nothing but nothing demonstrates better the utter folly of letting the UK take control of our natural resources than the failure to invest the oil revenues. Independence in 1970 when the British were hiding reports of how rich we’d be and their agents were lying about oil’s value, would have brought in a Scottish regime to husband the bonanza, create the oil fund that was requested and given us forty years of wealth, a fund to protect us from all seasons and way of avoiding the humiliation of our own money paying for Thatcher’s unemployment cheques. Instead we would have worried about coping with an overhyped currency and searched for ways of diversifying our economy. We could have lent to England at preferential rates.
The question never asked by the Unionists is: If Scotland relies on subsidy, why should this be so after 300 years of Union? How could oil be discovered and £300bn taken in taxes (at today’s prices) and still Scotland isn’t prosperous? That part is presumably down to our own ineptitude, not the incompetence of Westminster who had the control of oil throughout. Indeed, to make sure oil could not be claimed by Scots, the British set up a new economic zone, the UK Continental Shelf in 1964, to which oil income was assigned. That really was Scotland’s clue that we couldn’t trust the Brits.
So the lack of an oil fund today as the price plunges is a standing condemnation of British policy every bit as much as a mark of Scotland’s relative reliance on the black stuff. No Scot should let them get away with sneering at the impact of the oil price when not a bent penny of the windfall has been saved.
RENEWABLES
But my inner Inventive Scot is also whispering something else. Isn’t this an opportunity to move away from fossil fuels and fully embrace renewables? One reason I don’t vote Green is because I’d be a hypocrite. I endorse all forms of renewables and firmly believe in the need for subsidy. I love turbines. But I have always believed we needed the strategic importance and potentially huge income from the North Sea. If you remove that because you have no choice, you face up to the alternatives – you have to – just like an independent country has to find its way through every headwind and setback.
We already see the benefits of people switching to funds and portfolios focused on environmental sustainability as investors see the volatility of the fossil fuel markets.
Renewables are bigger than nuclear now. We already get 15 per cent of all our energy from renewables and expect to meet the target of a 100 per cent equivalent of electricity demand by 2020. Were being asked to up the ante by going for 50 per cent of all energy from hydro, wind and tide by 2030.
Greens argue for a managed transition away from oil and gas to refocus skills and investment towards sustainable sources. Thousands could be employed by investing in renewables and oil and gas decommissioning, rather than, as Patrick Harvie puts it, propping up an industry whose unburnable assets pose a huge economic risk.
In this of course we are challenged by the UK government which again does not have Scotland’s interests at heart. Subsidies have been cut and the experiment of carbon capture ended for short-term savings. Meanwhile British taxpayers are to be fleeced to pay for Chinese nuclear – perhaps a better target for Unionist scoffing?
The North Sea is far from finished but this looks like the chance to take the leap and transfer our efforts to decommissioning and all-out renewable development. Perhaps that can become the new bonanza.
BARGAIN
And here’s a simple accounting point from Alex Russell, Professor of Petroleum Accounting at Robert Gordon University. The lower price reduces the value of the North Sea as an asset in any negotiations between Edinburgh and London. If it is deemed to be unsustainable, Scotland would be seeking compensation for taking over a wasting asset. ‘A low oil price in the aftermath of a Yes vote, I believe would have secured less of a burden for Holyrood with respect to Scotland’s share of the national debt – the change of ownership of the North Sea oil and gas reserves would have been a bargain basement buy. Oil revenue is the icing on the cake of the Scottish economy. There would have been some manageable short-term economic pain resulting from the current low oil prices. But, oil prices will rise in the future and the North Sea assets would be better protected in an independent Scotland.’
And shouldn’t we take comfort from the obvious fact that our economy hasn’t collapsed in on itself. In a difficult global environment Scotland’s economy is robust and diverse and a magnet for inward investment. We head into what some forecasters warn will be a year of global economic Argmageddon in reasonable health and, I believe, with a united sense of purpose built around the Yes movement. It isn’t zealotry that keeps SNP support high but an informed understanding of the incompetence and corruptions of a Treasury-run economy that is against our national interest, allied to a sense of solidarity built on pride and renewed dignity. We believe we can overcome the short-term difficulties. We are no longer cowed by the metropolitan maisters. We have been made resilient.
And a final thought. It’s only five years since the Unionists did the same sneering routine at Ireland when the Celtic Tiger lay legs aloft. It was a warning to Scotland. This is what happens when wee countries think big.
Well, Ireland’s economy grew by 7 per cent in the third quarter of 2015 compared with the same period in 2014. Britain’s grew by 0.5 per cent. There was increasing output in all business sectors and Ireland is now the poster boy for economic recovery – population 4.5 million and they still haven’t properly exploited their oil reserves.
