Some people believe that Brexit was isolation while other people supported the move. Therefore the effect of the decision is controversial and different people have different views in the effect of the decision (JD 2016a). Different projections have been made concerning the effect of Brexit on different sectors in UK due to Brexit decision. Different analysts have had different projects in the terms of the effect the energy sector will experience due to Brexit decision. The decision is important since it is likely to affect different economic situation in UK. First, interruption in market level is one of the areas which need to be analyzed. The effect in the market is important in the oil and gas industries in UK since they contribute to high level of economic contribution in UK. In addition, analysis of trade is another factor which is important to the effect of the move. Analysis on the move on the free travel arrangement between different parts and especially UK and EU countries is likely to affect the oil industry (McNiff 2013). In addition, the labor market is another segment which needs critical analysis. The decision may have some effects on the labor industry. The oil and gas industry in UK has a large population which works on the energy sector companies. Any changes on the market will be important and likely to change the labor market (JD 2016c). This paper will look at these key areas which are highly related to the international relations. The Brexit decision is likely to affect energy sector but this remain at topic with different views. In addition, this paper will look at what Brexit is likely to do to trade by UK and whether any trade barriers may be experienced.
What is the effect of Brexit on energy sector in UK?
Objectives
Hypothesis
Brexit has little effects on UK’s oil and gas industry and is likely to bring any effects from the current situation.
Brexit was largely supported by majority in UK but the effects on the move are likely to rely on the support which the move experienced. The future of energy sector in UK relies on the planning and strategies which are laid down and not the move itself. Some people felt that UK was isolating itself from the countries in EU (JD 2016b). Therefore the effects to be felt are largely to depend on UK planning and strategies to handle the situation and adopt different mechanisms. This section will be able to analyze different factors which are related to the Brexit decision and oil industry in UK. This will help to provide the way the oil and gas industry is likely to change with the Brexit decision in place.
Brexit is a move which meant that UK excluded itself from the EU organization. The EU countries are likely to impose some restriction on non-member countries and therefore UK will be among those countries likely to be affected by such decisions. The Brexit decision will not be appealing decisions for the multinational oil and gas companies in UK since they are likely to lose the free travel agreement which exist between the EU countries. In addition, the movement of the products from UK to the EU countries is likely to increase the bureaucracy procedure (Ifelebuegu, Aidelojie & Acquah-Andoh 2017). The increase of this process will mean that high costs will be experienced while these products are being moved. This decision will likely increase the operating costs of the oil and gas companies in UK. These companies are working hard to decrease the costs and thus the Brexit decision will lead to low sales at point when the companies transfer the costs to their products making them expensive.
In addition, in terms of trade barriers, the EU countries will mostly consider making trade deals with fellow EU member countries. The decision will mean that UK will be likely to lose some key customers of its energy sector and thus affecting the energy business in UK (Robson & McCartan 2016). Therefore in terms of trade barriers and restrictions, UK will be able to experience some restriction which might increase the costs to sale their oil and gas in EU countries. Nevertheless, it has to be noted that there are other EU non-member (Ziv et al. 2018a). These restrictions are likely to affect the business of operation by UK in the energy sector at some point. These barriers are likely to add costs for the oil and gas companies in UK which may lead to increase of their prices. This will in turn reduce their competitive edge in the EU countries and thus affecting the oil and gas industries and sale of their products in these EU countries.
