A UK-South Korea trade deal announced Monday (10 June) guarantees future exemption from oil tariffs following a spate of dry months without crude imports coming from Britain’s North Sea fields.
On Monday, the UK and South Korea agreed to adopt a free trade deal following the country’s exit from the European Union that will replicate an existing EU-South Korea deal exempting the country from a 3% import tariff on oil.
The deal, announced by British International Trade Secretary Liam Fox on Monday, follows four months which saw South Korean imports of UK crude fall to zero. South Korea is normally a large buyer of UK crude, but fears over the future status of the exemption after Brexit was causing buyers to back off.
The free trade deal covers large areas of the economy, but the expected effect from the inclusion of the oil import exemption shows the continuing effect of Brexit volatility on North Sea oil and gas trade.
The uncertainty around future trade arrangements comes as oil refining margins have been falling in Northwest Europe, according to an Oil Analytics analysis by Bloomberg published this week. Three out of seven refining configurations in the Northwest Europe are losing money in the face of weak demand for crude.
The volatility of having no crude imports for several months, and now an expected 4 million barrels this month, will add to pressure on European refineries.
In March the International Energy Agency warned in its medium-term oil market report that “a disorderly Brexit could lead to a reduction in the rate of growth of international trade and oil demand”.
A report commissioned by Oil & Gas UK in 2017 concluded that WTO tariffs taking effect in the event of a no-deal Brexit could add around £500 million to the cost of oil trade.
The UK-South Korea agreement, which is designed to emulate the UK’s current trading relationship with the country within the EU-South Korea agreement, may be used as a blueprint for other such deals in the coming months which would protect sectors like oil and gas from volatility ahead of the 31 October due date for a decision on whether to leave without a deal.
British exports to South Korea increased greatly after the EU deal was struck in 2011. Last year the UK sold about £6 billion worth of goods to the country, while it imported about £4 billion.
South Korea is the first Asian country to strike a post-Brexit free trade deal with the UK. “Providing continuity in our trading relationship will allow businesses in the UK and Korea to keep trading without any additional barriers, which will help us further increase trade in the years ahead,” Fox said.