Posts Tagged ‘Scottish Independence’

An independent Scotland could probably not join the EU until 2030

June 25, 2016

Scotland’s desire to remain a part of the EU is not so easily satisfied even if a new independence referendum is carried out rapidly. Three different timetables (which can partly be in parallel) have to mesh.

  1. Exit process for UK from EU
  2. Independence process for Scotland from the UK
  3.  Application and accession process for an independant Scotland into the EU.

Looking at these 3 timetables, I reckon the earliest an independent Scotland could enter the EU in its own right would be around 2030.

Brexit now sets in motion an exit process for the UK from the EU. The only deadline is that the process will be completed 2 years after the UK invokes Article 50. However it is up to the UK to invoke Article 50. So the start point is flexible and is solely in the control of the UK government of the day. Even if Cameron is replaced by another Prime Minister, it will be up to his new government and the UK parliament to decide when they are comfortable enough to start the ball rolling (because then the 2 year deadline will apply). There is no reason for the UK to give up too early its current time pressure advantage which will pass to the EU once Article 50 has been invoked. I see the earliest that a UK government is prepared for this will be around March 2017. That would give an exit being effective in March 2019.

March 2017 is probably the earliest a new referendum on the independence of Scotland could be held. Using the timetable put forward by the SNP for the 2014 referendum, it would then be March 2019 before Scotland was an independent nation. This may be a little too optimistic both for when the referendum could be held and for the time required for the legal measures necessary. Whether the UK parliament could be handling the bills necessary for exiting the EU simultaneously with passing the bills for Scotland’s exit from the UK is also doubtful. Nevertheless I assume a referendum could be held by March 2017.

To apply for EU membership, Scotland would need to have, and be able to show, a “stable” economy and stable, established institutions. With the best will in the world, this is going to require at least 3 years (and probably more) as an independent nation. Assume anyway that Scotland can submit an application for membership sometime around 2022/2023. The minimum time needed for accession of a new member has been the 3 years for Finland and Sweden. It is more usually of the order of 10 years with countries with weaker economies taking longer. It is not unreasonable to assume that a newly independent Scotland would need 7 years for accession.

Accession times to the European Union (pdf)

And that would take us to 2030 for an independent Scotland’s accession to the EU.


 

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Independent Scotland would have been in dire straits now

January 14, 2016

This morning Brent oil fell to less than $30 for the first time in 12 years.

During the Scotland independence campaign, the Scottish National Party based its projections and campaign on an oil price of $113 going forward and that would have provided revenues of about £7 billion per year.

SNP assumption - actual Brent oil price

At current prices the oil revenue accruing to the Scottish budget would be less than £0.1 billion compared to the planned for £7 billion per year. Back in July 2015, the expected revenue (at $45/barrel) was reduced to be about £0.16 billion per year (£800 million in 5 years). This is just the impact of price. Considering the reduction in market share and reduced volume, the revenue is likely to fall well short of that and not much more than £0.08 billion per year (£400 million over 5 years).

With actual oil revenues at just 10-15% of what was assumed, an independent Scotland would now be close to default and a declaration of bankruptcy. At least Scotland is a little more diverse and not quite as dependent on oil revenues as Norway is. But Norway is now dipping heavily into the huge oil fund it has stashed away over the good years. But even with the fund, the Norwegian kronor has lost about 30% of its value in the last year. Scotland, of course, has no such fund to fall back upon.

It seems highly unlikely that there will be any new independence referendum in Scotland until either

  1. the budget oil dependence is reduced drastically, or
  2. the oil price is over $60 per barrel.

 

Oil price destroys viability of Scottish independence

August 24, 2015

The Scottish National Party (SNP) once had budgeted on the basis of oil price being $115/ barrel. Then at the time of the referendum they assumed a price of not less than $100/barrel giving a tax revenue of not less than £7 billion per year which would offset the “subsidy” that Scotland gets from the rest of the UK of about £9 billion per year. This tax revenue drops to zero with a North Sea oil price of less than $50/ barrel.  But the breakeven price for oil producers is even higher:

Forbes (Jan 2015)Some prospects, including almost all activity West of Shetlands, are considered unprofitable below $100 per barrel. Mature oil wells struggle to be viable below $60, so BP has decided that 200 jobs and 100 contractors’ roles would go following a review of its North Sea operations managed out of Aberdeen, Europe’s oil and gas capital. Looking ahead, BP forecasts the oil price to remain in the $50 to $60 price range for next three years. ………

Either way, BP’s take has darkened the mood in the British and Norwegian sectors of the North Sea. However, it isn’t the first to announce job cuts. If anything, BP’s move is pretty predictable given the company has been quite clear about reducing employee headcount.

