PARIS – This morning, Europeans woke up in a fundamentally altered world. The “Leave” campaign’s high voter turnout during the United Kingdom’s referendum on European Union membership gave them roughly 52% of the vote, making the U.K. the first country to rescind its European Union membership since the E.U.’s predecessor, the European Steel and Coal community, was established in 1951. David Cameron promptly announced his resignation, effective in October.
While the process of disentangling itself from the E.U. will be time-consuming and the official legal exercise for withdrawing has not yet been triggered, the ramifications of the decision are already being felt domestically in the U.K. and throughout the world.
Financial ramifications of Brexit: a tumble in real estate, a damaged financial sector
One of the most important dimensions of Britain’s withdrawal from the E.U. is its effect on international finance and investment. London is the world’s center of international finance, conducting an average of 18.5 trillion USD worth of global currency transactions per day, as well as being the world’s center for lending, issuance of bonds, derivatives markets, and securities. The effects of British withdrawal from the E.U. on the financial services industry is unclear, but early signs are ominous. The pound tumbled this morning to its lowest point in 35 years, and the U.K.’s top 5 banks suffered an average share price fall of 21%.
The Middle East is implicated in the United Kingdom’s financial services sector but is also tied to its real estate sector. Wealthy Middle Eastern investors have snatched up real estate in London in hopes that continued inflation of housing prices will reap dividends. These investments have already been impacted by a drop in the value of commercial real estate due to Brexit uncertainty this year.
The United Kingdom sends $18 billion worth of exports to the Middle East and North Africa (MENA) region. U.K-Saudi Arabia relations are particularly close, with $17.5 billion worth of business transactions conducted between British and Saudi companies. Saudi Arabia was estimated in 2013 to have invested 62 billion pounds in the United Kingdom. The U.K. also has close relations with other Gulf states.
Iran and the U.K. had previously enjoyed extensive trade cooperation and mutual investment, but this has been reduced since nuclear sanctions began in 2012. The U.K. has expressed interest in renewed economic relations with Iran, who have been trying to attract foreign investment. The U.K. has also possessed enormous amounts of frozen Iranian assets since nuclear sanctions began.
Still, the Middle East is not expected to feel the economic effects of Brexit as severely as the U.K. and E.U. countries will.
Has the U.K. moved closer to an isolationist foreign policy?
The United Kingdom works closely with the MENA region on counter-terrorism, human aid, and defense, and is a key geopolitical player in the region. As a postcolonial power it has remained militarily involved in the region, participating in the invasion of Iraq in 2003 and seeking to project force in many MENA countries.
There are ties between trade and the political sphere as well. The U.K. will have to renegotiate trade deals with Morocco, Egypt, Algeria, Tunisia and Israel that were previously undertaken by the E.U., according to the Chatham House, an international think tank.
How Brexit will impact the geopolitics of the MENA region is difficult to foresee, but extensive reconfigurations of trade deals and alliances will most likely take place.