Closing post
Time to wrap up….
UK government borrowing costs have reached their highest level since 2008, while financial markets now expect up to three interest rate rises this year as investors digest the impact of the Iran conflict.
The yield, or interest rate, on 10-year borrowing was pushed to heights not seen since the global financial crisis, as investors dumped UK government bonds.
The market move followed the Bank of England’s decision on Thursday to leave interest rates on hold at 3.75% and hint at a future increase. By Friday, markets were pricing in as many as three interest rate rises in 2026.
Higher gilt yields create a headache for the chancellor, Rachel Reeves, by pushing up the cost of servicing the government’s debt pile.
The 10-year yield has traded above 5% by mid-afternoon – the highest level since the depths of the global financial crisis in mid-2008.
Stock markets fell again too, with Britain’s FTSE 100 closing at its lowest level since late last December.
Household energy bills in Great Britain could increase by more than £330 a year to almost £2,000 from this summer after the Iran war pushed the UK’s gas market past three-year highs.
A typical combined household gas and electricity bill is now forecast to reach £1,972 a year from July under the UK government’s quarterly price cap, according to analysis by the energy consultancy Cornwall Insight,.
The fresh forecast has soared above an estimate from two weeks ago when the consultants predicted, after only five days of war in the Middle East, that the price cap could climb to £1,800 a year from July, up from the £1,641 cap for April to June.
FTSE 100 closes down for the year
After a rough day’s trading, Britain’s FTSE 100 share index has ended the day at its loweest level since 29 December 2025.
The “Footsie” has shed another 1.4% of its value today, and fell by 145 points to close at 9,918 points tonight.
That confirms that the index has lost all its earlier gains in 2026, which had been a strong year for share prices before the Iran war began at the end of February (when the FTSE 100 was over 10,900 points)
Updated
Easter fuel warning as petrol and diesel rise again
UK motorists driving over the Easter period are likely to face higher fuel costs, the RAC warn.
New RAC data shows that average petrol and diesel prices have risen again today.
The average price of a litre of unleaded petrol is up another 0.9p to 144.51p.
Diesel has risen by another 1.8p to 166.24p a litre.
RAC head of policy Simon Williams explains:
“Since the conflict began, average petrol prices are now almost 12p (9%) higher at 144.51p a litre, with diesel up by twice that amount (24p, 17%) to 166.24p. Diesel drivers have seen prices rise by 2p over the last two days alone. The cost of filling a typical family car with unleaded is £6.40 more now (£79.48 for a tank) than at the start of March, while the figure for diesel is a hefty £13 (£91.43 for a tank).
“The oil price has been consistently above the $100 a barrel mark this week, so unfortunately further rises look all but inevitable going into next week. The average price of a litre of unleaded is likely to reach 150p, and diesel possibly 180p, by Easter. With many people heavily dependent on the car, the pressure on household budgets is beginning to intensify.
UK mortgages are likely to get more expensive next week, given the jump in UK bond yields today and market expectations of three rate rises this year.
David Hollingworth, associate director at L&C Mortgages says:
“Lender repricing of fixed rates continues at pace as increasingly hectic market movement forces changes to be implemented at pace. Market reaction to the ongoing conflict and the rising threat of upward pressure on inflation has slipped into a higher gear in the last couple of days.
“Lenders are more frequently withdrawing at very short notice and/or pulling deals without any immediate replacement. The spike in funding costs results from the market view that future interest rate movement has shifted from further cuts this year to more increases.
“The frequent rate changes are causing significant spikes in business volume for lenders. That is almost inevitably going to put some strain on servicing, so borrowers may see the time to receive a mortgage offer edge out. Lender rate hikes will often be provoked by a desire to manage volume but with so much volatility and the accelerated pace of rate changes, it’s increasingly difficult for lenders to make a judgment.
“I expect that mortgage borrowers will have to resign themselves to more rounds of repricing next week and those looking to secure a new deal face a ‘now you see it, now you don’t’ marketplace, at least in the near term.”
FTSE 100 now negative for 2026
Britain’s blue-chip stock index is now negative for the year, after the Iranian war wiped out all its gains.
The FTSE 100 index has now dropped to 9,917 points, a fall of 1.46% or 146 points today. That takes it below its closing value on 31 December 2025, of 9,931.38 points.
Just before the Iran war began, the Footsie was trading at an alltime high over 10,900 points, and traders were anticipating it hitting 11,000 points soon.
Not. Any. More.
Even German government debt, traditionally a safe-haven asset, is suffering from the slump in bond price today.
German 10-year government bond yields have hit their highest since the middle of the euro zone crisis in 2011 (A truly dramatic time…), as investors anticipate an inflation shock from the Iran war.
The German 10-year yield has hit a high of 3.025%.
UK 10-year bond yields, though, are accelerating their surge higher – to 5.01%.
Updated
Investors are also digesting a report that the US is considering plans to occupy or blockade Iran’s Kharg Island to pressure Tehran to reopen the strait of Hormuz, despite earlier suggestions by Donald Trump that he was not leaning towards putting “boots on the ground”.
