Tuesday, September 28, 2010

Scotland On The Map

Here is part 3 of my Newsnet Scotland series:

Rediscovering Oil – A From Rags to Riches Story

by Alex Porter

Part 3(of 3): Scotland On The Map

The bankruptcy of the British state and financial sector means Scottish unionism must explain to the Scottish electorate how the British economy offers them an attractive future. That is not how unionists and their friends in the Scottish media will want the debate to be framed and they will push back. What will keep them on the defensive though is a Scottish electorate which has come to accept implicitly just how prosperous oil would make an independent Scotland. How is that going to pan out then?

What does realise the nationalists’ wildest dreams is not the story of how oil can enrich Scotland or has enriched Britain. We know how that story can be made to go away. No, it is the rapidly emerging international story of how falling oil production is threatening international security that will alter the Scottish electorate’s perceptions of the possibilities that oil offers.

Global oil supply is starting to decline. As we have seen, oil is central to every economy’s ability to grow. The fact that the world has exceeded the top limit for oil extraction is deeply concerning all nations and the subject of ‘peak oil’ is now rapidly ascending the global political agenda.

As a serious, oil producing player then Scotland will suddenly find new friends and ‘peak oil’ will be a regular headline in international news stories. Where international conferences now convene to discuss ‘global warming’, ‘the financial crisis’ or ‘climate change,’ soon ‘peak oil’ will become the big story.

For Scottish unionism, ‘peak oil’ becoming the top story of the international economy is a nightmare. For years they’ve hidden the importance of oil from political sight only to then find that the international media will be ramming it down our throats. The Scottish electorate who were told oil was of marginal import will suddenly realise that oil is not just vital to the Scottish and British economies. No, it’s far more important than that. The subject of declining oil supplies is being globally recognised as the number one priority for the stable functioning and security of the entire, industrial world. Scots will be right in the picture.

Let’s get down to what ‘peak oil’ means then. Peak oil can be defined as a date when oil production reaches maximum production after which production rates begin to diminish. In 2005, oil production stood at 68.5 million barrels per day, in 2005 it was 73.7 million and so far this year daily production stands at 73.4 million barrels per day. In other words, we have reached and perhaps passed ‘peak oil’.

Why is oil so important?

Oil is used in industrial society in a multitude of ways including transport fuel, fuel for industrial machinery, heating fuel, fuel for minerals extraction, lubricants, raw materials, asphalt for road paving, plastics, synthetic cloth, medicines, fertilisers, pesticides, herbicides and so on. When oil runs out many products cease to be made, you can’t have nuclear-powered nylon socks – oil is not replaceable. Peak oil then means less of everything – a lot less.

So, now we know where we are and what oil is used for, what will the effects of ‘peak oil’ be on the industrial world?

Let’s go back to the relationship between oil and money. In industrial society, money provides the incentive to work. Oil provides the ability to get work done or products made. So, when oil runs out money becomes worthless. It is estimated that when an economy has to spend 6% of its GDP on oil, the nation’s economy starts to decline. As populations and demand increase, depleted resources go up in price. Demand then drops off as it becomes too expensive. Oil affects around 95% of the price of everything we buy. Consequently, economic growth will decline. As oil and finance are connected, we will run out of money to buy oil long before oil runs out.

Peak oil then really does change the world and dramatically so. One expert in the field, Dimitro Orlov, explains it well:

“Efficiency, conservation, renewable sources of energy all might have some effect, but will not materially alter this relationship. Less oil means smaller global economy. No oil means a vanishingly small global economy not worthy of the name.” (1)

The good news is that as industrial society declines so too does our energy consumption. With a reduced economy, we have significantly fewer energy requirements. This will puzzle governments, civil servants, investors and analysts who are basing future calculations of energy needs on rising instead of falling demand. It’s only a matter of time before the alarm bells start ringing.

So, when does ‘peak oil’ burst into political life? ..... It already has!

Last week, the German newspaper Der Spiegel published an article based on a leaked report on ‘peak oil’ by the German military. Of the report, Der Spiegel’s Stefan Schultz said:

The issue is so politically explosive that it’s remarkable when an institution like the Bundeswehr, the German military, uses the term "peak oil" at all.

