Tomorrow it is widely expected that Boris Johnson will be unveiled as the new prime minister of the UK. Such an event will considerably increase the likelihood of a no-deal Brexit, and will therefore open new economic doors for the Gulf countries, as the UK looks to develop its extra-EU relations.
The first point to note is that Johnson has committed to get the UK out of the EU by the October 31 deadline, even if that means leaving the EU without a deal. This is in contrast to his soon-to-be predecessor Theresa May, who ruled out a no-deal Brexit; and his main competitor Jeremy Hunt, who is willing to tolerate no deal, but is not at all enthusiastic about it. Both May and Hunt, it should be noted, campaigned in favor of remaining in the EU during the referendum campaign three years ago, in contrast to Johnson, who has been a vocal Brexiteer throughout the process.
However, events are unlikely to unfold smoothly whether Johnson demands either a better deal than the one May negotiated or goes for no deal. The Kafkaesque parliamentary voting that took place under May’s government revealed that a majority of MPs strongly oppose a no-deal Brexit, including a large number of Conservatives. As a result, if Johnson steers the UK toward no-deal Brexit, he might face a vote of no confidence in parliament. The most likely outcome of such a vote is a narrow failure for the government, which will force Johnson to call a general election.
The outcome of a general election is uncertain, but one thing that is almost certain is that the general election will feature each party taking a position over Brexit. It is possible that a majority could coalesce around no deal between the Conservative Party and the Brexit Party, or that parties which favor remaining in the EU or calling for a new referendum could instead gain a majority. However, some believe that the most likely outcome is another hung parliament with no sizeable majority for either leave or remain, which will in turn precipitate deadlock or another general election.
If the UK continues to be paralyzed by the prevailing system and the polarization of the electorate on Brexit, then there will be a no deal by default, unless the EU grants the UK another extension, which is unlikely given the public statements of top European politicians, including the new President of the European Commission Ursula von der Leyen. While many of the EU’s leaders were initially shocked by the June 2016 result and urged Brits to reconsider, some EU leaders have since hardened their positions as negotiations have dragged on.
In particular, central figures such as French President Emmanuel Macron think that the solution to the EU’s problems lies in greater centralization, especially fiscal harmonization; and they realize that the UK will likely disrupt such plans, as evidenced by the Brexit Party’s representatives in the European Parliament turning their back on the European national anthem at the start of July. Therefore, for some in Europe as well as the UK, a rapid and decisive divorce is in order.
For the Gulf countries, Brexit represents an opportunity. In many respects, from the UK’s perspective, the Gulf countries are ideal economic partners: they export goods and services that the UK needs (energy, petrochemicals, metals, warm weather tourism); and they import goods and services that the UK produces (machines, vehicles, pharmaceuticals, financial services). Moreover, a recent survey of 250 Gulf investors by the consultancy Cluttons revealed that 22 percent of Gulf investors consider the UK their favorite destination, underlying the economic ties between London and the Gulf. Today, Gulf countries rank among some of the most open in the world according to Heritage’s Index of Economic Freedom, and this is consistent with the British belief in the importance of trade to prosperity.
Moreover, Gulf citizens have a very low propensity to migrate, including to the UK: in 2015, there were about 75,000 people born in the Gulf living in the UK, equal to about 0.3% of the number of GCC citizens living in the Gulf, and about 0.9% of the total number of foreign-born people living in the UK. Inward migration was a central issue for many UK citizens who voted in favor of Brexit, and so the UK government will likely welcome the opportunity to deepen ties with countries that wish to focus their relationship on the movement of goods and services, rather than on the permanent relocation of their citizens.
From the Gulf side, access to the UK market, which is one of the top five economies in the world, via a new free trade agreement after no-deal Brexit is an attractive opportunity for Gulf states. For example, the UK is a large importer of aluminum, which is a key Gulf export, but the Gulf countries’ ability to compete historically has been impeded by the European Common Custom Tariff. If, as is expected, the UK seeks to build an economic bloc around the Commonwealth – a possibility supported by Australia suggesting it would fast track a trade deal with the UK in the case of no-deal Brexit – and the Gulf countries have an opportunity to be part of it, then the economic benefits will become self-apparent. This optimism must be tempered by the uncertainty surrounding the impact of a no-deal exit on the UK economy, and the time trade negotiations typically take. Moreover, part of the UK economy’s attractiveness rests in the access it grants to the European Single Market, which will certainly be interrupted, and possibly eliminated permanently. Nevertheless, the advantages the UK economy offers to the Gulf remain considerable.
Naturally, any analysis must consider that no-deal Brexit remains only one possibility, and that the next three months of British politics will likely yield many surprises. Nevertheless, the Gulf countries must position themselves to build on their already excellent relations with the UK, as Britain begins to confront the possibility of life without the EU.