Ever since oil was discovered in the North Sea off the British coast in December 1969, the Scottish National Party claimed it for Scotland.
Now in power and closer than ever to a referendum on whether to break from the U.K. after more than 300 years, the SNP government in Edinburgh led by Scottish First Minister Alex Salmond is counting on tax revenue from the oil industry as a key pillar of the economy along with financial services.
“We’re talking about quite a significant cash bonanza, but one that’s subject to considerable uncertainty,” David Bell, professor of economics at Stirling University and the budget adviser to the Scottish Parliament’s finance committee, said in an interview. “It’s not quite a get-out-of-jail-free card.”
Oil prices have fluctuated by at least 30 percent in 12 of the last 23 years, according to data compiled by Bloomberg. From 2005 to 2010, oil and gas revenue accounted for 6.8 percent to 10.8 percent of the Scottish economy, said Malcolm Barr, JPMorgan Chase & Co. (JPM)’s chief U.K. economist.
More than 40 billion barrels of oil equivalent, a measure used to include gas, have been extracted from the U.K. Continental Shelf, attracting investment of 468 billion pounds ($729 billion), according to Oil & Gas U.K., the body that represents about 200 companies operating in the offshore industry. Between 1980 and March this year that will have generated tax revenue of more than 166 billion pounds, according to Bloomberg calculations from Office for National Statistics and Her Majesty’s Revenue & Customs data.
Talking Points
At current production levels, the U.K. is the third-largest oil producer in Europe, behind Russia and Norway, and the fourth-largest gas producer with Russia, the Netherlands and Norway ranked higher, according to the BP Statistical Review of World Energy published in June.
What will have to be decided should Scotland vote to leave the U.K. is how much of the remaining oil is Scotland’s based on maritime borders and what the associated tax revenues will fund. The oil was discovered off Scotland’s east coast.
Salmond has said the vote on independence will take place in the fall of 2014, while U.K. Prime Minister David Cameron and his government want it earlier.
“The key argument which would have to be settled is where the line would be drawn,” Alex Kemp, an economics professor at Aberdeen University and author of a history of North Sea oil, said in an interview. “There are always some complications.”
