As many come to terms with the result of the June 23, 2016, British referendum to leave the European Union, many are considering whether there may be a ripple effect as far away as the Middle East.

With clients approaching Hamish Walton, Head of Corporate, Middle East at global law firm King & Wood Mallesons, for advice on repercussions of the decision, the lawyer explains possible effects for people in this region:

As the shockwaves from the Brexit vote continue to reverberate globally, the question I am being asked most as a corporate lawyer in Dubai is: “will it negatively affect transactions in the Middle East?”

What needs to be remembered is the result of the referendum is not legally binding in its own right. Most commentators believe an act of the UK parliament will be required, and in any event the process dictates at least two years must elapse.

However the question about what happens when Brexit finally occurs still needs to be considered and answered, as the event will have a wide-ranging impact.

So the effect directly on the Middle East? The short answer is, beyond a general downturn in confidence, which might impact on transactions - not much.

The Middle East is insulated in many respects from the impact of the Brexit vote. Most of the countries in the region have pegged their currencies to the US dollar, thereby avoiding the wild currency movements we have seen in the British pound in recent weeks.

A significant proportion of the region’s revenue is generated from hydrocarbons traded under US dollar denominated contracts, with prices set on international markets. While there is substantial trade between the GCC region and the United Kingdom, aside from the impact of currency movements, it is difficult to see how this could be affected. UK-owned SMEs operating in the GCC could in fact receive uplift if they are being paid by Middle East businesses in dollars. The inherent non-currency related viability and cost of trade should be unaffected since the GCC region doesn’t have a free trade agreement with the EU.

The effects will be subtler, and mostly driven by the fall in the pound against the dollar, which could last through the medium term.

London real estate

Investors in the Gulf have always had a love affair with London residential real estate. The fact is real estate has just got a lot cheaper with the depreciation in the pound versus the dollar. Of course rental returns will be down in dollar terms, but for many Gulf investors, that is a secondary consideration where residential real estate is concerned. Investors may however be more wary about investing in commercial real estate, until London’s position as the financial hub of Europe is clarified.

UK businesses doing business in the Gulf

GCC revenues should increase in sterling terms given the currency differential. Products priced in British pounds have suddenly become a lot cheaper and more competitive in the GCC marketplace. However that will be little comfort for expatriates being paid in pounds. Those expats, living in what is effectively a US dollar economy, have just seen their incomes slashed by around 10 per cent.

Employment opportunities in the GCC

Expect to see swathes of professionals applying for jobs across the Middle East. Tax-free dollar salaries have suddenly become much more attractive. With the future of London as a major financial centre in doubt, with the opening up of Saudi Arabia, which will be a boon for lawyers, investment bankers and consultants generally, Expo 2020 approaching in Dubai and the World Cup in Qatar, the need for skilled labour should ensure plenty of opportunities in the region. This influx of new talent from the UK could also mean we see an increase in the number of new SMEs launching in the region.

The expat returning home to the UK

The UK expat will suddenly find this decision much harder to make. Hiring in the UK will slow down until the impact of Brexit is better known, and the UK pound-denominated salary suddenly looks far less attractive, particularly if there is a dollar-denominated housing loan still to be serviced in the Middle East.

The future of London as a headquarters for GCC businesses

While there isn’t a substantial number of GCC businesses with a European headquarters in London, there are some - generally financial services operations and private equity houses. These businesses may not be able to take advantage of ‘passporting’ across Europe, dependent on what kind of deal the UK negotiates with the EU, and may be weighing up the future of their London hubs.

Of the few GCC businesses seeking a listing outside of the Middle East, we see little change for the time being. While there might be some delays in the decision making process as a result of the uncertainties, the London Stock Exchange, a favourite for GCC businesses, remains attractive given the strong cultural ties between the UK and the GCC and the lighter touch regulation compared with the US, with its onerous anti-corruption and sanctions laws and Sarbanes-Oxley requirements.

Will there be a change in the choice of English law governing many major transactions? Will transactions and contracts be affected?

We think it is unlikely. English law is the preferred choice of law for transactions in this region and clients are familiar and comfortable with it. The choice of law by lawyers and their clients isn’t influenced by whether the UK is a part of the EU in the vast majority of cases.  Furthermore, most contracts in this region governed by English law avoid the English courts and choose international arbitration as the dispute resolution mechanism.

We also think it is unlikely existing contracts will be affected, unless they contain a specific clause describing what is to happen in the event Brexit occurs, or movements in the pound against the dollar have an impact.

From the far off standpoint of the Middle East, it will be fascinating to watch the politics associated with Brexit, and from the perspective of a lawyer, the Brexit negotiations and implementation and how they will affect the legal and economic landscape in Europe. However we don’t expect to see a major impact out here.