Friday 13/03/26

Iran’s new supreme leader vows to keep Strait of Hormuz closed (Financial Times, Najmeh Bozorgmehr) shows that the new supreme leader isn’t playing ball with the US and remains steadfast in blocking the Strait of Hormuz. In his first public comments since his appointment, he said in a written statement that Iran would continue to attack US military bases in the region and potentially broaden the conflict. Meanwhile, Middle East war live: US to ease Russian oil sanctions as energy prices soar (Financial Times, William Langley, Kieran Cash and Peter Wells) shows that the US is going to let countries buy Russian oil in order to stop energy prices getting out of control but prices still held over $100 a barrel.

In terms of consequences, How the Iran war will change global business (Financial Times, the editorial board) shows that although there is the belief that business always finds a way through catastrophes and that short-term responses can worsen instability longer-term, I feel that we reacted to the supply chain shocks of Covid and then Russia’s invasion of Ukraine but then perhaps slid back into cosier habits again. The way we do business may have to change permanently from the “just-in-time” approach to a “just-in-case” mindset where companies will have to keep inventory in order to be able to absorb any supply shocks, something that I mentioned yesterday when I highlighted the rising demand for warehousing. Businesses will also have to be more proactive about where they source their power. As the saying goes, “necessity is the mother of invention”, so being pushed this way could actually lead to some positive outcomes. Given the increasingly unstable nature of the geopolitical landscape these days, I think that permanent changes have to be made. For now, though, the disruption of the flow of crude oil is resulting in the increase in the price of fuel, the cost of sulphur and sulphuric acid as well as restricting the supply of helium. All of this is already causing panic in the agribusiness industry because the supply of ingredients for fertiliser is getting strangled and the semiconductor industry is getting nervous about the supply of its raw materials that include sulphuric acid, helium and bromine. Middle East war creating ‘largest supply disruption in the history of oil markets’ (The Guardian, Jillian Ambrose and Callum Jones) hammers home the gravity of the current situation while Middle East conflict disrupts events and travel companies (Financial Times, Daniel Thomas and Stephanie Stacey) highlights disruption in the events industry (Informa has postponed almost a dozen of its business conferences scheduled in the Middle East so far) and the travel industry. On The Beach has suspended full-year guidance due to the uncertain nature of the impact on its business but other companies including Jet2, easyJet and Tui have also seen their share prices take a beating. How is the airline industry weathering the storm over the Gulf? (The Times, Guy Taylor) shows that the Big Four US carriers – American Airlines, United, Southwest and Delta – are now suffering because they don’t hedge the price of jet fuel, which is usually one of the biggest costs for airlines. Jet fuel prices have sky-rocketed (up by 58.4% last week alone!). European airlines are most exposed to the disruption on the Strait of

Hormuz because 25-30% of their jet fuel comes from the Gulf but they are less exposed to higher fuel costs than counterparts in the US and China because they do hedge fuel costs. Hedging helps in the short term to smooth out price spikes, but if the war drags on the protection will cease to be effective. Airlines are suffering a double-whammy because not only are the fuel costs higher – the airspace restrictions mean that the routes are longer, which means that they have to use more of it! Maersk halts operations as new front in Iran war opens up (The Times, Samer Al-Atrush) highlights another obvious casualty of the war – shipping. Maersk has now suspended all operations at the Port of Salalah in Oman after drones attacked storage facilities there. This port is one of the Middle East’s key shipping and logistics hubs.

On the flipside, Russia rakes in $150mn a day in extra revenue from surging oil prices (Financial Times, Anastasia Stognei, Rachel Millard, Krishn Kaushik and Andres Schipani) highlights just how much Russia is benefitting from the war as the closure of the Strait of Hormuz has pushed up oil demand from China and India. Russian oil is now trading at about $20-$30 a barrel above its average for the last three months and every $10 increase in the average monthly price per barrel means an additional $2.8bn in revenues for Russian oil exporters.

Then in US targets UK, EU and Canada in new round of tariff probes (Financial Times, Aime Williams) we see that America is now turning on its allies and conducting investigations that will give them any excuse to impose new tariffs, this time under the auspices of Section 301 of the Trade Act of 1974. These investigations are in addition to the ones I highlighted yesterday. * SO WHAT? * By using these laws, Trump could potentially restore tariffs to the level he’d put them at before the Supreme Court decision that deemed his previous basis for tariffs as illegal. I guess the administration has to do this because if they just folded, the government would look weak. You do wonder who’s footing the bill for all this nit-picking. Presumably this is all being done at the taxpayers’ expense? Or maybe they are using all that “free advice” they extracted from the big law firms when Trump embarked on his vendetta against anyone who had wronged him in the past…

Elsewhere, Canada launches tens of billions in Arctic military investment (Financial Times, Ilya Gridneff) shows that Canada’s PM Mark Carney announced plans yesterday to invest most of a $25.7bn fund earmarked for defence spending into “forward operating bases” in the Arctic communities of Yellowknife, Inuvik and Iqaluit to assist Canadian armed forces to defend the Arctic “without the help of allies”. * SO WHAT? * Given Trump’s periodic rantings, interest from Russia and China and the ongoing need for new trading routes, this sounds like a good idea. Weirdly, Trump’s erratic and aggressive behaviour seems to be prompting governments and organisations around the world to do things that they should have done before.