In addition another interesting area which is brought out by the Brexit decision on oil and gas sector is the labor and capital mobility. According to research by Airswift, only a third of the workers in energy sector in UK would have voted to remain in EU. This shows that majority of the labor industry in the energy sector supported the decision on Brexit. The decision on major of the worker force is a clear indicator that the decisions of leave EU would not have major negative effects on oil and gas industry in UK. Moreover, the labor force noted that the decision would be on UK government on the decisions they make on way forward (Ziv et al. 2018b). In addition, it was noted that the main worry would be on uncertainty of the UK employees working on EU based companies. In many cases, these companies will consider getting labor force from their member states rather than UK (Ifelebuegu, Aidelojie & Acquah-Andoh 2017). This is likely to reduce the employment opportunities for the UK citizens in the gas and oil industries. Lack of employment in this sector will be a long term effect according to analysts. Most of the workers in UK oil and gas industries are employed by European companies who are members of EU. Leaving EU means that the cost of hiring these UK workers will increase and these companies will turn to the worker from EU countries. Most importantly, the UK limited mobility in terms of labor and capital will discourage investment opportunities for both medium and long term. Thus Brexit has negative effects on the employment and labor sector in UK. The companies will work to reduce their costs and this will mean hiring cheap labor from the EU member countries. Placing any restriction on the employment of UK worker by the UK government will not help to solve since the companies will be highly discouraged to invest in the country.
Another key area which is likely to be affected highly is the oil prices in UK. Economists project that the Brexit move will affect the oil prices while analysts do not share the same analogy with them. After the passing of Brexit, the oil prices of oil dropped by $2 per barrel (Ziv et al. 2018b). This decrease was attributed to the lower demand. Although the project of changes in oil prices, analysts hold that UK oil market is at a good position and it is unlikely it’s going to change. Nevertheless, the drop in the prices was argued that in resulted from the reduced oil prices and economic growth which led to low demand. Nevertheless, Brexit will be likely to cause financial changes in UK and the oil prices will not be able to evade them. The oil and gas demand could be lower due to Brexit in the long run and this could slow down the Europe economy. The slowdown will also affect the oil and gas investment in North Sea and UK as well. Nevertheless, the investors hope that these effects will not affect the businesses. They rely on the negotiations between EU and UK in order to reach a common of a common good (Helyer 2015). Generally, Brexit will be able to affect the economic and legislative parts of UK and Europe as a whole. The fuel prices will be able to fluctuate according to the market changes and these are likely to affect the oil and gas prices in UK as well. Morgan Stanley noted in his publication that an additional increase of 5% strength of USD against other currencies will lead to the crude oil prices going down by 10%. These are great effects which are related to the Brexit decisions (Costley, Elliott & Gibbs 2010). Linear regression explains that the movement of USD is able to play a critical role on crude oil prices movement. Therefore the main effort in this incident is for the UK to strengthen the currency and control crude prices.
In addition, EU has key element of funding on energy sector for its member countries. Implementation of Brexit means that UK is going to neglect key investment chances which are critical for the key investigate to enhance its gas and oil production. The North Sea area is a key loser of the investment which would be likely to play critical role in enhancing oil and gas production. Capital mobility will be highly being affected since investors may shy from investing due to the restriction for the country due to the Brexit decision (Ziv et al. 2018b). This will affect the oil and gas sectors in the long term. Moreover, lack of proper investments which are supported by EU will help to reduce the competitiveness of the country. Regions such as UK North Sea require some of these project investments in order to achieve their target for market sale.
Nevertheless, even without the EU investments on the energy sector, different other countries have been able to thrive in the oil and gas industry (Ifelebuegu, Aidelojie & Acquah-Andoh 2017). This shows that even with Brexit, UK can still thrive in the market and ensure that they reach the milestone they need. This shows that the decision for Brexit does not a complete control of the industry but only plays a small factor. Norway is one of the key examples of the countries which have been able to have excellent trading on oil and gas while out of EU (Flick 2014). This shows that UK can as well thrive even having been effected the Brexit decision. From different perspective, the decision on Brexit will play a critical role in the oil and gas industry. The different factors are able to affect the operations of the oil and gas industry in UK in short-term, middle and long-term periods (Robson & McCartan 2016). Nevertheless, UK has to make some key leadership and strategic plans in order to control any adverse measures which may arise.
Different research methods will be applied in this topic to proof the extend at which the oil and gas sectors are being affected by the Brexit decision (Flick 2013). In addition, both qualitative research and quantitative research methods will be important to analyze the effects of Brexit (Bryman & Bell 2015). Secondary data will be collected to analyze the issue and determine the effect. Research data will be collected for the different periods and analyzed according to the trends they have experienced.
