Middle East wars no longer have the same power to disrupt energy supplies as they did in 1973 when Arab producers slapped an embargo on the West, generating a great inflation and recession.
Nevertheless, Israel’s audacious assault on Iran’s nuclear capability changes the market dynamics.
The dollar bounced on the foreign exchanges, reversing a backlash against Trump’s tariff and tax bedlam which has driven it down 8 per cent this year.
In times of trouble, fund managers flee for safety. Dollar assets, which offer a decent yield, come back into fashion. Gold, the ultimate safe haven, climbed to $3410 an ounce, continuing a remarkable run.
Nowadays, just one-fifth of Gulf energy production passes through the Strait of Hormuz with most output heading to Asia. Self-sufficiency of oil and liquefied natural gas (LNG) in the United States means that one of the world’s largest energy consumers is no longer directly impacted.
Nevertheless, with airports across the Middle East temporarily closed, shipping in danger and the US doubling down on security at its Middle East bases the threat to energy supplies is very real.
Audacious: Israel’s assault on Iran’s nuclear capability changes the market dynamics
The power of conflict to do harm to the international economy and domestic consumers was illustrated by Russia’s war on Ukraine. Britain is not immune. Supplies of LNG come from Qatar, which is bang in the middle of the war zone. We are also connected to Norway through the Langeled and other pipelines.
Oil market turmoil, which could possibly stretch out for weeks, illustrates why the Labour Government is wrong to have halted the issue of new North Sea drilling licences.
Yes, eventually wind power, solar and new nuclear may keep the lights burning and the data centres running. In the meantime, the nation’s energy security and the cost of power for homes and factories largely are at the mercy of geopolitics.
Keir Starmer’s Government has reason to be fearful. Instead of gesture politics on Israel-Gaza, it needs to focus on the economic consequences of war.
Surging energy prices are but the latest uncertainty as the fallout from trade disputes continues. UK public finances already are stretched because of a botched budget and spending review. The attacks on Iran can only make it worse.
Good health
There can be only one good outcome from the ding-dong battle for healthcare property group Assura. That is victory for UK rival Primary Health Properties (PHP).
It is not just narrow fiduciary duty that should be guiding Assura’s board, which has expressed preference for a KKR deal. Assura and PHP work with the NHS and patients, and should continue to do so.
Private equity involvement in social care in the UK has been disastrous. Blackstone’s ownership of Southern Cross ended in 2011 with the property sold, local authorities squeezed and families having to foot elevated bills for their loved ones.
Long shareholders, and especially BlackRock, which owns 10 per cent of both PHP and Assura, must see off KKR and back a merger that would protect stakeholders and keep the UK-health group listed in London.
Reeves claims she’s balancing the books – but sky-high bond yields tell a different story, says ALEX BRUMMER
The Chancellor’s spending review is being billed by Labour as a signal moment for a government that is haunted by banana skins of its own making.
It paints events as a moment for national renewal after 14 years of Tory chaos. It is nothing of the kind.
An analysis by the Institute for Fiscal Studies shows, despite the hype and hand-outs for favoured constituencies, Rachel Reeves barely moved the dial on capital investment spending.
All she did was maintain capital budgets, such as those for science and tech, at the same ‘high’ level of national income as Jeremy Hunt, the most recent Conservative Chancellor. IFS’s director Paul Johnson doesn’t pull his punches.
He says if anyone was ‘baffled’ by the Chancellor’s speech ‘so were we’. He goes on to suggest that it wasn’t a serious effort to provide useful information to anybody.
It also exposed Reeves’s ineptitude in framing arguments. There was no attempt to elevate and explain the spend, with focus on the white heat of technology, in terms of the nuclear, digital, and biotech revolution which will change Britain forever.
Pride before the fall: The Chancellor believes her fiscal rules, which require current spending to be matched by taxation, but allow borrowing for investment, have secured the UK’s budget
Instead, there was revived talk of ‘securonomics’ (buried since Labour has been in office) and misleading crowing about the state of the economy.
The boast that the UK was the fastest-growing economy in the G7 in the first quarter of the year was accurate. But as Reuters reported yesterday it was a case of ‘pride comes before a fall’.
Reeves and her team must have had early sight of the April growth data which showed output shrank by 0.3 per cent. A big factor was Trump’s tariff war, which caused car, steel and other exports to stumble.
One might have thought someone at the Treasury, or a special adviser, might gently have suggested the G7 comparison was a rhetorical trap which might have been avoided. The April data may be rogue because of Trump tariff uncertainty.
The Government hopes the trumpeted trade accord with the US will soon come to fruition and the UK’s upmarket car makers – Jaguar Land Rover, Bentley, and Rolls-Royce and the more eclectic Mini – will soon be back to normal business.
However, it will take time for the logistics and supply chain to be revised. The downturn also was partly the result of policy.
The end to concessions on stamp duty predictably produced a lull in home sales, despite the good househunting weather and the easing of the bank rate.
Tax does make a difference. It is not wise for a government making a big bet on the housing market to bypass it as a recovery tool by punishing homebuyers, especially younger people seeking the first rung on the ladder.
There is one G7 table which Rachel Reeves didn’t mention.
The Chancellor believes her fiscal rules, which require current spending to be matched by taxation but allow borrowing for investment, have secured the UK’s budget after the Liz Truss disorder.
Markets don’t believe it. The yield on Britain’s ten-year bond – or gilt – at 4.5 per cent in latest trading is the highest among the rich Western democracies.
Reeves makes the reasonable case that UK yields move in lockstep with those in New York.
There is, however, a serious flaw in the thinking. The Chancellor appears to believe that if the current budget is in balance, it is fine to borrow to invest.
That may be the case in Japan and Germany, where bond rates are 1.46 per cent and 2.53 per cent respectively, because their governments’ overall interest bill is, by UK standards, under control.
In Britain’s case, every pound that is borrowed for a new roundabout or bypass behind the Red Wall comes with interest at high rates.
So the extra borrowing for Labour’s £2 trillion or so of capital spend inflates the current budget via borrowing charges. In the autumn, the Treasury estimated the interest bill for 2025-26 at £126billion.
If gilts had a similar yield to the German bund there would be an extra £60billion or so for education, health or even an end to the freeze on income tax thresholds which punish hard work and enterprise.
Britain’s national accounts do not provide a free pass for capital projects.
