Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy
Politics / Scotland Jan 15, 2015 - 08:51 PM GMTBy: Nadeem_Walayat
Whilst most ordinary people across the UK are reaping the benefits of the oil price crash to below $50 that has resulted in energy bills being cut by 10% and the price at the petrol pumps nudging to below £1 a litre not seen since 2009. However, there is one part of the UK where its largest industry is in a state of collapse and along with it the regional economy and that is Scotland and its North Sea Oil industry which has been thrown into turmoil.
Just as spectacular as the collapse in the oil price has been the collapse in the SNP's Economic Baldrick-esk Master Plan for an Independent Scotland that was wholly based on reaping huge rewards from North Sea oil exports where SNP propaganda had convinced many Scots to Vote to effectively commit economic and social suicide by voting Yes in last Septembers referendum that came close to achieving the catastrophe on the basis of propaganda implying upwards of £7 billion in North Sea oil tax revenues that would be raised to finance Scotland's budgetary black hole, which in the fever pitch of the campaign had reached the heights of £11 billion so as to exaggerate the degree to which Scotland could prosper and fill the void left by the withdrawal of the English subsidy that currently amounts to £9 billion per year.
Even the Governor of the Bank of England did not mince his words by warning "the Scottish economy was heading for a “negative shock”.
The problem with SNP economic propaganda is that it was based on a oil price being well NORTH of £100 per barrel, however a sub $50 oil price does not just mean that an Independent Scotland would have made half the forecast tax revenues i.e. £3.5 to £5 billion, instead the reality is that an Independant Scotland would have faced would be near ZERO TAX Revenues as the average break even price for crude oil is $60 a barrel. Additionally IS would have had to bear the costs of the collapse in the oil industry such as job losses and reduction in other indirect taxes.
North Sea oil companies making losses means many closures and job losses and the longer the oil price persists below $70 then not only will there be no future investment but also a literal collapse in Scotland's oil industry the signs for which were illustrated today with BP's announcing 10% Job losses in its North Sea operations. BP also stated that it expected the oil price to remain below $60 for the next THREE YEARS! Which means many small to medium sized oil companies will go out of business over the next year which illustrates the magnetite of the ineptitude of the SNP's campaign for Independence built upon the oil industry as Scotland Voting Yes would already be in a state of economic collapse, bankrupt much as I warned in a series of articles that would happen and worse during the referendum campaign and why Scotland voting Yes would be tantamount to Scotland committing suicide as excerpted below:
- 17 Sep 2014 - Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency
- 14 Sep 2014 - Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK
- 12 Sep 2014 - Main Reason Why Scotland Will Vote NO to Independence, 70% Probability
- 07 Sep 2014 - Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK?
- 02 Sep 2014 - Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound?
Source ONS
Scottish Oil
Whilst it is true that 90% of North Sea oil revenues come from Scottish waters, however North Sea oil peaked in 1999, since which daily output has fallen by 2/3rds and there is no sign that the trend in falling output is going to end any time soon as smaller more costly to operate new oil fields are unable to make up for the declining output from existing fields.
The revenue to the UK government from North Sea oil has now fallen to £7 billion, of which £6 billions is attributable to Scottish oil fields set against the block grant Scotland receives of £32 billion from the central government of which £9 billion is the value of the net subsidy after all tax revenues are taken into account.
There are also huge hidden costs to the oil industry that are not being factored in, and that is for the decommissioning of old oil rigs, where in an age of environmental awareness dumping of the oil platforms in deep waters is no longer an option, therefore just as the costs of decommissioning nuclear power plants was never factored into their building similarly the costs of decommissioning oil platforms could result in a sharp drop off in revenues as the costs of which would ultimately be born by the Scottish Government either in less revenue or direct costs of decommissioning.
Further more an independent Scotland in addition to falling output would be buffeted by volatile oil prices that would play havoc with its annual budget, something that is totally smoothed over today by the block grant so that effectively what the oil price does has no impact on Scotland Government spending.