The article summarises and refers to the key points of the German military report and it makes for some interesting reading. In terms of the global impact of ‘peak oil’, it has much to say:

The team of authors, led by Lieutenant Colonel Thomas Will, uses sometimes-dramatic language to depict the consequences of an irreversible depletion of raw materials. It warns of shifts in the global balance of power, of the formation of new relationships based on interdependency, of a decline in importance of the western industrial nations, of the “total collapse of the markets” and of serious political and economic crises.

So, how does the report directly impact on Scotland? One section of the report argues:

‘Increasing importance of oil exporters’: For importers of oil, more competition for resources will mean an increase in the number of nations competing for favour with oil-producing nations. For the latter this opens up a window of opportunity which can be used to implement political, economic or ideological aims. [my bold] As this window of time will only be open for a limited period, “this could result in a more aggressive assertion of national interests on the part of the oil-producing nations.”

For Scotland then this development opens up new avenues for national, self-determination. The Scottish electorate, in the digital age, will not be ignorant of this new international paradigm shift. At the same time the British state will not be ignorant of the threat that Scottish nationalism is to its prestige in the world’s corridors of power.

As for Scottish unionism, this development totally contradicts their core message that an independent Scotland would suffer isolation and a loss of influence in key international institutions like the UN, EU, NATO and many more. As ‘peak oil’ reshuffles the pack, nationalists will argue, with increasing plausibility, that post-independence it is the remainder of the UK which will lose influence not Scotland.

Der Spiegel’s summary goes on and presents a clear vision of why oil producing countries will be so crucial to international security:

‘Market failures’: The authors paint a bleak picture of the consequences resulting from a shortage of petroleum. As the transportation of goods depends on crude oil, international trade could be subject to colossal tax hikes. "Shortages in the supply of vital goods could arise" as a result, for example in food supplies. Oil is used directly or indirectly in the production of 95 percent of all industrial goods. Price shocks could therefore be seen in almost any industry and throughout all stages of the industrial supply chain. "In the medium term the global economic system and every market-oriented national economy would collapse."

The evidence is all around. This week Britain’s energy secretary Chris Huhne ordered civil servants to urgently examine the impact of a doubling of the price of a barrel of oil. The Telegraph reports: “A 1970s-style doubling in the price of oil would drain £45 billion from the UK economy in two years, hitting investment and jobs.”

Let’s just say that ‘peak oil’ is not going to be a story that Scottish unionism can bury. The story, like oil, will be all pervasive and will be telepathically transmitted to the Scottish electorate. The viability of an independent Scotland will be beyond question.

A Union in Crisis

The thrust of Scottish unionism’s case has always been that Scotland can not afford to be independent. Its strategies have halted the march to Scottish statehood and sapped Scottish aspiration and self-worth dry. ‘Peak oil’ will soon dramatically change all that. Suddenly, Scottish unionism will look desperate and become increasingly discredited.

It will come out fighting. Scots ‘keeping the oil for themselves’ will be labelled ‘selfish’ but how can a nation of subsidy junkies be stigmatised as affluent and uncaring? And how can a Scotland, long told it is too poor to be independent then be asked to share wealth out of solidarity? Ironically, unionism will be hoist on its own petard.

For the SNP then the priority is simple: The Scottish Government must move the issue of ‘Peak Oil’ up the political agenda as soon as possible. It would, after all, be responsible governance to do so. To achieve this task though calls for a leader who is an effective political operator and with a sound grasp of the economics of oil. History could not have been kinder in delivering, former oil economist, Alex Salmond as the leader of the SNP.

So, ‘peak oil’ puts the question of the economic viability of Scottish independence well beyond doubt. Simultaneously, Scottish unionism has been given the unenviable task of having to prove the benefits of remaining inside a bankrupt union state. It would seem that the economic stars are aligning for the historic cause of Scottish independence.

(1) http://cluborlov.blogspot.com/

1 comment:

Anonymous said...

Unfortunately Scotland's oil production peaked already and is decline at 10% per year as offshore fields deplete much quicker. How we are to have an amicable relationship with the other parts of the UK we we dramtically increase "their" Peak oil problem whilst insulating ourselves is beyond me. All Peak Oil does is make everyone's future more unstable.