The UK is now six months away from its official departure from the European Union, and some unknown period of time away from finally agreeing the terms of departure – if, indeed, that ever happens. That means over the next half-year the entire population of the UK will become increasingly incapable of discussing any other topic and, from us to the rest of the world, apologies in advance for that.
And this month in Energy Risk we look at several points under the broad heading of Brexit risk. Brexit – and other developments as well, such as the growing trade war between the US and pretty much everyone else – are already causing trade routes to realign, and this is creating new demand and new risk for commodity trade financing.
The biggest stumbling block for the Brexit negotiations at present is the still-undetermined status of Northern Ireland and the inter-Irish border – and this is reflected in the energy market as well, with the cross-border energy market under a cloud of uncertainty, which is expanding to cover the UK-continental interconnector market as well.
The Brexit decision, not some uncontrollable crisis of international trade or finance, is now the biggest single near-term risk to the entire UK economy, according to the International Monetary Fund
And many brokers and traders in the energy sector – and elsewhere for that matter – aren’t hanging around to find out the worst – they’re pulling the pins on their worst-case plans and moving out of the UK to more dependable territory elsewhere in Europe.
No-one foresaw this situation: Remain supporters because they never dreamed that Brexit supporters would win; Leave supporters because they had been assured by their leaders that the process of extricating the UK from the EU would be rapid, straightforward and even enjoyable. Now the UK’s energy sector is going through a period of wrenching uncertainty – the Brexit decision, not some uncontrollable crisis of international trade or finance, is now the biggest single near-term risk to the entire UK economy, according to the International Monetary Fund. And, on a larger scale, the apparent US determination to start trade disputes with almost every other country in the world simultaneously isn’t doing much to help either.
The energy and commodity sectors are no stranger to political and particularly geopolitical risk, of course; but the shock with which other markets have reacted to the 2016 resurgence of political risk shows that they may have something to learn from the energy business. The obvious lesson, of course, is one that the energy business internalised long ago: that stability and continuity are not the natural state of political affairs, but a fragile and artificial condition that has to be maintained by the constant effort of people of good will. The natural state of political affairs is chaos.