On June 24, the United Kingdom announced it was exiting the European Union after a referendum vote to leave the group narrowly passed among UK residents. The momentous decision threw the UK and global economies into turmoil. The value of the pound plunged to a 31-year record low.
Global oil prices also fell in the wake of the news. On July 6 the global price for a barrel of oil was $47.88, but experts predict prices will bounce back in the short term. What remains uncertain are the long-term effects Brexit will have on the UK oil industry.
Possible Effects of Brexit on the UK Oil Industry
When the UK leaves the EU, it will no longer have access to the EU’s single market economy. Instead, it will need to negotiate trade agreements with each EU country, a long and complicated task.
People will also lose the ability to travel freely between the UK and EU. It will become more costly and burdensome for UK oil companies to hire foreign workers and for foreign oil companies to hire UK workers. This could exacerbate the failing economy in the North East region of the UK, where the falling price of North Sea oil has led to job loss and lower home prices.
Leaving the EU may also mean UK oil workers may be sent farther afield. Instead of posts in Europe, workers might be sent to commonwealth countries in other parts of the world, such as Australia and Canada.
Scottish independence could be another potential blow to the UK oil industry. Scotland voted enthusiastically to remain in the EU, and Brexit may force another vote on Scottish independence. An independent Scotland would shake up claims to North Sea oil.
What Won’t Change
The UK oil industry faces a new set of challenges in the wake of the Brexit vote. But the vote did not change longstanding challenges within the industry. The oil industry faces declining reserves, higher operating costs, and aging infrastructure. But if the UK leaves the EU, the taxation, regulation, and licensing structure of the UK’s oil industry will remain constant.
The next few months will be an interesting time to watch UK and global oil markets. To understand the potential effects the uncertainty might have on your utility bills, contact the experts at SM Engineering today.