In the run up to the Scottish Independence Referendum last autumn, we at the Scotland Institute produced a significant amount of research showing that the SNP White Paper for Independence simply did not add up on the prospects of an independent Scottish economy. Today, when oil prices stand below $50 / barrel, our scepticism has been fully vindicated.
But this is not casual gloating. There is a serious point to revisiting this old battleground. The SNP is poised to make huge electoral gains at Westminster in this year's General Election. And with Alex Salmond very likely to return to Westminster as an MP for Gordon, the old debates are bound to resurface. Especially in the eventuality of a Tory win and an EU Referendum that might push the UK towards an exit. Conventional wisdom has it that if it had to choose, Scotland would much prefer being a part of the EU than of the UK.
So in order to preempt old SNP propaganda becoming an acceptable starting point to new debates, let us look at the facts as they stand.
• An independent Scotland would rely on oil for 10-20% of its total yearly revenues. Not quite a petro-state situation, but hugely significant nonetheless.
• The SNP White Paper made tax and spending projections on the assumption of oil prices at $113 / barrel. Today, the barrel of oil is trading in the $46-$50 range.
• Global demand for oil has slumped against economic slowdown in Europe and China. Meanwhile, developments in energy/fuel efficiency and the increasing rate of deployment of renewable sources of energy is reducing global demand for oil and other fossil fuels even in fast growing economies such as the US.
• Global supply of oil is not likely to slow down, as OPEC has explicitly declared that it is much more interested in retaining market share than profitability at this point in time. So OPEC is pumping out oil like there is no tomorrow, while the Shale Revolution in America has yet to run out of steam and may still make the US the largest oil produced in the world.
• Against these factors, most analysts see oil prices unlikely to surpass $55-$60 for a very long time.
• The North Sea industry is already suffering, and any further price falls may well bring the whole industry to its knees . Of all productive oil fields in the world, the North Sea has some of the highest production costs, so it would be one of the first to be shut down by low prices.
• In all, just this year an independent Scotland would have faced an estimated £18.6 billion shortfall in revenues. If the oil prices persist at current levels for years to come, that would be an effective yearly budget deficit on the SNP White Paper spending plans.
• With annual borrowing requirements of £20bn+, there is simply no way to get finance on the international markets at sensible rates. Throw in the uncertainty over the currency and EU membership, it would have been financial Armageddon.
For a brand new country with no credit history and inherited debt of around £160 billion from the UK, this simply could not have worked. It would have meant an IMF bailout in the first year of independence which would have come with Greece-style austerity. Nevermind the SNP's vision of a Nordic-style, lovely, progressive welfare society. That would have been unaffordable, as we've been saying all along.
But most important of all, this was not hard to foresee. Indeed, many analysts including us had identified these risks of dependence on oil for the Scottish economy. Only the SNP chose to cry "bluster" and "fear-mongering" every time anyone tried to highlight these issues. If any of my PhD students had produced an economic argument this poor I would have failed them immediately.
As we move forward then, this is what we should not forget: The SNP White Paper for Independence never was a blue-print for a country. It was a poorly assembled campaign document that was barely credible in its time, and decisively refuted by economic reality since. Whatever debates about the status of Scotland arise in the new Parliament, the White Paper should not be allowed to frame the discussion. Instead, let us focus on how we can indeed be better together in the decades to come.
Dr Azeem Ibrahim is the Executive Chairman of the Scotland Institute and International Security Lecturer at the University of Chicago