Tuesday 10/03/26

Middle East war live: Oil slides and stocks rebound (Financial Times, George Russell, Alexandra White and Peter Wells) highlights market reaction to the president’s latest outbursts. Donald Trump says Iran war will end ‘very soon’ (Financial Times, Abigail Hauslohner, James Politi, Lauren Fedor and Jamie Smyth) shows Trump talking a good game without giving any specifics describing the invasion as a “little excursion” that succeeded “much faster than we thought”. As usual he gave mixed messages but then Iran’s Islamic Revolutionary Guard Corps said “Iran will determine the end of the war” which then prompted a presidential threat on Truth Social that Iran would be hit “TWENTY TIMES HARDER than they have been hit thus far” if Iran did anything to stop the oil going through the Strait of Hormuz. The rise of Mojtaba Khamenei (Financial Times, Najmeh Bozorgmehr and Andrew England) takes a look at Iran’s new leader, someone who’s pretty much been groomed for this job his whole life and surmises that his appointment signals more of the same from Iran rather than the departure protestors had been looking for. An Iran expert at the Crisis Group think-tank said that Motjaba Khamenei’s selection as the next leader “is a big middle finger to Trump…a sneering act of defiance meant to show that pressure, threats and isolation have changed nothing”. And when you consider that his father, mother, wife, sister, daughter and niece have all been killed by the US and Israel, he’s hardly going to be well-disposed to anything that America or Israel has to say. Trump’s Venezuela strategy has failed in Iran (Financial Times, Gideon Rachman) contends that the president’s strategy of go-in-create-chaos-move-out-again-leaving-a-mess-for-the-locals-to-sort-out has failed in Iran as Khamenei’s appointment has scuppered any say that Trump might have about Iran’s future leadership – at least while Khamenei is still alive. Trump has not got a ready-made successor like he had in Venezuela, waiting in the wings, and he himself pointed out that “Most of the people we had in mind are dead”. At the moment, it doesn’t look like there’s anyone at the “top” of the regime who could take on a Delcy Rodríguez role in Iran and make it another client state of the US. The path ahead is definitely not clear.

Why Iranian Regime Change Would Transform Global Energy Markets (Wall Street Journal, Georgi Kantchev and Rebecca Feng) looks at what could happen if there is a regime change to a more western-friendly one. This would result in a lifting of sanctions that would unlock access to one of the world’s biggest proven oil reserves. Despite existing restrictions, Iran already produces about 4% of the world’s oil, so a more amenable regime could have a significant impact on both Iran and world oil markets. For the moment, though, How high could oil prices go – and what might the global economic fallout be? (The Guardian, Richard Partington) suggests that prices could close in on $150 a barrel, breaching the $145.29 it reached in July 2008. Higher oil prices could result in interest rates going back up in order to address the inevitable inflation that would result because fuel prices for motorists will rise, household energy bills are likely to increase considerably and higher costs for businesses will filter down global supply chains and ultimately be passed onto the consumer. Fears of stagflation, where growth goes sideways and inflation increases, are spreading. G7 ‘stands ready’ to release emergency oil reserves (Financial Times, Demetri Sevastopulo, Paola Tamma, Henry Foy, Malcolm Moore and George Parker) shows that the G7’s finance ministers are clubbing together to make one of the biggest releases of strategic oil reserves in history in order to take the edge off the sudden energy price spike. This move is going to be co-ordinated with the International Energy Agency. Meanwhile, Europe and Asia battle for LNG as Iran war chokes supply (Financial Times, Verity Ratcliffe and Nassos Stylianou) shows that there’s real competition emerging for getting supplies of LNG as some shipments that were coming to Europe have changed course and headed to Asia instead! Taiwan, South Korea and Japan are among the countries that are most desperate to source LNG to make up for shortfalls.

Which leading economies will pay the biggest price for the Iran war? (Financial Times, Sam Fleming, Amy Borrett and Myles McCormick) shows that the Iran war is going to hit European and Asian economies harder than it will the US economy because the US has been a net exporter of natural gas since 2017 and of oil since 2020, so actually its energy sector is benefitting from the chaos although ordinary Americans will still be affected by higher petrol costs. European and Asian countries will be much more impacted by the higher prices because they are net importers. If oil and gas prices continue to stay higher for longer, they will make inflation climb, restrict household purchasing power and dent GDP growth in economies around the globe because consumers will spend less and businesses will invest less because they won’t have too much money knocking about.

