In Aberdeen, a city built out of granite on Scotland’s North Sea coast, a diamond merchant checks the price of oil every day.
Until recently, the dealer, Oscar Ozdaslar, had been accustomed to North Sea oil workers stopping in to buy 3,500-pound (US$5,260) diamond rings and earrings in his store on Union Street.
“This Christmas was very quiet compared to the Christmas before,” said Ozdaslar, 50. “The oil guys didn’t come in.”
Just six months ago, Aberdeen was the economic linchpin of Scotland’s campaign to split from the UK as oil traded above US$100 a barrel. In the wake of the independence referendum’s failure, it serves as a microcosm of how crude’s slump to nearer US$50 is hurting cities from Calgary to Kuala Lumpur.
“Aberdeen has been the focus of a classic oil boom,” said Gordon Hughes, a professor of economics in the University of Edinburgh and a former energy adviser to the World Bank. “There’s no doubt that the city will go through a bad period now that it’s over.”
What’s more, the North Sea basin is among the most expensive in the world from which to extract oil. About 20 per cent of UK production is “uneconomic” at US$50 a barrel, trade group Oil & Gas UK says.
BP Plc chief executive officer Bob Dudley said this week it feels like the 1980s when he was living in Aberdeen working as an artificial lift engineer for Amoco before it merged with BP. Prices fell about 70 per cent in a few months after Saudi Arabia increased production and didn’t recover until 1990.
Regions worldwide that depend on the industry are having an “enormous shock,” he said in an interview with Bloomberg Television.
At Cafe Boheme, a French restaurant across the street from Ozdaslar’s jewelry store, customers including Royal Dutch Shell Plc cancelled about 30 Christmas bookings in December, said Dominique Mancellon, who owns and runs the eatery.
Staff from companies including Shell, Statoil ASA and Petrofac Ltd make up about half of his customers. Sales will fall about 10 per cent for the 12 months through July after increasing every year in the past decade, he said.
“If the price of oil stays down, we’ll have to be very careful about how we run our business,” said Mancellon, 56, as he prepared cheese plates and glasses of white wine.
The fillet steak, which costs 28.50 pounds and was a regular order for oil workers, has declined in popularity, Mancellon said. A white wine from Chateau Mont-Redon from his native Provence region going for more than 70 pounds a bottle was also popular before the oil rout. Sales are now down about 60 per cent as diners choose the house wine instead.
The prospect of a slump has darkened the mood in a town where most of the buildings already are a dull grey and the sun sets by 4pm in January.
In the Crown & Anchor pub next to the city’s port, oil contractors up from England sip pints of beer and talk about the chances of keeping their jobs.
“If it continues to stay that low for a long time, then we’re all in trouble,” said Jules Gardner, 52. “The oil companies and producers will just cut, cut, cut.”
Some jobs already have been lost. BP, ConocoPhillips and a venture between Talisman Energy Inc and Sinopec Ltd have announced hundreds of layoffs since last year. Companies are freezing wages and reducing pay rates for the thousands of North Sea employees who work on short-term contracts.
At the Crown & Anchor, project planner Gardner and fellow contractor Mark Saunders are on contracts that can be canceled with little notice. Gardner reckons he has a 75 per cent chance of keeping his job this year while Saunders, 51, says he’s closer to 60 per cent. Both have had their pay rates cut.
The two started commuting to Aberdeen every week from outside London in 2012. Six months ago, Gardner was making 78 pounds an hour, the equivalent of about 180,000 pounds a year. His pay is now down about 30 per cent, he said, drawing a contrast with the days when he received two pay increases and enjoyed spreading his cash around Aberdeen’s restaurants, curry houses and pubs.
“It was a party town, a boom,” Gardner said, sipping a pint of Stella Artois. “I’d eat out three nights out of four. I was out in the pub most nights. But I don’t do that anymore.”
Back on Union Street, diamond-seller Ozdaslar, originally from the town of Marmaris on Turkey’s Mediterranean coast, is trying to remain optimistic.
“The oil price will go up,” he said. “It cannot stay like that. It must go up.” — Bloomberg