The claims, made on the Axios website, followed previous reporting that the US was considering occupying the key Iranian oil terminal.
Markets slide on report US to send more troops to Middle East
Shares in London are suffering an end-of-week sell-off, following a report that the US is to send more troops to the Middle East.
The blue-chip FTSE 100 share index is now down 90 points, or 0.9%, at 9970 points, back below the 10,000-point mark. That’s its lowest level since 5 January, as the Iran war wipes out almost all of its gains during 2026.
Energy company BP (-3.6%) is among the top fallers, along with copper producer Antofagasta (-3.4%).
US bond prices are also weakening, sending bond yields higher.
Reuters is reporting that the United States military is deploying thousands of additional Marines and Sailors to the Middle East, according to three US officials, adding:
One of the officials, speaking on the condition of anonymity, said that the USS Boxer, along with the Marie Expeditionary Unit aboard, were departing the West Coast of the United States about 3 weeks ahead of schedule.
The US dollar, a traditional safe-haven in times of geopolitical tension, is strengthening, knocking the pound down by over a cent to $1.331.
Gold, silver, and platinum prices are also falling.
UK government bonds are being hit by two factors – forecast of higher inflation, and fading hopes of interest rate cuts.
Ben Seager-Scott, chief investment officer at professional servicse group Forvis Mazars, explains:
“Bonds continue to bear the brunt of the market ramifications even as equity markets attempt to take events in their stride. The main reason for this is that equity markets are looking through the noise and can likely pass through a lot of the inflation over the medium term, whilst bonds, being more mechanical in nature, are forced to wear it.
“There are two drivers of bond weakness - the expectation of higher inflation and the compensation investors demand for it, coupled with reduced chances of central bank cuts whilst inflation and uncertainty persist.
“The continued strikes on energy infrastructure clearly represent a worrying shift in the conflict driving the latest volatility.”
"The bond vigilantes are after the UK once more"
Worryingly for the UK government, its bond yields are rising fast than those of other countries, such as the US and Germany, today.
Kathleen Brooks, research director at brokerage XTB, warns that “The bond vigilantes are after the UK” again.
As 10-year borrowing costs hit their highest since 2008 this morning, Brooks cautions that the bond sell-off is a problem for the global economy, particularly the UK:
The UK is looking like an outlier, and multiple factors are causing this. Events in the Middle East are a major factor, along with the unprecedented repricing of UK interest rate expectations. More than 3 rate hikes are still expected this year from the BOE, even after Andrew Bailey attempted to calm markets [yesterday].
There are also idiosyncratic factors that make the UK more vulnerable to energy price shocks. Our blunt energy pricing mechanism will cause bills to surge later this year, and we have a Labour government that is spending more in welfare than it is bringing in through taxation, which is also spooking bond investors in the current environment.
FCA launches investigation into collapsed mortgage lender MFS
Britain’s financial watchdog has announced an investigation into a UK mortgage lending business which collapsed earlier this year.
The Financial Conduct Authority (FCA) says it has has opened an enforcement investigation into Market Financial Solutions Limited (MFS).
MFS filed for administration last month amid allegations of fraud, leaving a string of financial firms owed in excess of an estimated £1.3bn.
Earlier this week a worldwide asset freezing order has been granted against Paresh Raja, the founder and chief executive of Market Financial Solutions (MFS).
Several banks, hedge funds and “private credit” lenders face losses due to the collapse of MFS, which is accused of extending mortgages to individuals connected to Raja.
Updated
IEA chief: Politicians and markets underestimating energy shock disruption
Political leaders and the energy markets are underestimating the scale of the disruption caused by the biggest energy supply shock in history, according to the world’s energy watchdog.
The head of the International Energy Agency used an interview with the Financial Times on Friday to warn that it could take at least six months to restore oil and gas flows from the Gulf after a US-Israeli attack on Iran ignited war in the region three weeks ago.
“It will be six months for some (sites) to be operational, others much longer,” Fatih Birol told the newspaper (£), warning:
“People understand that this is a major challenge, but I am not sure that the depth and the consequences of the situation are well understood.”
He added that politicians and markets were underestimating the scale of the disruption, with around one-fifth of global oil and gas supplies effectively stranded in the region, the report added.
Birol has previously warned that the world is facing what could be the most severe energy crisis in history after the IEA called on the biggest release of emergency oil reserves in the agency’s 52 year history to temper rising oil market prices.
Global oil prices have climbed to highs of $119 a barrel this week, as a military escalation in the region began to take aim at some of the region’s most important energy production infrastructure. But the price of Brent crude has steadied at around $107 a barrel.
Analysts have warned that prices could surpass the all-time market high of $145.50 a barrel if tankers carrying oil and gas from the Gulf are unable to resume deliveries to the global market via the strait of Hormuz. Some market observers have suggested that prices could rise to highs of $200 a barrel.
Consultancy Oxford Economics are predicting that UK CPI inflation will top 4% in the second half of this year – double the Bank of England’s target.
