When the British electorate decided to exit the European Union (EU), oil prices and the sterling rate fell precipitously and simultaneously. World markets were in turmoil driven by uncertainty over the long-term impact from the vote and the negotiations between the UK and the EU.

At that time, oil prices were down almost $4 (Dh14.7) a barrel, but the impact proved to be just a knee-jerk reaction and prices recovered and continues to be driven by other factors. It was clear that Brexit would not have a lasting impact on oil prices.

The UK’s oil demand in 2016 was close to 1.6 million barrels a day (mbd), which is only 1.7 per cent of global demand. Its oil production was just over 1 mbd and, therefore, considering the total size of the oil market, Brexit’s limit is limited.

On the eve of the Brexit vote, the dollar-pound exchange rate was $1.52 and now is $1.31. The UK is suffering higher import prices in sterling terms, and more so if European oil and gas sellers impose tariffs as most observers expect.

Nine months after the vote, the British government notified the EU of its intention to leave the EU and the negotiations expected to take up to two years. No one expects the negotiations to be anything but arduous. The UK may attempt to keep all the advantages of being in the EU while leaving it, and the EU would tend to be as difficult as can be to remove the notion from anybody’s mind that leaving it is easy.

The negotiations are now more than three months old and it is not really clear what the outcome would be with respect to the regional and the global energy markets. It is not clear whether the UK would continue to be a member of the Internal Energy Market (IEM) or it would revert to bilateral arrangements with relevant EU members.

Some analysts said that there would be economic and energy security disadvantages to leaving the IEM and that the UK would lose its influence on future energy policy. But this depends on how much the EU would accommodate the UK and on how much the UK would follow EU legislation.

The Renewable Energy Directive of the EU requires members to have at least 20 per cent of its total energy needs from renewable sources by 2020 and at least 10 per cent of their transport fuel to come from renewable sources. The UK is likely to meet these conditions though there are doubts about the renewable transport fuel target.

The UK is in favour of not having the limit of 20 per cent renewables and would like to allow itself and others to meet their carbon emission targets through nuclear energy, for instance.

The EU may ease negotiations with respect to energy issues due to the vast links of the UK energy system with many European countries. There are four gas pipelines between continental Europe and the UK with a capacity of about 60 billion cubic metres (bcm) a year. Some operate in both directions and are mutually advantageous.

The same goes for the three electricity interconnectors with France, Netherlands and the Republic of Ireland. However, the question of funding may affect planned and future gas and electricity connectors. The EU rules may make it unlawful to finance projects with a country that left its ranks.

The uncertainties on North Sea oil investments are abundant as some companies have pulled out while others stayed, encouraged by more generous terms offered especially as oil prices improved since the Brexit vote. But recent reports suggest that investment in North Sea oil would be restricted and costs would rise substantially if the Brexit negotiations fail. And this would hasten the decline of oil production in the UK sector.

This is especially important if restrictions are applied to the free movement of the workforce, which is international in nature and very specialised and difficult to replace.

It is interesting to follow developments given the news of the current-no progress in the negotiations. It is also interesting to see if the Labour Party would win the next parliamentary election and attempt to reverse the Brexit vote.

Since that vote, there were many doubters if the UK would actually leave, especially as it did materialise into a domino game where other countries also leave the Union.