Figure 1: How oil changed with Brexit decision (Ifelebuegu, Aidelojie & Acquah-Andoh 2017)
According to Alex Mcguire of Money Morning, crude oils were able to reduce just a day after the passing of Brexit. The above graph is able to show the project of the prices which will be triggered by the Brexit move. The Brexit move seems to have great impact on the prices of oil and gas in UK (Ifelebuegu, Aidelojie & Acquah-Andoh 2017). The US on the other hand will be taking the advantage of high strength of their currency. Statistics show that oil prices vitality should be expected and future in UK due to the decision. In addition, about 45% of UK oil and gases export does to EU members. Exiting the EU will have its effects and increased trade barriers and bureaucratic process will impact the UK energy sector (Dilallo, 2016). Nevertheless even with the effects, there is still hope since Norway has been able to have its energy sector thriving even if the country is not a member of EU.
Figure 2: Oil prices changes in UK (Ziv et al. 2018a)
The oil prices have stabilized although the vitality is high. The increase of the oil prices shows that the Brexit decision is not playing a great role on reduction of the oil prices. In addition, the marketability of the oil products and energy in UK depends on the leadership of the country and maintaining of its international relations with other countries (Robson & McCartan, 2016). The above graph is able to show that there was a price increase which is positive thing for UK even after Brexit. In addition, the government has control of the trade barriers which may be experienced due to the Brexit decision. This shows that the decision will help to ensure that investors increase their investment in UK. Many of companies are EU owned in UK and this means that the decision would affect the oil industry and employment opportunities for the UK people. In addition, the labor market is a area which the country can control through its relations. Agreements and support on the EU companies in UK will ensure that the labor market is not widely affected by the Brexit.
References
Bryman, A, Bell, E. (2015) Business Research Methods. 4th ed. Oxford: Oxford University Press. P. 18-45, 128-155.
Costley, C.; Elliott, G., Gibbs, P. (2010) Doing Work Based Research: Approaches to enquiry for insider-researchers. London: Sage.
Dilallo, M., (June, 2016). Oil Prices and the Brexit: What Just Happened. Energy sector investors faced a crude awakening Friday in light of the U.K.’s vote to leave the EU. Retrieved from. https://www.fool.com/investing/2016/06/24/oil-prices-and-the-brexit-what-just-happened.aspx
Flick, U. (2013). The SAGE Handbook of Qualitative Data Analysis. London: Sage.
Flick, U. (2014). An Introduction to Qualitative Research. London: Sage.
Helyer, R. (ed) (2015), The Work-Based Learning Student Handbook. 2nd edition. London: Palgrave.
Ifelebuegu, A., Aidelojie, K., & Acquah-Andoh, E. (December 15, 2017). Brexit and Article 50 of the Treaty of the European Union: Implications for UK Energy Policy and Security. Energies, 10, 12, 2143.
JD, S. (July 06, 2016c). Energy Brexit: initial thoughts. Jd Supra, Chichester: Wiley 201-207.
JD, S. (June 28, 2016a). Brexit – What Now For Your Business. Jd Supra, Chichester: Wiley 200-206.
JD, S. (September 24, 2016b). Legal Brexit: Energy – Oil & Gas. Jd Supra, Chichester: Wiley 206-209.
McNiff, J. (2013) Action Research. London: Routledge.
Robson, C. & McCartan, K. (2016) Real World Research: A resource for users of social research methods in applied settings. Chichester: Wiley
Ziv, G., Watson, E., Young, D., Howard, D. C., Larcom, S. T., & Tanentzap, A. J. (January 15, 2018a). The potential impact of Brexit on the energy, water and food nexus in the UK: A fuzzy cognitive mapping approach. Applied Energy, 210, 487-498.
Ziv, Guy, Watson, Elizabeth, Young, Dylan, Howard, David C., Larcom, Shaun T., & Tanentzap, Andrew J. (2018b). The potential impact of Brexit on the energy, water and food nexus in the UK: a fuzzy cognitive mapping approach. Elsevier.
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