Market update: Pessimism returns after Trump’s speech on Iran
Susannah Streeter, chief investment strategist, Wealth Club: “High hopes have been replaced by fresh frissons of fear about the duration of the war with Iran after President Trump’s bellicose speech, which gave no indication the conflict was very close to ending. Instead, the military looks set to intensify attacks, which is likely to provoke retaliatory strikes by Iran and risks destabilising the region further.
The big concern will be about further damage to energy facilities across the Gulf. The repair work is already likely to take years, and further destruction is likely to keep oil and gas prices elevated for even longer. A barrel of Brent crude has jumped sharply, reflecting these worries, and is trading back up at $107 a barrel. European and UK gas futures have also jumped by more than 5% and are set to stay highly volatile. Around a fifth of global LNG supplies are usually transported through the Strait of Hormuz, but it remains largely impassable, and it’s becoming clear that there is going to be no easy exit from this war, with a lack of planning increasingly evident.
The closure of this small waterway has big consequences for a raft of industries. It has also tightened the supply of billions of dollars’ worth of petrochemical products which usually flow through the Strait. Prices of plastics and polymers have headed to highs not seen for four years, and this is already having an impact on the price and availability of household goods. Cleaning products manufacturer McBride, which makes Oven Pride, has warned that its costs are rising and it is seeing the first signs of supply shortages due to the war in Iran. Its own packaging supplies have seen raw material costs shoot up, which are being passed on, and supply chain snarls are disrupting operations. The issues have been compounded by increases in energy and freight costs across the business. This experience could be the precursor to problems to come for swathes of businesses reliant on the packaging industry.
Governments have been left scrambling to try to limit the impact on companies and consumers, with more rationing of energy likely to come into play. The UK government has held off announcing short-term support for sections of society which will be worst hit by the ramp-up in energy bills, with specific help not expected until the autumn.
Public finances are squeezed, and Trump’s latest comments haven’t helped. UK 10-year gilt yields have shot back up above 4.8%, making government borrowing costs even more onerous. The Middle East is the world’s hotspot right now, as thousands more US troops head to the region, and the heat is radiating across the globe, with inflation set to turn steamy and difficult to handle.
As the great Easter getaway begins, drivers will be counting the cost of the conflict. Diesel prices have jumped by around 27% since before the outbreak of the war with Iran, while petrol prices have risen by around 13%. The increases will be painful on the pocket. For the average 55-litre family car, it’ll cost around £11 more than before. At this stage, with the government still mulling how to alleviate the pain of the energy shock, there could still be phased in hikes to fuel duty, as planned, from September. So, there may be shorter trips planned ahead, and fewer chocolate treats bought along the way. For those staying at home for the Easter break and planning holidays later in the year, there’s set to be a fresh scramble for seats, as holidaymakers switch from routes to and via the Middle East to European destinations, pushing up prices.”