The war in the Middle East is set to enter its fourth week, and it remains far from certain when – or if – it will wind down.
Over the weekend, US President Donald Trump gave Iran a two-day ultimatum to reopen the Strait of Hormuz, threatening to “obliterate” its power plants if it failed to meet his deadline.
This morning, the president posted on social media to say that the US and Iran have had “VERY GOOD AND PRODUCTIVE” talks and that he would hold off on further strikes on Iranian energy infrastructure for five days.
The impact of the war on energy prices will likely dominate the news agenda again this week for businesses, though our weekly preview also includes updates on UK-EU relations.
Trump holds off further Iranian strikes
Over the weekend, Trump suggested that he could begin “winding down” attacks on Iran and while also giving the country an ultimatum on reopening the Strait of Hormuz.
On the latter, he posted on social media on Saturday (21 March):
“If Iran doesn’t FULLY OPEN, WITHOUT THREAT, the Strait of Hormuz, within 48 HOURS from this exact point in time, the United States of America will hit and obliterate their various POWER PLANTS, STARTING WITH THE BIGGEST ONE FIRST! Thank you for your attention to this matter. President DONALD J. TRUMP”
British prime minister Sir Keir Starmer has discussed the situation with Trump, with a Downing Street spokesperson telling the BBC that they "agreed that reopening the Strait of Hormuz was essential to ensure stability in the global energy market”.
Trump has since posted to say that he had held positive talks with Iran and that he would be delaying further strikes on energy infrastructure. He posted a few moments ago (23 March):
“I AM PLEASE TO REPORT THAT THE UNITED STATES OF AMERICA, AND THE COUNTRY OF IRAN, HAVE HAD, OVER THE LAST TWO DAYS, VERY GOOD AND PRODUCTIVE CONVERSATIONS REGARDING A COMPLETE AND TOTAL RESOLUTION OF OUR HOSTILITIES IN THE MIDDLE EAST.”
Brent crude oil dropped 8% $103 a barrel following the announcement, the FT reports.
The latest on the UK’s stance
The relationship of Starmer and Trump continues to appear strained over the UK’s reluctance to more actively support the US-Israel campaign, with the president reposting a Saturday Night Live UK skit mocking Starmer over the weekend.
The prime minister has now allowed the US to begin using its bases in the region to launch strikes on Iranian sites targeting the Strait of Hormuz. The UK had previously only allowed the US to use its bases for defensive operations. The move came after Iran fired two ballistic missiles on the joint US-UK Diego Garcia base on the Chagos Islands.
Starmer was also among 22 signatories of a joint statement at the end of last week condemning Iran’s attacks on the strait. The statement, also signed by the leaders of Japan, Canada, the UAE and several European countries, said:
“We emphasise that such interference with international shipping and the disruption of global energy supply chains constitute a threat to international peace and security. In this regard, we call for an immediate comprehensive moratorium on attacks on civilian infrastructure, including oil and gas installations. We express our readiness to contribute to appropriate efforts to ensure safe passage through the Strait.”
Cobra to discuss economic fallout
With around 20% of the world’s oil and liquefied natural gas (LNG) passing through the strait, the economic impact of the war is already significant.
Brent crude oil has risen to as much as US$113 a barrel this morning, with the International Energy Agency (IEA) discussing a possible release of further reserve stockpiles to try to calm the markets. IEA executive director Fatih Birol has called the situation “very severe”.
UK government ministers will discuss the crisis at an emergency Cobra meeting today, which will also be attended by the Governor of the Bank of England, Andrew Bailey.
The BBC reports that energy security, the cost of living, and the impact of the crisis on business and supply chains will be discussed at the meeting.
"I am asking for every lever that's available to the government to deal with the cost of living to be discussed at Cobra, hence we've got the Bank of England and others there," Starmer told the media.
Starmer is also expected to be grilled on the government’s response to the crisis at the Liaison Committee of MPs in Parliament this afternoon.
Economists have told the FT that the situation is a huge blow for chancellor Rachel Reeves’ ‘securonomics’ approach, and that rising energy prices and higher borrowing costs are a “double whammy” to the economy.
“The risk of recession has significantly increased at this point,” Luke Bartholomew, deputy chief economist at investment firm Aberdeen, told the FT.
Dan Haile, senior economist at the Institute for Government (IfG), said Reeves should “wave goodbye” to the £22bn buffer she had established in the UK’s finances, with officials telling the paper that they are now expecting a “very difficult Budget” later this year.
The Times reports that the government’s cost of living adviser, Richard Walker, has said that the UK should impose a temporary profit cap to prevent energy companies exploiting the crisis.
UK-EU ties remain in focus
The UK-EU reset will also continue to be a key area of focus for the government, after a flurry of meetings and landmark speeches around the relationship last week.
Politico’s London Playbook this morning states that city minister Lucy Rigby is visiting multiple European capitals this week to “make the government’s case for greater UK-EU cooperation on financial services”.
The FT also reports that the UK is looking to bring forward legislation in this summer’s King’s Speech that will allow the UK to import various EU laws that will allow the country to reconnect with parts of the bloc’s single market.
“The new bill will create a framework for a swift transfer to the statute book in the UK of laws made in Brussels, reversing a central tenet of Brexit,” the paper states. The government has identified around 76 EU directives and rules as being “in scope” of the agreements being struck to ease trade friction, particularly for agrifood products.
Steel tariffs to hit UK construction
Mark Reynolds, the chair of the construction company Mace, has called the UK’s recent decision to hike tariffs on steel imports “ill-timed and unhelpful” and said they will “only exacerbate the challenges” already facing UK industry due to the war in Iran.
The UK government last week announced that it would follow the lead of the US, EU and Canada in raising non-quota steel tariffs to 50% in response to mass overproduction by China.
Mace is building new stations at London Euston and Birmingham Curzon Street as part of the HS2 project, which the government is set to announce a “reset” of today, amid concerns over cost, according to the Guardian.
Key dates in the diary
- Monday: Starmer to be questioned by the Liaison Committee of MPs about the Middle East crisis
- Tuesday: Snap elections in Denmark. Also, the Chartered Institute of Export & International Trade to host a Virtual Open Day for those interested in taking global trade qualifications
- Wednesday: UK inflation data to be published and the Chartered Institute’s food and drink special interest group to meet online to discuss the UK-EU SPS deal
- Thursday: G7 foreign ministers meet in France
- Friday: UK retail sales data to be published
- Saturday: One month to have passed since the start of the war in Iran
- Sunday: The UK’s clocks go forwards to British Summer Time (BST)
