Impact of Brexit: A New Political Economy in Petroleum Industry?

Impact of Brexit: A New Political Economy in Petroleum Industry?

Since 2016, Brexit negotiations started when the United Kingdom (UK) voted for separation from the European Union (EU) in a landmark referendum, where 51.9% voted to leave the EU against 48.1% voted to remain in the EU. On March 2017, Article 50 of the European Union’s Treaty was implemented and negotiations between UK and EU started to take place in April 2017. It was announced that England’s separation from the EU would be in March 2019, two years after the start of the exit process. However, due to the inability to reach a deal, the time of the Brexit was postponed to April 12 then postponed again to October 31. During the mentioned period, Theresa May resigned last June.

What is next?

The future can be summed up in five different scenarios: Brexit deal, no-Deal Brexit, no Brexit, calling for another extension for Brexit, and finally holding Parliamentary Elections earlier than the decided date.

A Deal Brexit (Exiting EU with a deal)

Those supporting the first scenario explain that a deal might preserve the rights of trade for both sides UK and EU and to be a hedge against any severe fluctuations, giving time for changes to take place through temporary agreements and rules. Accordingly, the oil and gas industry will be able to resist any disturbances, as per the Oil and Gas UK’s economic report, 2018.

No-Deal Brexit (Exiting EU without a deal)

The no-deal Brexit implications are mainly concentrated in hydrocarbon licensing and environmental issues established regime will continue to operate normally and legislative changes will not affect energy sector businesses. The businesses engaged in the sector are required to ensure the continued licensing (by the Oil and Gas Authority) to explore oil and gas reserves before leaving the EU. In this case, the UK would cut all ties with the EU with no transition period and no guarantees on citizens’ rights of residence, causing some disruptions to businesses in the short-term. Without an agreement on trade, the UK would trade with the EU under World Trade Organization (WTO) rules, according to a document released by UK ‘s parliament titled “Running an oil or gas business if there’s no Brexit deal.”

No Brexit (Cancelling Brexit)

Canceling Brexit and staying in the EU will require UK law change and referendum. For the oil and gas industry, they will keep working as they were before, according to a May article by The Guardian.

Calling for another extension for Brexit

May’s successor might renegotiate the terms of exiting with Brussels reaching a new agreement through which Brexit can be achieved. However, it is unlikely for the coming prime minister to put the agreement in front of the parliament for voting, as to Brussels’ that the current issue is the fourth one and the last one.  As per the negotiated agreement, the oil and gas sector’s impact will be accordingly determined, noted an article by the Royal Institute of International Affairs, published last July.

Holding Parliamentary Elections Earlier than the Decided Date

It is expected that May’s departure means early Parliamentary elections.  The referred scenario is the best one for the Labor Party. Labour Party leader (Chief), Jeremy Corbyn told Metro, a UK-based newspaper last July that it is an essential step to start early elections so people will be able to determine their future. The impact on the oil and gas industry will be defined after the voting results will be declared.

Different Countries, Territories and Regions Opinions

It was declared by Simon Coveney, Republic of Ireland minister for foreign affairs and trade on July 2017 that a no-deal Brexit would be very harmful and destructive for Britain, Ireland, and the EU as well. It will affect Britain, Ireland and the EU’s economy badly.  It is important to set transitional agreements, that was through his interview with the Senior Digital Editor at ChathamHouse, The Royal Institute of International Affairs in July 2017.

Trump is clear about his support of Brexit, according to many US media platforms.

UK Oil Prices 

Brent oil prices increased by 29% during H1 2018, which averaged more than $ 70 per barrel, compared to 2017, according to the 2018 UK’s Oil and Gas economic report.

Although Brexit represents a source of great uncertainty for different markets and had caused oil prices to fluctuate in the short-term, the UK’s oil and gas industry reflected that the sector will be confident in the post-Brexit UK. Brexit’s direct impact on oil prices might be negligible.

Petroleum Exports and Imports

Generally, UK’s oil and gas industry is viewed stable; however, UK’s future trading relationship with the EU might have some negative impact on business and investor confidence. UK’s oil and gas industry position can be summarized into two main potential Brexit scenarios, according to a report published by Oil and Gas UK’s economic report, 2018, they are:

The first is if the UK can negotiate international trade deals and has minimal EU tariffs, where the oil and gas industry trading costs might decrease by around £100 million per year.

The other scenario is to follow back the WTO rules, where the oil and gas industry trading costs might increase by around £500 million per year.

Petroleum Companies

Despite all arcane conditions, some major companies declared their commitment to UK. For instance, the Norwegian Oil Company Equinor executive vice-president announced in December 2018 their commitment in developing oil and gas projects in UK and are planning to drill three wells in 2019. Moreover, it was stated by Andrew Reid, Westwood Global Energy Group CEO, that the global oil and gas business is complex enough that make it hard to be affected by Brexit, published in Offshore Technology. In 2016, Bob Dudley, British Petroleum (BP) CEO, assured that investing in UK will not be beneficial if UK exited EU, claiming to BBC that Britain would be in danger of losing influence on the world stage. However, in 2019, Dudley declared through CNBC that British oil and gas giant BP has no plans to leave the UK, regardless of the final Brexit outcome.

On the other hand, Grey Clark, UK business secretary, pointed out that leaving the EU would cause a lot of disturbances to oilfield services companies operating in the North-East. There is a considerable percentage of the total oil and gas and offshore workforce (around 5 % of the total oil and gas workforce, and around 7 % of the offshore workforce) belong to EU countries, which will make some difficulties in accessing issue, cited by a document released by UK parliament, covering a number of UK industries, including oil and gas, titled by ‘Running an oil or gas business if there’s no Brexit deal.

To sum up, Theresa May’s resignation represents a small part in the Brexit issue. There are other factors causing the Brexit delay process as the parties’ opinion mismatch. Thus, the Brexit issue will depend in small part on the future prime minister. Most presented expectations show that the oil and gas industry might not be affected severely. The British pound might be weakened and the workforce from other EU countries might be harmed as well if no access were provided to them. In order to reduce the impact of Brexit on the UK oil and gas industry, it is recommended by Oil and Gas UK in its economic report, 2018 to preserve the workforce rights in accessing the market, to protect energy trading and internal energy market and take into consideration Europe’s voice for the industry.


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