The gathering global energy crisis has all the makings of an economic catastrophe. I have covered every energy emergency since the Yom Kippur War between Israel and the Arabs in 1973, which led to a quadrupling of oil prices. This is shaping up to be the worst.
Not just because the Strait of Hormuz through which about a fifth of the world’s oil and gas passes has been closed, something which never happened in previous energy crises. Though that is bad enough.
But because the US-Israeli assault on Iran has resulted in both sides laying waste to some of the Gulf’s most significant oil and gas production facilities.
As a result we are heading for the biggest cut in oil and gas supplies ever. Don’t take my word for it. The International Energy Agency has already predicted it will be ‘the largest supply disruption in history’.
Asia has been first to feel the brunt of this energy shock, with local oil refiners shelling out over $170 a barrel and jet fuel going for almost $250 a barrel. Even at these astronomical prices oil is getting hard to come by.
Europe will not be far behind. The full force of oil and gas shortages will start to be felt next month and only gain in intensity as the war drags on. Even if both sides were suddenly to halt hostilities and pull back from further confrontation it would take months before shipments returned to normal. Whatever happens we are in for a very rocky spring and summer.
Britain most of all – for among advanced economies we are the least equipped to handle what’s in store.
The bond markets, where governments go to borrow, made that clear yesterday. The yield (or interest) we need to pay to borrow, already the highest in the G7 club of rich market economies, soared above 5 per cent on our 10-year benchmark bonds – the highest for almost two decades.
Faced with a potential fiscal tsunami, Rachel Reeves is bereft of a credible response. Meanwhile, nothing is allowed to interfere with Ed Miliband’s net zero obsession
Our government steadfastly refuses to allow any more drilling of our remaining oil and gas resources in the North Sea because of its zealous pursuit of net zero
In contrast, the US Treasury pays a little over 4 per cent on its ten-year bonds, most major European economies 3 to 4 per cent and Germany under 3 per cent.
We are forced to pay much more because our inflation, which the energy crisis will worsen, is the highest in the G7 – and because our public finances are seen to be among the weakest.
That was underlined on Friday morning when, after a January surplus which ministers claimed showed the public finances had turned the corner, it was revealed we’d borrowed another £14.3billion in February, one of the highest levels for February borrowing since records began. Worse, £13billion of that was to meet the cost of servicing our national debt of almost £3trillion.
In other words we borrowed billions last month not to build new schools or hospitals or warships, but merely to meet the cost of previous borrowing.
So much for Chancellor Rachel Reeves’s boast that she’d ‘fixed the foundations’ of the economy.
In reality her foundations are built on quicksand – as we’re about to find out. We are heading into the mother of all energy crises, in which inflation and borrowing will inevitably rise, with investor sentiment among those from whom we borrow turning against us.
They have watched Keir Starmer surrender to demands for ever more welfare spending and retreat from even a semblance of spending discipline.
The markets have concluded that Starmer-Reeves have become prisoners of Labour’s Soft-Left, which is now calling the shots and will force them to throw money the Government does not have at the energy crisis.
Our foreign creditors fear we have no stomach for the tough decisions needed to maintain fiscal discipline, that the country has lost its true grit, content to be run by a governing party with an unshakeable sense of entitlement to ever more state spending, even though we’re already borrowed to the hilt.
Central government revenue in the current financial year is up over £80billion on the previous year thanks to all the extra taxes Labour has levied on us. But even that bonanza can’t assuage its insatiable appetite for more spending. So, in the year to date, it has borrowed another £126billion on top of the tax rises.
Government ministers are oblivious to the pitfalls of becoming increasingly dependent on foreign creditors just as the world is becoming a much riskier, harsher place. So those we borrow from are now demanding a bigger return to reflect that extra risk. Yes, Labour has created its very own moron premium.
As if to prove the point, up popped some of Labour’s leading lights with more moronic ideas. Culture secretary Lisa Nandy is reported to have told the Cabinet this week that it was time to rethink the fiscal rules to give the Government more spending latitude. It would be hard to think of a single step better designed to spook the bond markets when the cost of borrowing is already rising.
Next up was Angela Rayner, now in full-flow leadership campaign mode. She used a talk with City investors to complain that the Office for Budget Responsibility failed to give enough weight in its forecasts to the benefits that arise from Government spending.
A stronger Prime Minister would fire Ed Miliband and issue the final permissions for Rosebank pronto. But Keir Starmer is too weak even to contemplate that
Climate activists protest against the Rosebank oil and gas field in the North Sea. Miliband once described Rosebank as ‘climate vandalism’
As an example she cited social housing, which she said the OBR only saw as a cost, never calculating its benefits. So, she reasoned, its forecasts of the Government’s future fiscal headroom were unnecessarily restrictive.
Yes, like Nandy, Rayner is looking for ways to spend more (while having a crack at Reeves’s obsession with the OBR).
Put aside the ungracious thought that the concept of Rayner lecturing investors on the flaws of the OBR’s modelling methodology is the equivalent of me lecturing the Royal College of Surgeons on brain surgery.
I once interviewed her on BBC TV about tax and spend. She revealed herself to be so out of her depth that the excruciating exchange is still doing the rounds on social media.
But consider instead a simple fact: the Government has been on a spending spree in the 20 months since it came to power. Far from that boosting revenues or growth to increase the fiscal headroom, growth has steadily declined quarter by quarter while taxes and borrowing have had to soar to give the Government even a modest fiscal headroom.
Faced with a potential fiscal tsunami, Reeves is bereft of a credible response. In a vacuous lecture this week she praised Canada and Norway for increasing oil and gas production to help cope with supply shortages.
That’s right. The Chancellor of a Government which steadfastly refuses to allow any more drilling of our remaining oil and gas resources in the North Sea because of its zealous pursuit of net zero is happy for others to exploit theirs.
The hypocrisy, the stupidity, the brass neck is breathtaking.
She didn’t have a word to say about our own Rosebank field, 60 miles west of Shetland, which is ready to start pumping out oodles of oil and gas by this autumn – but for the fact that final permission languishes unsigned on Energy Secretary Ed Miliband’s desk. He once described Rosebank as ‘climate vandalism’ so you can see why he’s in no rush.
Ditto the nearby Cambo field, with oil and gas reserves almost as large as Rosebank’s. The Jackdaw gas field could also be online soon, if it could get the go-ahead.
Giving the North Sea a new lease of life will not save us from the coming energy crisis. But it would help, giving us more security of supply, more jobs, more tax revenues, a stronger pound, an improved balance of payments and even lower carbon emissions (because piping in energy from the North Sea generates a lot less C02 than importing it).
But nothing is allowed to interfere with Miliband’s net zero obsession. A stronger Prime Minister would fire him and issue the final permissions pronto.
But Starmer is too weak even to contemplate that. So we are stuck in an energy emergency with an energy policy bordering on the criminally negligent.
Proof positive if more were needed that we are heading into a global storm with a bunch of clueless inadequates at the tiller.
Better batten down the hatches.
