After the United Kingdom voted narrowly to leave the EU after a fraught and tense campaign, the most obvious consequence was the devaluation of the pound (GBP).
While platforms such as ETX Capital continues to chart the demise of the GBP, as it trades in a restricted range against the U.S. Dollar (USD), noticeably this is just the tip of a large and potentially destructive iceberg that is heading slowly towards the United Kingdom.
Additionally, it appears the decision to officially trigger Article 50 has further strained relations between Britain and the remaining 27 EU members. Brussels is already starting to systematically shut out United Kingdom groups from multibillion-euro contracts, for example, while also encouraging large corporations to relocate overseas.
EU representatives have also adopted a noticeably tougher negotiation position since the end of March, which in turn has cast considerable doubt on the future of Britain’s oil and gas trade prospects.
Why our oil and gas trades could double…
Initially, many had hoped that an amicable negotiation with the EU could actively reduce the total cost of oil and gas trades in the UK. Currently fixed at £600 billion per annum, it was suggested that securing minimal trade tariffs with the EU and the U.S. could trigger savings of £100 billion each year while enabling Britain to seek out new market opportunities in the Commonwealth.
The aggressive approach of British Prime Minister Theresa May has prompted the EU to adopt a similar stance, however, while Brussels has also been empowered by recent election victories by pro-European candidates in the Netherlands and France respectively.
This has made the so-called worst-case Brexit scenario increasingly likely, with trade tariffs likely to soar and the cost of imports also set to rise incrementally.
This could cause the nation’s oil and gas trades bill to reach a staggering £1.1 billion per annum, which represents a rise of nearly 100% and will have a highly detrimental effect on the UK’s energy market.
The Bottom Line
In many ways, the stalemate that took place prior to the triggering of Article 50 was little more than a phony war. The gloves have certainly come off since the UK officially announced its decision to leave the EU, while Theresa May’s determination to pursue a hard-Brexit has also mobilised an increasingly buoyant European government.
Given that this could lead to an extremely unfavourable (or non-existent) deal for the UK, it is likely that the nation’s trade will be adversely impacted. The oil and gas markets are sure to be among the hardest hit, as soaring tariffs and the rising cost of trade undermine a once lucrative sector.
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