On the face of it, Brexit will not materially impact the energy market and, in particular, the efforts to weaken the linkage between fossil fuels and climate change. For, it has no immediate bearing on the fundamentals of demand and supply. The European demand for oil, gas and coal has plateaued, and production from the North Sea accounts for a relatively small share of global oil supplies. In addition, the commitments made at COP 21 in Paris to reduce greenhouse-gas emissions are nationally-determined and, therefore, should survive the resurgence of populism and the weakening of international institutions.
On deeper reflection, however, it is clear that it will have an impact. The hydrocarbons market is not driven solely by the physicals of supply and demand. It is also influenced by the non-fundamentals of geopolitics, speculative trade and exchange rate movements. The economic and financial uncertainties engendered by Brexit is the reason oil prices fell by around 5% in the immediate aftermath of the results. Furthermore, the trend of rising nationalism, xenophobia and de-globalisation that the vote reflects will drive a wedge between international efforts to manage the “Global Commons”.
Brexit could not have come at a worse time. The world is a risky place and it is getting riskier. In my view, no one quite knows what it is going on in China, but there is a risk that if its economy is in deeper trouble than generally thought, a China shock could trigger a global financial crisis. The Middle East is in free fall, with almost every country in the region facing a combination of financial, political, social and insurrectionist pressure; Vladimir Putin’s Russia has knocked the props from under the post-Cold War process of convergence; Brazil is in recession and Venezuela is on the brink of sovereign default.
The majority of the 53 countries of the African continent are caught in a downward spiral of poverty, commodity prices and corruption; Pakistan and Afghanistan are fragile states with unfinished agendas that could have ramifications beyond their borders. America is a deeply divided country. And, most worrying, there is the scourge of terrorism and the spectre of climate change.
So, at a time when 197 sovereign nations should be looking to create international rules for greater cooperation and the management of regressive transnational forces, David Cameron has triggered an avoidable decision that will move the needle in just the opposite direction.
Scotland has already made known it may call for another referendum to secede from Great Britain. Beppe Grillo, the former comedian and now leader of the Five Star Movement in Italy; Marine Le Pen, the president of the National Front party in France; and Geert Wilders, the founder of the Dutch Party for Freedom, have stuck their political colours on the masthead of “exit”. Turkey’s President Recep Tayyip Erdogan has publicly queried the sense of continuing to seek membership of the European Union. Putin has made no public statement, but he must be pleased to note the widening cracks in Western Europe. And perhaps most alarming, “Trumpism” has been given a shot in the arm.
There is talk that perhaps Brexit could be reversed; that perhaps the Parliamentarians who are overwhelmingly against the decision will caucus to hold another referendum, and that with the support of leaders like Angela Merkel, the “Remain” might still prevail. I do not know whether “Out” is indeed “Out”, but I suspect it will not be easy to overturn the views of the 17 million who voted to “Leave”. In all events, Cameron will go down in history as the Prime Minister whose resort to the instrument of direct democracy rather than the time-tested route of Parliamentary debate and vote exacerbated nationalist and racist tendencies, and thereby made it more difficult for leaders to negotiate the international agreements required to address cross-border global issues.
Of all the risks that the world faces, the two that cannot be tackled through exclusionary, self-directed nationalisms are global warming and terrorism. These two problems can only be addressed through international cooperation and through the medium of global institutions that have the support of the majority of nations. For, these problems recognise no borders and respect no conventions.
COP 21 did not commit to targets that would contain the rise in temperatures to below 2-degree Celsius, but it did get everyone to read from the same climate change script. There was a consensus that climate change posed an existential threat. But now with Brexit emboldening the populists, many of whom have publicly claimed that climate change is a hoax perpetrated on mankind by the scientific community, there is a risk that even this degree of cooperation might not be forthcoming.
Certainly, the financial, economic, social and political uncertainties triggered by Brexit will push global warming further down on individual governments’ policy agenda. It will also throw a monkey wrench into the efforts to coordinate international R&D in clean energy technology.
In similar vein, Brexit will impact the fight against cross-border terrorism and extremism. Hitherto, the US and Europe have been somewhat aligned on the measures required to tackle this threat and a stronger degree of consensus within the UN and other multilaterals has also been evident. But now that glue will weaken. Europe will be less willing to deploy forces to tackle the civil war in Syria and Libya, and in the fight against ISIS. The social (refugee), sectarian (Shia/Sunni) and political (Iran/Saudi) rivalries that beset the Middle East will intensify. And that, in turn, will exacerbate the underlying uncertainties associated with the physical supplies and speculative paper trade of oil.
In Britain, only 24% of the voters in the age group 18-24 and with a median life span of 60 years voted to “Leave”, as against 55% in the age group 50-plus and a median life span of around 20. Extrapolate this demographic globally and we have the crux of the crisis. The longest to live are being bequeathed a dirty, divided and volatile world.
The author is the chairman of Brookings India and senior fellow, Brookings Institution