The oil price collapse: some effects on the Scottish economy

A major factor affecting Scottish economic activity in 1986 has been the collapse in world oil prices. In the short run oil markets and prices are dominated by OPEC supply decisions (ie how much oil is released onto the market or rather how much oil the cartel is able to keep off it). In the medium-term, however, the key factors controlling prices are total demand and
the availability of non-OPEC suppliers. Thus in the four years from 1980, the year of the last OPEC price 'hike' , OPEC found it increasingly difficult to hold dollar prices in the face of an 11.5% decline in world oil demand and a substantial rise in non-OPEC production. Until last year Saudi Arabia, the cartel's largest producer and effectively its output regulator, took the strain and her exports of crude fell by almost 60% from 1979-84 compared with an OPEC average of just over 40%. In mid-1985 Saudi adopted a new strategy designed to recapture market share and to discipline both recalcitrant OPEC members and unco-operative non-OPEC suppliers like the UK. In the second half of the year Saudi production doubled and pricing was moved onto an increasingly
aggressive basis. These dramatic events have had and are continuing to have major impacts throughout the UK and Scottish economies. This article considers these economic impacts in more detail.