Liu Guoqiang:Brexit And Its’ Possible Influence On World Economy And Crude Oil Price

Since June, 2016, the World Bulk Stock has again growing volatile. One important reason that triggers such floating prices is the approaching of United Kingdom’s EU (Europe Union) Referendum, as well the rapidly increasing rate of UK citizens’ supports on Brexit. What strikes the world most was the attacking death of a female senator who supports staying in EU. Afterwards, the fierce debate on Brexit finally cools down a little bit.

What could be the possible reasons behind the supporters of Brexit? Today under the situation of exceeded world capital, the risk between neighboring countries is growing big. One of the major reason which drives Brexit is the European immigration policy. The United Kingdom has always been strongly fight against the relative flexible immigration policy raised by EU. Under the background which the world economy growing in slower pace, UK wanted to prevent it’s own economic profits shared by other EU countries. Another reason which cause in today’s situation is the European financial policy. UK showed great concerned in terms of the laid out of the execution of EU’s financial reformation. Which at certain level reflect the increasing demand on financial revolution on the condition that the effect of currency inflation is decreasing.

Though Brexit could cope with certain stress mentioned above, it would still have fairly amount of costs, which might result in a further more frustrated situation. At the economic level, Brexit might cause negative burdens on both UK and EU. Today almost half of UK’s export comes from EU. From the perspective of investment, UK possess 10% of EU’s FDI (Foreign Direct Investment), whereas EU occupies about 40% of UK’s foreign international investment. At the time the economic bonding between two big entities breaks up, the interest rate of these commodities would raise. At the same time, the wall to non-tax trade grows higher, and those investing privileges disappear. In this case, the trading demands decreases, and the importing costs would increase. No matter to the UK or EU, Brexit would unavoidably result in economic burdens. On the other hand, Brexit will cause consequences at the political level. Since the unification of European countries, EU had become the second biggest economic entity right after the United Sates. However, Brexit would end up a decreasing influential in terms of Europe.

As for world market, UK’s EU Referendum is acting like a time bomb. The result would undoubtly effect the stabilization of Euro frame and the development of EU countries. Most importantly, if UK successfully walks away from EU, it would create a precedent for entire Europe, whereas such action is more unacceptable for Euro zone. Once such exit get started, there would be more countries walking out of the door of EU. After all today’s EU’s economy is a mess. The possible consequences caused by Brexit might not just the later recovery of Euro zone, it’s its’ survival problem.

So how would Brexit effect on the world crude oil market? For bulk stock like crude oil, its’ major purpose is consumption. The origin of consumption is the development of economy and industry. If the stabilization of Euro zone get interrupted, the economic development would be undoubtly affected. Or it could even go backwards and walk into further depression. As for crude oil market, the consumption of European countries will drastically decreases. The crude oil price will face dramatically falling. If the EU Referendum eventually decides to not to Brexit, it would be a great news for a better development of European economy. And the crude oil price will increases as well.


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