Former LibDem leader: 'It's Shetland's oil, Alex ...'

The fields to the west of Shetland are estimated to contain 20% of the UK's oil reserves, and a breakaway could wreck the finances of an independent Scotland. The island councils are already discussing options for constitutional change.

Orkney and Shetland have been Scottish since 1468, when they were given by Denmark as a dowry for a princess who married James III.

Scott said his personal preference was for Orkney and Shetland – and possibly the Western Isles – to become a crown dependency, a self-governing possession of the British Crown.

The other crown dependencies are the Isle of Man and the bailiwicks of Jersey and Guernsey, all self-governing with their own currencies and low taxes. However, they are not part of the UK or the EU.

Scott said he had wanted to "tweak the First Minister's tail" by using the same arguments the SNP uses for Scottish independence in favour of Shetland home rule, and set out his plan in a debate attacking the SNP's centralisation of public services.

He said Shetland and Orkney wanted to use the "intense constitutional navel-gazing" of the referendum campaign to explore other options for their own government.

"We are not going to be told what to do by the SNP, nor by any government. This is the time to seize the opportunity for island home rule.

"Shetland can run its own administration. The Northern Isles can have their own government. The Manx model is a good one for Shetland. Would the SNP oppose Shetland becoming a crown dependency?"

He went on: "It's not your oil, Alex, it's wirs. Shetland and Orkney may never have a stronger opportunity to negotiate a future.

"If we do nothing, the future is clear: schools and local ferries dictated by the central belt and the emasculation of local accountability.

"This time can be our time, an island time. I'm a Shetland Islander first, a Scot second and a Brit third. That should be our goal: nothing less than island home rule."

However, another delegate, Professor Denis Mollison of Heriot-Watt University, said the Channel Islands controlled the sea only to a distance of 12 miles out, meaning Shetland would not have a claim to most of the offshore oil and gas. Scott said legal opinions differed on the matter.

Asked if he was proposing that Scotland should be outside the EU, like other crown dependencies, Scott said: "I fully recognise there are some big downsides to that status, because we have got used to, for example, European funding for pier projects, and things like that.

"If you did a profit and loss on it, that might be too much of a loss, and that might not be the best option for us."

He also accepted that oil price volatility would have a huge impact on the economy of the islands: "That's the kind of financial assessment we would have to work out."

Delegates later unanimously passed a motion calling on the Scottish Government to "accept that Shetland and Orkney should have a separate right to self-determination, to secure the best future for themselves, whatever the constitutional future of Scotland".

Malcolm Bell, convener of Shetland Islands Council, said: "There is a whole range of potential options from outright independence, which I don't think will happen, to a crown dependency to the status quo.

"The current government is very centralised. It's all very well to devolve power a few hundred miles from London to Edinburgh, but that's no good for us if it then stops at Edinburgh. Powers need to be pushed out.

"We see ourselves as truly unique in terms of geography, culture and our position next to the oil fields and fishing grounds."

Bell said he expected the issue to be raised at the Convention of Highlands and Islands in Lerwick a week tomorrow.

An SNP spokesman said: "The SNP have always been open to greater autonomy for the Northern Isles in an independent Scotland.

"We are confident Orkney and Shetland will vote Yes to Scottish independence along with the rest of the country in autumn 2014."