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Could this tiny British outpost upset the whole Brexit vote?

Sean Gallup | Getty Images

A new special club is forming, as a tiny part of the U.K on the very end of the Iberian Peninsula has engaged in talks with the government of Scotland in the hope that a post-Brexit U.K. can be "re-defined."

Considered a distant rock on the southern tip of Spain, Gibraltar is a sometimes overlooked outpost for many Brits. But, the impact of last month's vote to leave the European Union has been problematic for the territory – mainly due to its neighbors.

Gibraltar voted overwhelmingly in favor of the U.K. remaining a part of the EU, with 96 percent of citizens backing the status quo. This rendered the territory the U.K.'s most pro-EU district.

Gibraltar's Chief Minister, Fabian Picardo, has made his views on Brexit explicit, writing in Politico before the vote that, "Modern Gibraltar is locked in a Europe of free services and free movement of persons." He added, "Losing the ability to freely provide services to the single market of 520 million people would be an existential threat in economic terms."

Spain has long held claim to Gibraltar, though the British took over the area in 1704. Picardo has insisted that the territory – regardless of whether the U.K. remains part of the EU – would not submit to Spanish territorial claims as a result of the vote.



Undoing Brexit

The government of Gibraltar confirmed to the BBC in late June that Picardo had discussed the possibility of remaining in the EU with Nicola Sturgeon, Scottish First Minister and leader of the pro-independence Scottish National Party. The Scottish electorate also voted to remain in the EU.

The Gibraltarian government's press office told CNBC via e-mail on Monday that, "It may be possible for the U.K. to be re-defined for EU purposes with those parts that want to stay in doing so."

In securing an exemption from Brexit, the government of Gibraltar cites the "Greenland precedent" as a potential option. Greenland gained autonomy from Denmark in 1979, ultimately withdrawing from the EU in 1985 following a referendum. "The reality is that any option is possible provided that the political will is there," asserts the Gibraltarian government to CNBC.

Sturgeon has, post-Brexit, claimed that Scotland ought to have a second referendum on independence in the coming years.

Gibraltar does not quite share this nationalistic sentiment, as Dr. Chris Grocott, a lecturer in economic history at the University of Leicester, says.

"Traditionally, the political line in Gibraltar is that it is best to try and get on as well as possible with the U.K.," he told CNBC over the phone.

He adds, "Ten years ago, the idea of independence was niche. Now, there are a significant number of people supporting the idea, though ultimately, it's viewed as a last resort."

Nonetheless, Gibraltarians have long stressed their commitment to the U.K.: Two referendums, in 1967 and 2002, unanimously backed remaining British.

Gibraltar's role for the U.K. is more than merely symbolic, hence its strategically important military base. Financial services and online gaming companies are clustered in the territory. Importantly, the British government has an obligation to serve the interests of Gibraltar.

Thomas Lake, Political Risk Analyst at BMI Research, poured cold water on the idea of realigning the U.K.'s constituent parts around the Brexit vote. Lake said in an e-mail to CNBC that attempts to negotiate different statues for different regions would be "Fraught with great complexity in their implementation as to render them almost impossible."

He also suggests that any attempt made by the U.K. to gain concessions for Gibraltar as part of its exit package is, "Likely to be blocked by Spain unless significant concessions are made by Britain."

Southern Spain's saving grace?

Following Britain's vote to leave the EU, Spain's acting foreign minister Jose Manuel Garcia-Margallo said that, "The Spanish flag on the rock is much closer than before." Though he did add, "No-one should think that I am celebrating this situation."

Any Spanish posturing for Gibraltar, capitalizing on post-Brexit uncertainty, can be explained by the country's own equally uncertain politics. Spain is currently without a permanent government following an inconclusive election last month. Lake suggests that, "Any opportunity to stoke Spanish nationalism through the country's claim to Gibraltar could see public support for a far right government increase."

Though Gibraltar's contribution to the Spanish economy is minuscule – less than 0.1 percent of GDP in 2013, according to BMI Research – the territory's contribution to its bordering Spanish county of Campo de Gibraltar is significant. BMI Research say that in 2013, Gibraltar accounted for 19.5 percent of the region's total economic output, directly or indirectly supporting over 25,000 jobs – 24 percent of the total figure. The wider region of Andalucia in which the territory sits is one of the most economically underdeveloped in Spain.

Gibraltar's economy is likely to need a boost should it lose access to the single market. According to Dr. Grocott, during the seventies and early eighties when the territory's border with Spain was closed, the British government forked out £14 million to prop up the Gibraltarian economy.

Lake speculates on the potential consequences for Gibraltar's economy in a post-EU landscape, saying, "The big question remains whether the Spanish government would be willing to prevent the 6,000 Spaniards commuting daily to Gibraltar to work in order to pursue a hard-line position on Spanish sovereignty."

Much of the workforce in Gibraltar's shipping and tourism industries come from Spain. At the very least, Dr. Grocott says that "we can expect disruption of the frontier."

Clarification: This article has been updated from its first publication following clarification from the government of Gibraltar.