UK faces existential energy shock from Iran war

The Independent reports on warnings by the International Monetary Fund (IMF) that the UK is facing one of the largest shocks from the conflict in the Middle East, and that Britain’s economy is “especially exposed” to spiralling prices because of its reliance on gas‑fired power.

They have compared the impact of rising prices to a “large sudden tax on income” for a family, warning that the “de facto closure of the Strait of Hormuz and damage to regional infrastructure have produced the largest disruption to the global oil market in its history”:

Writing in a blog post on Monday, it explained that the war’s impact is “both global and highly uneven”, with some countries likely to face a renewed cost of living squeeze.

Large energy importers in Asia and Europe are bearing the brunt of higher fuel prices and input costs due to the effective closure of the Strait of Hormuz, a key shipping lane, which has caused shipments of oil and gas to grind to a halt.

Countries such as the UK and Italy have been particularly exposed, while France and Spain were relatively protected by their greater use of nuclear and renewable energy sources, according to the IMF.

The organisation also warned of mounting concerns about food prices shooting up because of the disruption to shipments of fertiliser from the Middle East.
“The interruption of crop-nutrient supplies from the Gulf comes just as planting season begins in the Northern Hemisphere, threatening yields and harvests through the year and pushing food prices higher,” it said.

The most vulnerable countries will “bear the heaviest burden”, with people in low-income countries spending a bigger proportion of their incomes on food.

“Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth,” the IMF warned.

The ultimate impact depends on how long the war lasts and how much damage it does to infrastructure and supply chains, but the world may “settle somewhere in between – tensions linger, energy stays costly, and inflation proves hard to tame”, it wrote.

Things do not look good for the economy, we will have to see what the government can do to mitigate the impact of this war.