The oil markets, ever the barometer of global instability, have delivered their latest verdict. Crude prices have tumbled back to levels not seen since before the tumult of the Ukraine invasion, a stark reminder that the commodity cycle waits for no geopolitical drama. Brent crude, the international benchmark, slid below $75 a barrel this morning, down over 30% from the peaks of mid-2022.
The trigger? A perfect storm of weakening demand from a sluggish Chinese economy, a surprisingly resilient supply from US shale, and the creeping realisation that Opec’s production cuts are merely a speed bump on a downhill slope. For Britain, a net oil importer, this should be an unalloyed boon.
Lower fuel costs ease the inflation headache, lighten the burden on the consumer, and give the Bank of England marginally more room to breathe. Yet in the shadow of this windfall lies a story of strategic negligence that ought to keep the Chancellor awake at night. For as the price of foreign crude falls, the value of domestic energy security rises.
And here, the North Sea remains our best, and perhaps only, hedge. The irony is palpable. For years, environmentalists and shortsighted policymakers have rushed to dismantle the UK’s offshore oil and gas infrastructure, branding it a relic of a carbon-intensive past.
The result: the UK has become dangerously exposed to the whims of global energy markets. According to the latest figures from the North Sea Transition Authority, UK oil production has fallen by nearly 40% since 2010, while gas output has halved. We now import roughly half our gas, much of it from volatile regions.
The current price crash, therefore, is a double-edged sword. On one hand, it lowers the immediate cost of those imports. On the other, it accelerates the decline of domestic production by making new investment uneconomic.
Already, the Treasury’s windfall tax on energy profits has deterred capital: investment in UK upstream oil and gas is expected to fall by a third this year, according to Rystad Energy. This is fiscal policy at its most destructive. The Chancellor should be slashing taxes on North Sea production, not hiking them.
Why? Because a barrel of oil produced in the North Sea is not just a barrel of oil. It is a barrel immune from Middle Eastern tensions, from Russian supply shocks, from the bottlenecks of the Strait of Hormuz.
It is a barrel that keeps the lights on and the refineries running, regardless of what happens in Opec’s meeting rooms. Moreover, the environmental argument advanced by the anti-oil brigade collapses under scrutiny. Liquified natural gas from Qatar or the US has a carbon footprint far larger than gas piped from the North Sea.
The net effect of shutting down domestic production is to export both our pollution and our energy security. To be clear, this is not a call for climate denial. The transition to renewables must continue.
But that transition should be funded by the proceeds of our hydrocarbons, not by sacrificing them on the altar of virtue signalling. Norway, our Nordic neighbour, understands this perfectly. It has invested its oil wealth into a sovereign fund worth over $1.
5 trillion, all while maintaining high production levels. The UK, by contrast, has squandered its endowment. The Treasury has pocketed the tax revenues and frittered them away on current spending, leaving nothing for the lean years ahead.
Meanwhile, the Bank of England must contend with the inflationary consequences of energy imports. Every pound spent on foreign oil is a pound that leaves the economy, weakening sterling and adding to the cost of living. A robust North Sea industry would keep that money circulating within the UK, supporting jobs in Aberdeen and the supply chain, and reducing the trade deficit.
The current price collapse makes the case for revitalising the North Sea more urgent, not less. The government should immediately scrap the windfall tax, offer investment allowances for new drilling, and speed up the approval process for projects like the Cambo field. The alternative is a slow, grinding decline in domestic production, followed by a painful scramble for energy when the next global crisis strikes.
History is littered with examples of nations that failed to invest in their own resources. Britain should not add itself to the list.
