How North Sea oil helped Margaret Thatcher

Many people know that former British Prime Minister Margaret Thatcher, who passed away Monday, jump-started a flailing British economy and reshaped it into a more market-driven system. What's far less known is the role that oil played in that turnaround.

When Mrs. Thatcher came to power in 1979, recent offshore discoveries in the North Sea were turning Britain into an energy powerhouse. The surge in oil revenues and her lassez-faire economics provided a mix of resources and policy that softened the oil-price shocks of the 1970s and pulled the country out of economic stagnation.

"North Sea oil rescued Britain from the repeated balance of payments crises of the past and provided a crutch for the public finances at a vital time," writes Jeremy Warner in The Daily Telegraph, "but it also set the stage for a peculiarly unbalanced form of economic growth that dogs the country to this day." 

In 1975, Britain was in such dire straits that Henry Kissinger, then US secretary of state, quipped, “Britain is a tragedy – It has sunk to borrowing, begging, stealing until North Sea oil comes in.”

The comment was not lost on Ms. Thatcher, and Britain's first female prime minister made efforts to open up the North Sea to oil production.

"Prior to 1980s the state was heavily involved in oil and gas upstream," said Lejla Alic, an economist at the US Energy Information Administration. "When she came into office they started a large-scale privatization not just in oil, but in the large-scale economy."

Timing played a role as well. The 1970s and 1980s saw significant oil discoveries in the North Sea. The mix of policy and geology paid off. By 1981, Britain was a net-exporter of oil. By the mid-1980s, oil and gas extraction was responsible for 6 percent of Britain's economic output.

The surge in oil production had drawbacks, too. It sent the value of the British pound soaring on exchange rates around the world. That made it difficult for the manufacturing sector to compete and hundreds of thousands were left unemployed.

Thatcher went on to remake much of the British economy, fight a war in the Falklands, and hand over Hong Kong to China, before resigning in 1990.

North Sea reserves peaked soon afterward. The discovery of new oil did not keep pace with the maturation of existing fields. By 2005, the United Kingdom was once again a net importer of oil and reserves had fallen from 4.2 billion barrels of oil in 1991 to 2.8 billion barrels in 2011, according to the 2012 BP Statistical Review of World Energy.

That spectacular temporary surge of North Sea oil didn't make Thatcher, but it certainly helped buoy employment as she pushed through her huge and sometimes radical reforms.