However the economic consequences would only be the tip o the iceberg of that which an Independant Scotland in a state of economic collapse would now be going through -
Increasingly the big on rhetoric scottish nationalists inhabit a fantasy land of a case of business as usual on the day after a YES vote victory when instead September the 19h will mark the first day of the North of the Island of Britain being hit be waves of ever escalating disastrous events that will start with announcements of dis-investment from Scotland by businesses and individuals and soon followed by an exodus of higher tax paying professional workers that as Deutsche Bank warns would at a minimum plunge Scotland into an prolonged 1930's style economic depression.he chief economist at Deutsche Bank David Folkerts-Landau said "voters and politicians had failed to grasp the potential severity of the negative consequences of separation.
"A Yes vote for Scottish independence would go down in history as a political and economic mistake on a par with Winston Churchill’s decision in 1925 to return the pound to the Gold Standard or the failures by the Federal Reserve in America that triggered the Great Depression in the 1930s.
"Scotland risked a similar depression if voters backed the Yes campaign on Thursday, and described the desire for independence as an "incomprehensible" one which could have negative consequences "far beyond" what people had imagined.
Additionally Deutsche Bank's global strategist Bilal Hafeez warned that "the economic uncertainty that would ensue from independence, the unstable banking system that would also result, would really result in the Scottish debt having to offer much higher interest rates to attract investors."
Earlier Mark Carney, Bank of England Governor had warned that an Independent Scotland would effectively become bankrupt as it would need near TEN times the reserves that an Independent Scotland would have so as to make Sterlinglisation work, which is NOT going to happen which means that the government of an Independent Scotland is literally going to have NO CURRENCY other than that in the sterling bank accounts of its citizens that I am sure it will attempt to seize thus triggering more fright and flight!
This is NOT scare mongering for the flight of capital out of Scotland and the UK is already well under way that began in June and has been gathering pace as the poll date draws near with the UK seeing a net out flow of £17 billion in August, that's three times Scotland's annual Oil tax revenues that the SNP crow so loudly about, and should Scotland vote to dismember the Island of Britain then September outflows could exceed £150 billion, more than the annual output of the whole of Scotland, and much of it panicked liquidation of Scottish assets in favour of foreign currencies such as the dollar and euro. Again it is already happening so it is not a question of it could happen.
However, my recent series of articles and video has highlighted that the financial and economic crisis following independence would mark just the tip of the chaos ice-berg that would hit Scotland hard and the UK to a lesser degree as Scotland would literally be ripped apart by a chain reaction of events in reaction to the fissures that will open up across the North of Britain as the social fabric of the Island nation would start to disintegrate.
Unionists have already gotten out the pro protestant anti-papacy banners that Saturday were paraded through the streets of Edinburgh by the Orange Order, one of the largest marches in 60 years as a prelude to what is to follow 'independence' as 50% of the nation reacts to finding themselves forced to live outside of the UK.
The problem is that the people won't wait for committees of negotiators to arrive at orderly agreements over the next 18 months, instead people will act out of panic and fear out of manifesting financial and economic crisis that would set in motion a sequence of events that ultimately will be many magnitudes that of the Northern Ireland Troubles. For instance the Scottish nationalists appear to ignore the big elephant in the room that if they win the referendum then they will have condemned near 50% of the population in perpetuity to live outside the UK, a state of affairs that that they can longer effect democratically. Which means it won't be long before Scotland starts to fragment along Unionist and Nationalist lines with Unionist majority areas in the wake of political, economic and social chaos soon starting to demand their own referendums to allow the regions to rejoin England, UK, as had Northern Ireland beforehand.
I have been warning the probability of this since February 2014, and most recently in my in-depth analysis of 7th September as excerpted below in addition to my recent video.
Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK?
Opening Pandora's Box of Disintegration, the Balkanisation of Britain
The peoples of the United Kingdom are literally being sleep walked towards the edge of the cliff, most completely unaware of the potentially disastrous ramifications for not just Scotland but for what lies in store for the remainder of the United Kingdom following a Scottish Independence YES vote that would break start the process for ripping apart a 300 hundred year old entity of an United Island of Great Britain, which as I have repeatedly warned of during 2014 that a YES vote would literally sow the seeds for the balkanisation of Britain as this Island would literally tear it itself apart as the status quo of what had been taken for granted would no longer exist.