Shell, Statoil and Chevron have made similar announcements while ConocoPhillips has also been clear about a need to “streamline operations.” As operators downsize, oilfield services companies would invariably feel the pinch from independent upstarts to market leader Schlumberger.

But reality is biting hard. It is now more likely that Brent oil price will be trapped between $30 and $40 for the next 2 -3 years. Costs of production in the North Sea have not come down much compared to the sharp decline in US production costs of oil from fracking. And now Iranian oil will take its market share. At these prices the North Sea oil producers will be losing money on each barrel produced. Production is likely to be scaled down sharply and investment will drop to a trickle. Onshore jobs involved in both exploration and production (Norway, Holland, Scotland) must decrease. The Norwegian and Scottish production will bear the brunt of this turndown. Norway has built up a huge reserve fund and can weather a storm but not a permanent downturn, The UK economy can take the hit but an independent Scotland would be very hard hit. The introduction of shale fracking in England – which could take advantage of the the production cost reductions achieved in the US – could not only mitigate the risk but add a new source of jobs and tax revenue. The largest cost reductions in the production of oil from shale have come in the non-unionised part of the industry. There is considerable oil shale in Scotland as well, but I expect the SNP and the UK unions to be far too short-sighted and to do their damndest to prevent the introduction of fracking.

Nasdaq brent oil 10 year chart Aug 2015

Nasdaq brent oil 10 year chart Aug 2015

At less than $40/barrel, the SNP would need to create some very strange, fantasy budgets to prove the viability of an independent Scotland. Perhaps they could just nationalise everything and print money.

Swedish Foreign Minister warns of the “Balkanisation of Britain”

June 5, 2014

Carl Bildt was once Sweden’s Prime Minster and was the UN’s envoy to the Balkans and is now the Foreign Minister. Not uncontroversial since he has many business interests ranging from Russia to Africa but generally radiates confidence and competence with a not insignificant measure of arrogance.

For a Foreign Minister he can be quite undiplomatic at times (not that it is always wrong to be undiplomatic). He has now poked his nose into the Scottish referendum and warns of the Balkanisation of the UK if Scotland decides to vote for Independence. He has a point of course. It would only be a matter of time before Wales, Ulster, the Channel Islands –  but perhaps not the Falklands – would all choose to go their own separate  ways into insignificance:

The Scotsman: SWEDEN’S foreign minister has claimed that Scottish independence would lead to the ‘Balkanisation’ of Britain.

 Carl Bildt also warned that a Yes vote would have ‘far-reaching consequences’ for the rest of Europe, in comments that echoed those made by former UK Defence Secretary Lord Robertson, in which he claimed that Scottish independence would have ‘cataclysmic’ geopolitical consequences.

Mr Bildt told the Financial Times that there would be ‘unforeseen chain reactions’ in Europe and the United Kingdom if Scotland voted for independence on September 18th.

The former UN special envoy to the Balkans between 1999 and 2001 said: “I think it’s going to have far more profound implications than people think. The Balkanisation of the British Isles is something we are not looking forward to.

“It opens up a lot, primarily in Scotland but also in the UK. What are the implications for the Irish question? What happens in Ulster?”

Mr Bildt also hinted that a victory for the Yes campaign could lead to the UK having to renegotiate some of its own EU membership terms. 

“The vote is one thing,” he added. “But there will then be a fairly painful period of separation and how is that going to affect the EU relationship? I assume there will have to be renegotiation of votes.” ……….. 

………… He likened the UK to ‘an island adrift in the Atlantic’ if it left the EU.

And the Swedish politician commented that both the EU and independence referendums showed that the debate in Europe was in the process of moving away from the Eurozone crisis to a more political phase.

“The main challenges in the past five years have been economic ones,” he explained. “Looking ahead for the next five years, it is political challenges in the east fairly obviously and also in the west fairly obviously.”


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