Rivian’s Make-or-Break Car Arrives at the Worst Possible Moment for EVs (Wall Street Journal, Patrick George) shows that Rivian is on the verge of launching its R2 model (no, it’s nothing to do with Star Wars 🤣) – and there’s a lot riding on it. It’s supposed to be the more budget-friendly follow-up to the R1. Lucid to Launch 3 New Models, Robotaxi Amid Midsize-Vehicle Expansion (Wall Street Journal, Katherine Hamilton) shows that Lucid is also launching some new EVs. * SO WHAT? * The timing isn’t ideal when you think that consumers are worried about affordability and the fact that Trump took away the tax credits that made buying an EV make more financial sense – all against the backdrop of a general downturn in EV sales. Still, it takes years to take a car from the design stage to production and I guess that they couldn’t have foreseen what’s happening now! After all, three or four years ago, most people were assuming that EV battery prices would keep falling and that EV sales would keep rising – but the reality is now rather different!

In Petrol price spike won’t help us sell electric vehicles, say carmakers (Daily Telegraph, Christopher Jasper) we see EV makers pour cold water on the idea that sky-high oil prices will somehow push more people to buy EVs. The SMMT says that the problem is that although oil prices are rising, so are electricity prices! This means that the price of charging will go up – and then there’s the pay-per-mile tax that the government’s looking to charge EV drivers, the prospect of rising inflation and the impact this will have on the cost of living. In the end consumers will not be convinced that electrification is the way forward. * SO WHAT? * The original Zero Emission Vehicles (ZEV) mandate, which was the plan to help drivers make the transition from petrol to EVs was put together years ago, got its projections spectacularly wrong. Batteries now cost 30% more than they had assumed while charging costs are an eye-watering 120% more. The government has to take action if it really wants people to make the leap.

In a quick scoot around some of today’s other interesting stories, Federal Reserve to loosen capital requirements for big US banks (Financial Times, Martin Arnold) shows that the Fed is minded to loosen restrictions on Wall Street banks to encourage lending and claw back market share from private credit groups. * SO WHAT? * Although I understand the thinking behind this move, the timing seems somewhat questionable at the moment when private credit groups are taking a pounding and interest rates look like they could at least stay the same – or even go up – thereby increasing the likelihood of an upturn in loans going bad. It sounds like a risky move to me and could surely benefit from being postponed for a few months at least. Investors slash Fed rate-cut bets as Iran war sends petrol prices surging (Financial Times, Kate Duguid and Ian Smith) shows that the market is currently changing direction on the prospects for interest rates. A Fed rate cut isn’t expected until summer next year now – a major contrast to the expectation a few weeks ago that two rate cuts this year were nailed on!

Then in The AI-driven ‘kill chain’ transforming how the US wages war (Financial Times, Madhumita Murgia, Charles Clover, Jacob Judah and Alison Killing) we see how AI is transforming modern warfare. AI systems suck in all the intel from drones, satellites and other sensors and come up with strike options faster than humans can. The US Department of Defense has, for the past two years, been integrating AI tech within its operations, combining Palentir’s Maven Smart System and Anthropic’s Claude into a real-time data analysis dashboard. Huge advances have been made in reasoning – and that has helped them to make decisions much faster. * SO WHAT? * This has meant that warfare seems to have sped up enormously.  In the last campaign against Isis, for example, the coalition hit about 2,000 targets in the first six months of the campaign in Iraq and Syria. The same number of strikes occurred in just two days

in the campaign in Iran. Maven is the “brain” that supports the entire “kill-chain” which searches out and destroys targets. In the past, kill chains needed documents to be signed and approved but with the help of AI that approval process has gone from days to seconds and minutes. There are other uses of AI in autonomous navigation and computer vision but it certainly looks like the way wars are fought are going to be changed forever. Will we need fewer personnel in future? Or will fates be decided by computer game-like action with real-life consequences??

Elon Musk’s Tesla to start selling energy to British households (Daily Telegraph, James Warrington) heralds the fact that Tesla has been given the all-clear by Ofgem to become a household energy supplier in Britain. It will be able to supply electricity to households and businesses up and down the country. The new licence has been granted to Tesla’s subsidiary Tesla Energy Ventures and will pave the way for the launch of Tesla Energy and put it in direct competition with companies like Octopus and British Gas. * SO WHAT? * Given Musk’s mercurial nature and the fact that he’s not above making outrageous threats (he threatened to cut off Starlink access in Ukraine in the middle of a war, for instance) I think this is a very bad move. Let’s hope his business doesn’t crowd everyone else out.

Then in John Lewis pays first annual staff bonus in four years as profits rise (The Guardian, Sarah Butler) we see that John Lewis workers finally got their annual bonus! Underlying profits rose by 6%, slightly undershooting expectations. At the moment, its stores aren’t yet suffering any Iran fallout in terms of higher bills or the flow of products. The turnaround appears to be going in the right direction…

I love Raye’s song “Where is my husband?” but do you think that a rock version would work?? Watch this and decide…