According to a recent study, should the UK opt for a hard Brexit and resort to WTO rules, the cost of trading oil and gas internationally could nearly double.
EY, who conducted the study for industry body Oil & Gas UK, explained that currently some “£73 billion worth of oil and gas related trade flows between the UK and the rest of the world”. Of this, £61 billion “is related to traded goods, which may be subject to tariffs”.
Currently, it costs around £600 million a year to trade these goods, since less than 2% of the value of the trade is subject to tariffs. However, EY explain: “Under a worst-case scenario where the UK reverts to WTO rules with the EU and the rest of the world, the likely cost of trade will almost double to around £1.1 billion per annum; assuming trading behaviours remain unchanged.” The extra cost would be split more or less evenly between imports and exports.
Should the UK manage to broker a more favourable deal, however, with “minimal tariffs” negotiated with the EU, and improved tariffs negotiated with the rest of the world, the overall cost of trading oil & gas would fall by £100 million.
The head of Oil and Gas UK, Deidre Michie, wrote to Prime Minister Theresa May to detail the findings, and to warn about what could be a devastating blow to the industry her group represents, should the UK opt for a hard Brexit.
“We are becoming a more globally competitive industry,” she said, “but we continue to be very sensitive to any additional burdens either in relation to cost, or restrictions on the movement of key personnel required for critical operations.”
Around 5% of the personnel employed the oil and gas industry are from EU countries (90% are UK workers and the remaining 5% are from countries outside the EU). While this is a small percentage, 70% of those EU workers hold “skilled” positions, and 50% hold managerial roles. Oil & Gas UK argued that complete prevention of freedom of movement of workers would leave us at a “competitive disadvantage”.
Michie expressed a desire to open and maintain a dialogue with the government as Brexit negotiations proceed.
“Oil & Gas UK would welcome discussions with Government officials to outline industry’s concerns and opportunities and help identify a path forward during Brexit negotiations.
“Our request of Government is that any change, whether domestic or European, is managed in a manner that minimises risk to the oil and gas industry and provides predictability and clarity wherever possible, through constructive dialogue and consultation.”