A whole host of news during the past year illustrate that the approaching Scottish Independence vote has already galvanised agitants right across the UK, for instance blowing on the embers for Cornish independence as they wave their aptly coloured Cornish black funeralesk flag that continues with calls of autonomy literally right at the other end of Britain from the Northern and Western Isles with calls for their own devolution from Edinburgh and even calls for their own parliament that sows the seeds not only for the balkanisation of Britain but also for breakup of an newly Independent Scotland that following a YES vote would soon start to disintegrate, as for instance the bordering regions would reassert their separate identity that has far more in common with the North England than much of Scotland, formerly known as the Kingdom of Northumbria that stretches from Edinburgh in the north all the way to the city of Sheffield in the south.
Whilst Alex Salmond, Scotland's Nigel Farage repeatedly plays the Scotland is rich because of North Sea oil card, what he convientely omits is that a significant portion of Scotland's oil reserves lie in the waters of the Northern Isles (Orkney and Shetland). Many people of the Northern Isles see themselves as having far more in common with Norway than Scotland which given the near immediate currency, financial and economic crisis that would follow independence would be fast pulled towards sharing sovereignty for far greater stability with the likes of Norway that could achieve what it could never have done militarily, namely expanding its borders and gaining many western north sea oil fields. Though in all probability the Northern Isles would probably eventually settle as becoming a protectorate of the United Kingdom along the lines of the Isle of Man.
So if Alex Salmond 'King of the Scots' does succeed in his tunnel vision mission for an Independant Scotland then he will likely go down in history as the first and last Prime Minister of Scotland as we know it today, which effectively means a Yes vote on 18th September will be Scotland voting to commit suicide as when the dust settles what remains would be a mere fraction of its current size.
Ukraine Civil War a Lesson for Independent Scotland
As my articles of 2014 have illustrated that when states start to disintegrate as the UK would start to do following a vote for Scottish Independence then so would a Pandora's box be opened that would soon see the docile domesticated LIb/Lab/Tory politicians of today's Westminster, the likes of which we have been used to since the end of WW2, replaced by those who would be solely tasked with holding a fragmenting nation together which Putin style would seek to take advantage of economic and political chaos in an Independant Scotland that would not even have a currency, prompted into action to protect the interests of the approx 50% who voted NO to independence resulting in the eventual annexation of parts of Scotland.
Post Scottish Independence the Labour Party would be crippled after permanently losing some 41 MP's that would amount to a shift in UK's political spectrum towards the RIGHT that would embolden support for the likes of UKIP which as the name suggests would put the UK first, with the interests of the Scottish people not even factoring into the equation for they would be seen as and be foreigners.
Whilst this is beyond most peoples comprehension today, however it would be the natural consequence of a disintegrating state especially as all of the reasons that Putin continuously puts forward for first the annexation of Crimea and lately in support of mostly Russian speaking people of Eastern Ukraine can also be made for many parts of Scotland where more than half the population would find themselves permanently living in a foreign country that they had voted NO to.
Not forgetting that the UK has already engaged in several highly dubious if not outright criminal recent wars that required far less justification (Iraq and Afghanistan) and that by domesticated politicians than the justification required for the annexation of several parts of Scotland by more authoritarian, putting the UK first post Independence politicians in West Minister, for Scotland has been a part of the UK for far longer than the likes of the Crimea had been a part of Russia.
Therefore an independent Scotland would be economically, politically and socially unstable, and if it followed the example of the last UK state to gain independence, Ireland then it would soon start to split into nationalist and Unionist regions that would seek to rejoin the UK that would be met with Scottish Nationalist resistance sparking violent civil conflict.
In fact should an Independant Scotland start to descend into near civil war than the British army could even be invited into regions of Scotland by the local population to restore order, which would as Northern Ireland had before hand spark an escalation in the conflict over where Scotland ends and England begins.
More on the dangerous consequences of Scottish Independence -
24 Feb 2014 - Scottish Independence Economic Consequences for England, UK, Ukraine 2014, Britain 2016?
UKRAINE 2014, BRITAIN 2016?
