An analysis of the effect of the 1976 financial crisis on the development of North Sea oil policy in the United Kingdom

Abstract

Traditional approaches to the study of financial crises typically involve an elucidation of causation. Meanwhile, this project seeks to take an original approach in analysing how the circumstances of a relatively minor crisis, namely that in the United Kingdom in 1976, can have long-term effects on an economy by eliciting changes in the trajectory of policy formation. Given the importance of the development of North Sea oil to contemporary international perception of Britain’s ability to meet future balance of payments obligations, this project focuses on policy decisions pertaining to this domain. Through an extension of the narrative approach frequently adopted in the study of financial crises, this project finds that the crisis of 1976 had significant implications for the development of North Sea oil in two respects. It undermined the practical clout of the recently formed national oil company (BNOC), making it a vessel with political rights it was unlikely to be able to realise. Further to this, it set a precedent in terms of considering the sale of public assets as ‘negative expenditure’ as opposed to revenue when it agreed to the sale of £500 million in British Petroleum (BP) shares in negotiations with the International Monetary Fund (IMF) to reduce the Public Sector Borrowing Requirement (PSBR). Nonetheless, this project concludes that it was political division within and between parties that both stimulated the crisis and resulted in less than optimal policy decision-making with regards to North Sea oil.