As for the effect back home, UK inflation likely to rise because of Middle East war, says Rachel Reeves (The Guardian, Jessica Elgot, Jason Burke, Jillian Ambrose and Graeme Wearden) shows that Rachel Reeves is softening us up for some troubled times ahead and UK interest rate cuts unlikely this year amid Iran war – and a rise could be ahead (The Guardian, Phillip Inman) suggests that the Bank of England could potentially reverse its rate cutting cycle to head off higher inflation although at the moment the market expects rates to stay at 3.75% for the rest of the year. The oil price nightmare facing households (Daily Telegraph, Szu Ping Chan) shows that petrol prices have already climbed by almost 5p a litre since the start of the war and everyone is now expecting higher utility bills. Which parts of UK economy would be worst hit by oil crisis? (The Times) takes a look at the effects of higher-for-longer oil prices on a sector-by-sector basis. Retail supply chains will be badly affected as higher energy costs will be pushed onto customers as farmers will have to pay more for fertiliser (we import all of ours – and producing it is energy-intensive), supermarket chains with petrol forecourt operations – such as Sainsbury’s and Asda – will see their margins on petrol being squeezed and retailers across fashion, DIY and electronics will see operating costs rise because they’ll have to hold more inventory to ensure they’ve got enough stock. Airlines could have to ground thousands of aircraft (presumably because of flying restrictions – but also because demand is probably going to weaken) and their situation will be compounded by unpredictability in jet fuel pricing. Manufacturing is also going to be hit because of higher energy prices which will have to be passed on to the consumer while British landlords like British Land, Land Securities, Tritax Big Box and Segro are also likely to be adversely affected because their fortunes are particularly sensitive to interest rates, especially when they’re going up. Banks could also suffer because they are likely to see a rise in corporate and household defaults on loans, although they might benefit from higher interest rates because they can widen their net interest margin (the difference between the rates at which they take deposits and the rates that they use to lend). On the flipside, oil majors like Shell and BP will do well because of the higher oil prices and defence companies like BAE Systems will benefit from the current conflict (and beyond) because it serves as a reminder that countries need to make sure they don’t skimp on defence spending. What does the Gulf crisis mean for UK gas supplies? (The Times, Emily Gosden) takes a look at what the current state is of our gas supplies. At the moment, we get gas from three sources – domestic production mainly from the North Sea (about 43% of supplies, the lowest level since 1973 as old gas fields are exhausted), pipeline imports from Norway (about 43%) and imports of LNG (about 14%), which primarily comes from the US with a smidge from Qatar. Although we only get a tiny amount of our gas from Qatar, we’re still affected by Qatar shutting down production because countries who do rely more on it are now competing for other sources at the same time as we are! At the moment, it does not look like we’ll run out but the longer all this goes on for, the more likely that becomes. * SO WHAT? * The overarching conclusion here is that the impact of the war is going to depend heavily on two things – how long it goes on for (because it will make global inflation skyrocket) and what the regime looks like when Trump decides to take his warships elsewhere (Cuba looks like it’s next in line for the Trump treatment). From a purely UK point of view, the best case scenario would be the installation of a western-friendly regime, sanctions being lifted and calm restored to Iran and the entire region. At the moment, that’s not looking likely. If Khamenei remains in charge, defying Trump’s overtures, then we’ll just have more of the same and the war will drag on.

Meanwhile, Gulf desalination plants emerge as new flashpoint in Iran war (Financial Times, Ahmed Al Omran, Kenza Bryan, Simeon Kerr and Najmeh Bozorgmehr) shows that Gulf countries are getting increasingly concerned about the attacks on their critical national infrastructure as a water desalination plant in Bahrain was targeted and damaged by an Iranian drone. Iran’s foreign minister said that this was in response to an attack on one of its own desalination plants being attacked a day earlier. Gulf states are highly dependent on processing seawater for their growing populations, but some are much more exposed than others.

Elsewhere, China’s exports surge 21.8% in first 2 months of this year (Financial Times, Joe Leahy) shows that China’s exports shot up by 21.8% year-on-year in dollar terms in January, which is way more than the 7.1% that the market had been expecting. America’s efforts to put a dent in China’s trade surplus by imposing rafts of tariffs have clearly failed!

Anthropic sues Pentagon claiming supply chain risk label could cost billions in revenue (Financial Times, George Hammond, Joe Miller) shows that the AI company has gone ahead with suing the Pentagon and other federal agencies over the latter’s branding of the company as a “supply chain risk”. Anthropic says that this will knock billions of dollars off their revenues for this year. This designation usually applies to Chinese and Russian vendors and the company is asking the judge to block the Trump administration from implementing it. * SO WHAT? * The designation means that companies will have to cut Anthropic out of their supply chains on military contracts. Trump has also banned federal agencies from using Anthropic. Interestingly, a group of over 30 engineers and researchers from Google and OpenAI also supported Anthropic’s suit. The drama continues…

Then in Microsoft adds Anthropic AI models to its Copilot workplace tools (Financial Times, Rafe Rosner-Uddin) we see that Microsoft announced yesterday that it will be integrating Anthropic’s Cowork and Claude models into the new version of its “Copilot” virtual assistant. * SO WHAT? * This move will arguably loosen OpenAI’s grip on Mircosoft, although the latter remains a major shareholder in the former.

Meanwhile, SoftBank’s bet on OpenAI is starting to weigh (Financial Times, Lex) observes that SoftBank’s massive investment in OpenAI is now proving to be a drag on its finances as its portfolio is stuffed with illiquid (i.e. hard to sell easily) assets. Other companies with links to OpenAI – like Oracle and CoreWeave – are also doing badly, but SoftBank is now being increasingly seen as a leveraged bet on OpenAI – either on the upside or the downside…

In a quick scoot around some of today’s other interesting stories, Nick Clegg and Sheryl Sandberg join Josh Payne’s UK AI start-up (The Times, Helen Cahill) shows that the former Meta alumni have just joined the board of Nscale, the British developer of AI datacentres. Nscale is becoming one of Europe’s most valuable start-ups after having raised $2bn from big-name investors. * SO WHAT? * This sounds great – but the company’s going to have to deliver! Remember Britishvolt??

Then in Bank of England resignation scheme overwhelmed as 700 ask for pay out (Daily Telegraph, Tom Saunders) we see that the voluntary resignation (NB not redundancy scheme because the Bank will be able to replace roles that have been cut) scheme at the Bank of England has proved to be a hit among staff. The Bank has been looking at ways of cutting its headcount as part of an overhaul of the way it comes up with its economic forecasts. It has been trying to cut about 8% of its operating costs to aid the effort.

These two lucky dogs are getting surf and turf – and that reminded me of the Watson’s Daily classic video (I posted this a good few years ago now!) of the chef preparing sushi for his cats! The cat one is particularly mesmerising!