The real problem of Scottish Independence is as I have highlighted several times in recent articles is that it would open up a pandora's box that would encourage other parts of the UK to start their own separatist movements which would disrupt economic activity right across the UK, and that is the real danger of Scotland leaving the UK, and not its net economic impact on the UK.
Ukraine illustrates what tends to happen when countries start to tear themselves apart as peaceful demonstrations in Ukraine's capital city Kiev of barely a few weeks ago have fast descended into chaos towards outright civil war as several regions in the north-west such as Lviv declare independence, whilst the south-east stands behind its democratically elected President who fled the capital with loyal security forces barely 24 hours ago.
What was unimaginable a few weeks ago has now become a crisis situation of mounting deaths, where with each death Ukraine takes a further step towards leaping over the edge of and into the abyss of where the likes of Syria stands today, as the consequence of what happens when nations rip themselves apart.
Ukraine tearing itself apart has huge implications for european stability as the conflict risks sparking unrest in bordering states most of which have their own separatist movements, especially Russia which therefore looks set to intervene militarily.
Gangsters and Paramilitaries
Increasingly anarchic border regions would be an ideal breading ground for criminals that would eventually see the gangsters become paramilitaries as they wait in the wings to capitalise upon the many opportunities they will be presented with by the breakup of the UK, as separation will result in a boom time for criminal enterprises such as smuggling, gambling, drugs and extortion protection rackets amongst many others at huge cost to civil society in terms of the day to day lives of ordinary people becoming subject to the whims of flag flying criminal gangs parading their loyalties just as took place in Northern Ireland with echoes still felt every marching season.
A situation that the people of the Scotland and the bordering regions of England could never imagine today much as the peoples of Northern Ireland could not imagine what lay in store for them following the breakup of Ireland. Where today, even over 15 years on from the Good Friday peace agreement the people of Northern Ireland still have to contend with the consequences of more than 180 well organised armed gangs, most of whom use the cloak of republicanism and loyalism to engage in a high level of criminal activities that are beyond the experience of the peoples of mainland Britain. To imagine that this would not be replicated in a disintegrating UK and that on a far greater scale is ignoring what has taken place following the breakup of virtually every nation state in history. Weakened states act as magnates for organised crime, just as today Ukrainian, Russian, Polish gangsters are busy capitalizing on the chaos that is taking place in Ukraine. And just as the extinction of law and order in much of Syria and Iraq resulted in criminal gangs even going to the extent of declaring themselves as an Independent Islamic State !
So whilst it is totally unimaginable today for the SNP to have a paramilitary wing, however that does not mean it will be so a decade on from Independence as a consequence of the chaos that would follow the break up of the United Kingdom as we could see Scottish Nationalist paramilitaries battling against Loyalist paramilitaries as they attempt to carve up areas between themselves to profit from criminal activities as a consequence of weakened central states that apart from terrorising the general population will have a huge detrimental effect on legitimate business activities.
The bottom line is that on the morning of September the 19th that follows a YES declaration, the peoples of the rest of the UK will wake up to start to realise that the United Kingdom is FINISHED, which will emerge to come as a huge shock to most people who won't fully appreciate the ramifications of such an event until it actually happens.
The run up to the referendum is akin to the build up to the the start of World War 1, when virtually everyone thought it would be over within a matter of months where the wide spread perception was one of a fantasy land of boy scout outings at playing at being solider's. They had NO IDEA AT ALL of the HELL that was to come and so it is for the United Kingdom sleep walking off the edge of the cliff. And just as after world war 1 was over most thought how the hell did we allow such madness to happen, and similarly a decade following the aftermath of Scottish Independence, most people will look back at today's UK as representing a golden age of political, social and economic stability that they would crave for the return to, but in reality would take many generations to repair the damage done.
In terms of investment decisions, if Scotland votes Yes, then it should be taken as a cue to start to disinvest from the UK, and to seek to formulate an escape plan from the UK before the penny drops and what is completely unimaginable today starts to become manifest, much as many Ukrainians barely a few months ago (February) could not conceive of how bad the situation in their country would become barely 6 months later as the break up of their country continues to unfold as the level of conflict continues to accelerate towards a state of all out war, a situation that was totally unimaginable at the start of this year!
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By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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