The pound tumbling to record lows since Britain voted for a Brexit in June last year is starting to hurt British exporters servicing Saudi Arabia’s oil industry.
The boss of United Corporation, a UK supplier of high-tech equipment to massive Middle Eastern oil and petrochemical companies, told the Financial Times that he is concerned about the cost of restocking his supply of materials with a weak pound.
“Eight out of 10 suppliers have sent us letters telling us that they will have to increase prices thanks to Brexit because of cost pressures. We still have stock that we bought before the fall in sterling so it is not presently a problem,” said Karim Fatehi, whose company supplies critical components, such as filters and air compressors to massive Gulf producers such as Kuwait Oil Company, Qatar Petroleum, and Saudi Aramco.
But he told the FT that he has had to stop expanding the business because the company does not have “the capacity to take on any new clients,” and uncertainty over what Brexit means for Britain is putting the “whole nation including me are in the dark.”
United Corporation said that it buys 85% of its supply from abroad – mainly from Europe and the US – and a weak pound against the euro or US dollar would narrow its profit margins.
Here is what the pound versus the US dollar looks like:
And here is the pound versus the euro:
If UK businesses are unable to fulfill Saudi Arabian demand then oil producers will have to change suppliers and find others elsewhere - which takes time and slows down production.
On January 17, Prime Minister Theresa May outlined her negotiating stance for Brexit, which included a rejection of the single market and an end to the free movement of people, resulting in a so-called "hard Brexit."
Nothing has changed yet because she still needs to trigger Article 50 to start the official two-year negotiation period for Britain leaving the EU. However, it does mean that there will be several years of uncertainty, which hurts businesses.
"Our clients like coming to the UK as a business hub. They can transact their financial business easily and they have a great city at their disposal. I think this country still has the edge," said Fatehi. "[But] I want to see a soft Brexit, not a hard Brexit, one that burns all of the bridges behind us."