Shortages: plan for the future, not the past
When we think about the future we usually stimulate what is known as an 'optimism bias'. There is a range of evolutionary benefits that come from thinking in terms of successful outcomes rather than negative ones, but there are clear risks as well. The biggest risk factor is that we don't prepare properly for failure.
There is increasing concern that that is happening now. In today's news we learn that both Glasgow and Edinburgh airports have experienced jet fuel shortages which have resulted in flights being rerouted. The four biggest airports in England are connected via a fuel delivery pipe but Scottish airports are not, making them more vulnerable.
The warnings over jet fuel have been heard for months now but it appears that both markets and governments have placed undue confidence in repeated but constantly-shifting promises from the US administration that a deal with Iran that will reopen the Strait of Hormuz is imminent, despite the number of prior reassurances having counted for little.
As is the case most days, Trump still appears to be both assuring the world a deal is imminent and asking for patience and more time within hours, yet markets seem only to hear the former. That seems to be a less than robust basis for making assumptions about risk planning in the immediate future.
There are a number of areas where Scotland is particularly and immediately exposed to what is happening in the Middle East. As we see, we are now entirely reliant on imported jet fuel, with about 35 per cent of the UK's supply met by domestic refining but none of that is now in Scotland. The corollary is that we rely on non-UK sources for two thirds of our jet fuel.
Where jet fuel goes, diesel follows. Supplies of diesel are more available on the international market and the UK is less reliant on imports (40 per cent of supply) but there are still projected to be shortages in the near future, and certainly significant price rises.
Our LPG and natural gas supply chains do not rely on the Middle East so are currently mostly secure in terms of absolute supply at the moment, but global supply problems mean prices are spiking significantly. That is the same picture with fertilisers – at the moment there isn't a shortage of supply but the prices have risen dramatically.
The behaviour of farmers is instructive; they have simply delayed purchasing this year's fertiliser in the hope that prices will come back down. This is looking increasingly unlikely in the timescales over which fertilisers will be required.
But the biggest worry of all is food. There is now a real risk of food shortages and certainly of further price inflation over the coming months. In fact the food situation is worse; a very dry spring, expected heatwaves in the summer and a feedback loop between inflation in supply chains (fertiliser as above), market pressure internationally and consumer behaviours is now raising real fears.
As one expert put it (about Westminster); “This government has received serious scientific, intelligence and policy advice that it should take significant action on food security, but it keeps signalling all is OK. It’s not.” That sentiment stands in as a placeholder for all of the above and more. We know there is a major short-term risk but the action governments have taken so far has been entirely superficial.
The fact is we know that some of these trends are likely to become more common or permanent and others will recur. Everything is becoming more unstable because of geopolitics, climate change and the breakdown in the preexisting economic model. Moreover, this increasing instability is highly predictable and so is something we can plan for. That means four things.
We can increase supply buffers (oil and gas storage, food warehousing etc). We can seek to secure supply chains as national security (not just leave it to commercial markets). We can transition to new methods (structurally reducing dependence). And we can modify behaviour (reduce demand).
In reality we should do all of these things but are doing few of them. Again, this is a cognitive bias, the belief that things will always return to a status quo ante. That is a false belief in the current context. And it counts particularly against the most powerful of the above solutions. By far our best bets are transition and demand reduction, but those are longer term projects, such as the transition to domestically-produced organic fertilisers and the deployment of ‘precision agriculture’.
We should accept now that there are long-term structural issues in the global economy that we should be responding to on a domestic basis. That was the lesson of Covid and that is why Common Weal created the concept of Resilience Economics for this reason. We need to plan for a future different than the past – because it is almost certainly here.