Daily Brief – EU Exposure to Iran War

EU Exposure to Iran War

With gas prices up 60% in the wholesale market this week and inventories depleted due to the winter months and standing at 30%, it is fair to say that the EU is exposed and it does not take a genius to see what will happen to domestic gas prices should the current war continue. The Straits of Hormuz until this week see 20% of the world’s LNG pass through and Qatar supplies 15% of the EU’s LNG. After 2022, the EU switched from Russia to Qatar for its gas requirements. So what are the likely economic effects on the EU? Inflation will rise by between 0.3% to 0.5%; household expenditure will reduce in the face of higher energy costs; economic growth will in turn drop by 0.1% to 0.2%, unless of course all those cheerful forecasts of the war finishing in the next 2 weeks are proven wrong. In summary, the EU having switched from Russia to Qatar has opened itself to disruption in the global shipping industry and to the geopolitical tensions rippling across the Middle East.

EUR/USD 1.1598.

Oil

With the Straits of Hormuz blocked and no sign of POTUS being in a position to escort ships safely through, supplies by sea have seized up from the Gulf. Supply security has meant some oil producers halting their output and consequently some oil refineries in China, India, and the Middle East have shut their crude units. There are currently 300+ oil tankers queuing outside the Straits of Hormuz, and if that situation does not ease in the next few days, Iraq and Kuwait will have to cease production with no further storage capacity which will cut world oil supplies by 3.3 million barrels per day. Unsurprisingly, the oil market continues to mark up prices with Brent up 3.6% yesterday at $84.30.

GBP/EUR 1.1507.

UK

The UK is as vulnerable if not more so than the EU above, and without reiterating the consequences of much higher gas prices for both inflation and a reduction in household spending and a hit to economic growth, the immediate consequence will be the likelihood of a cut or cuts in UK interest rates receding fast. There is still one cut pencilled in for 2026, but like much else at present, it’s a matter of watching to see how the Gulf War develops and hopefully fizzles out-soon.

GBP/USD 1.3344.

BBC

Some may wonder if the top brass of the BBC are thinking straight as they contemplate the challenges that they face. The plan is to cut GBP 500 million of costs over the next 2 years which while a sensible immediate approach to a declining income with costs rising, it is not a long-term solution and is most certainly not a strategy. The most interesting statistic is that it is estimated that 94% of the adult UK population use the BBC in some way every day. The snag is that only 80% of that adult listening public pay the license fee. Surely the great minds at the Beeb should be considering their charging mechanism rather than wringing their hands about how underappreciated they are? In these days of internet and streaming supremacy a 94% usage should be celebrated.

GBP/CHF 1.0420.

Stairway to Heaven

This day in 1971 Led Zeppelin played this classic for only the second time to fans at the National Boxing Stadium in Dublin which was the first time the band had played Dublin. That must have been quite a show for Dublin and Ireland. 37 years later on this day in 2008 the Royal National Institute for Deaf People warned that 9 out of 10 young people had already suffered impairment to their hearing resulting from listening to loud music and that they should wear ear plugs when listening to music in excess of 85 decibels. That warning came 37 years too late for those Dublin fans.

There’s a lady who’s sure all that glitters is gold
And she’s buying a stairway to Heaven
When she gets there she knows, if the stores are all closed
With a word she can get what she came for
Ooh, ooh, and she’s buying a stairway to Heaven
There’s a sign on the wall, but she wants to be sure
‘Cause you know sometimes words have two meanings
In a tree by the brook, there’s a songbird who sings
Sometimes all of our thoughts are misgiven

Ooh, makes me wonder
Ooh, makes me wonder

There’s a feeling I get when I look to the west
And my spirit is crying for leaving
In my thoughts I have seen rings of smoke through the trees
And the voices of those who stand looking

Ooh, it makes me wonder

Have a Great Weekend!

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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