To quote Robert Burns, “Oh what power the gift to gee us to see ourselves as others see us.” From The National today
……………………But something important has happened since then.
Not only have oil prices fallen by $100 a barrel in five months, undermined by the first contraction in global oil demand for 25 years, but western governments, including even Mr Brown’s, have gone through a radical rethink of the underpinnings of their economic policy.
The collapse of the western banking system has got bureaucrats from Washington to London, and points further east, reviewing their decisions to abdicate a large part of their economic policy to the vagaries of free markets. Nowhere is this more relevant than in the energy sector in the UK.
For about three decades, Britain went about depleting its gigantic oil resources as if there were no strategic value to petroleum at all. In defiance of almost a century of governance in the oil sector, marked by heavy intervention and supply controls, Britain welcomed its discovery of North Sea oil in the 1960s by opening the privatisation floodgates. Seeing its newly discovered reserves as a counterweight to Opec power in the wake of the Arab oil embargo, Britain encouraged unbridled private investment, offering the world’s most lenient tax environment for companies to pump as much oil as possible as quickly as possible.
At the same time, it promoted the use of futures markets to determine the price of energy, as an additional means of undermining the influence of governments in the Gulf.
The abdication of energy policy in Britain was expressed most starkly in the disbandment of the energy ministry itself in 1992, on the premise that privatisation had made government policy redundant.
Judged on its own terms, this approach was enormously successful, at least for a while. The rapid exploitation of the North Sea helped keep oil prices low for three decades. And the phenomenal growth of oil derivatives succeeded in wresting control of oil pricing away from Gulf oil capitals.
But problems have now emerged. When North Sea oil began to run out at the turn of the millennium, low prices were already feeding an oil consumption boom in Asia which the rest of the world’s resource holders struggled to keep up with………………….