‘They are ringing their bells now, they will be wringing their hands soon,” said another British prime minister, Robert Walpole, as war broke out in Europe. The leaders of the Brexit campaign now have to devise real economic policies to replace fantasy slogans. But the vote has profound long-term consequences for energy markets and geopolitics, beyond a single mid-size country now slipping down the global ranking.
The immediate effects are obvious enough. The pound has crashed by 10 per cent, and while oil prices dropped by 5 per cent on the news, that still leaves British people paying more for energy. The wider European economy will be affected too; no longer a nexus of global demand growth, it still consumes 13 per cent of world oil. Stagnation here, even if it does not spill over globally, will extend this period of low prices. Walpole lamented the War of Jenkins’ Ear, where Britain lost ground to Spain; the whole of Europe will regret the War of Johnson’s Ego.
During the two years of exit negotiations, uncertainty means more volatility in currencies, oil and gas prices and stock markets, and less investment. As shortages loom, the UK’s ability to attract the big money it needs to build new electricity generation will be damaged. The ascendancy of climate-change deniers, who overlap closely with the anti-Europeans, will put an axe to the country’s renewable energy plans.
Britain’s relations with the Muslim world will be affected by the xenophobic and often overtly racist tone of much of the Brexit campaign. Scotland, which lays claim to most of the UK’s remaining North Sea oil, not to mention much of its wind power, will probably vote again on independence.
As British – or English – production dwindles, dependence on the Middle East and North Africa for oil and gas will grow. In the first oil crisis in 1974, in the apparently golden pre-EU age, another Conservative government, under the disastrous premiership of Ted Heath, was forced to put the country on to a three-day week to save electricity.
But the most serious consequences come if other countries follow the UK’s lead. After decades when emerging markets were supposed to be the danger to the global economy, developed countries are showing they can do political risk too.
Populism is always and everywhere a ruinous phenomenon, but a series of leaders across the US and Europe are promising to rip up trade deals, ban the migrants who give their societies economic and social dynamism, and retreat into isolationism. After the infamous Smoot-Hawley tariffs passed in the US in 1930, a stock market slump deepened into the Great Depression and oil prices fell to their all-time low, averaging US$10.11 per barrel in today’s terms. Another depression may have been avoided in 2008-9, but a great stagnation across Europe has just become more likely.
So energy producers will more and more look to the growing markets of the east, and perhaps Africa, despite their problems. Asia’s global predominance has long been inevitable, but dismal political leadership across the US and Europe is accelerating it. As the mood in the west turns against globalisation, free trade, international institutions and the rule of law, other models may come to the fore.
Energy markets have coped well with disruptions over the past few years, so much so that it has become easy to be complacent. The EU has worked hard to join up its eastern members’ gas and electricity grids, partly as defence against Russian revanchism.
But the geopolitical style of China and Vladimir Putin’s Russia has long been in the Trump mould – mercantilist bilateral deals that blur politics and economics, breeding exclusion of others, trade wars and the use of energy as a weapon. The Brexiteers have chosen their path but others too will reap the consequences. In today’s world, independence is a myth: there is only interdependence or dependence.
Robin Mills is the chief executive of Qamar Energy and the author of The Myth of the Oil Crisis.
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