This forecast is based on the continued disruption in the Strait of Hormuz and significant damage to energy infrastructure across the Gulf.
Senior economist Edward Allenby explains:
“Under our updated assumptions, we now anticipate a much sharper rise in petrol prices, while higher wholesale gas prices cause a 19% increase in the Ofgem energy price cap in July.”
Oxford Economics have also cut their forecast for UK economic growth in 2026 and 2027, Allenby adds:
“Therefore, we now project GDP growth of 0.4% this year and 1% next year, compared to our February baseline of 0.9% in 2026 and 1.3% in 2027, respectively.”
Why UK 10-year bond yields are highest since 2008
The jump in UK government borrowing costs to their highest level since 2008 today shows there has been “a sharp repricing of inflation risk”, explains Lale Akoner, global market analyst at eToro:
The driver is the renewed energy shock, with oil prices surging and raising concerns about a second-round inflation wave. Markets have quickly shifted from expecting rate cuts to pricing a higher-for-longer path, with additional tightening now back on the table for the Bank of England.
“The move has been most aggressive at the front end, reflecting uncertainty around policy, but longer-dated yields are also rising as investors demand greater compensation for inflation and fiscal risk. The UK remains particularly exposed given its sensitivity to energy prices and already stretched public finances, which adds to upward pressure on borrowing costs.
“The Bank of England is in a difficult position. Growth remains weak and demand soft, limiting the scope for aggressive tightening, yet persistent inflation risks reduce flexibility. This tension is driving volatility across the curve.
“For investors, this is a classic rates shock environment. Higher yields driven by inflation, rather than stronger activity, tend to weigh on equities, pressure valuations, and challenge traditional diversification, particularly as correlations between bonds and risk assets become less reliable.”
Russian central bank cuts key rate by 50bps
Over in Moscow, Russia’s central bank has gone against the trend this week by cutting borrowing cost.
The Bank of Russia has lowered its key interest rate by 50 basis points to 15%, down from 15.5%.
Announcing the decision, the central bank says Russia’s economy is approaching a “balanced growth path”, adding:
In February, price growth predictably decelerated after a temporary acceleration in January. The Bank of Russia estimates that the underlying measures of current price growth remain in the range of 4–5% in annualised terms. However, uncertainty regarding the external environment has increased considerably.
Reuters reckons the sell-off in UK government debt today has been “exacerbated” by an Axios report on Friday that the Trump administration is considering plans to occupy or blockade Iran’s Kharg Island to pressure Iran to reopen the Strait of Hormuz.
Updated
City expects three UK rate rises this year, back to 4.5%
City traders are now pricing that the Bank of England will raise UK interest rates three times this year, to battle inflation.
The money markets are now pricing in 80 basis points of increases to Bank rate by December – that indicates that three quarter-point rate rises are fully priced in, taking rates back up to 4.5%, from 3.75% at present.
Yesterday the Bank of England left interest rates on hold, and warned that the “new shock” to the economy from the Middle East conflict would lead to higher than previously expected inflation in the short term.
Speaking after the meeting, BoE governor Andrew Bailey suggested that markets were getting ahead of themselves by forecasting rate rises.
He told broadcasters:
“I would caution against reaching any strong conclusions about us raising interest rates.... Today we’ve given a very clear message. The right place to be is on hold.”
UK borrowing costs hit highest since 2008 as inflation shock looms
A key measure of UK government borrowing costs has hit its highest level since 2008, as traders bet that the energy price shock will push up interest rates.
The yield, or interest rates, on 10-year UK gilts has risen to 4.927% this morning, a rise of 9 basis points (0.09 percentage points). That’s the highest level since July 2008, in the run-up to the financial crisis.
Yields rise when prices fall. This jump in borrowing costs is bad news for chancellor Rachel Reeves – it erodes the government’s headroom to keep within its fiscal rules.
The yield on shorter-dated, two-year, bonds has jumped by another 11 basis points to 4.522%. That’s the highest since January 2025.
These rising bond yields reflect expectations that UK inflation will rise to 3%, or higher, this summer as the jump in energy prices hits households and businesses.
Wetherspoon's boss blames Reeves, Iran and temperance movement for profits slump
JD Wetherspoon’s boss, Tim Martin, warned that beer prices are likely to rise, blaming an unlikely triumvirate of Rachel Reeves, Iran and the return of a Victorian-era-style temperance movement, as the pub chain recorded a slump in profits.
Sales in the first half of the year were up by 5% to nearly £1.1bn on a like-for-like basis, ahead of the wider sector.
But pre-tax profit fell by 32% to £22.4m, prompting a 12% fall in the pub chain’s shares in early trading.
Martin - who is known for his outspoken views on politics - pointed the finger at external factors as he warned that full year profits could undershoot expectations.
Top of his list are “pressure on consumer finances, combined with higher taxes, wages and energy costs”.
The chain expects an extra £70m in costs, mostly due to national insurance and national minimum wage increases.
“These cost increases will undoubtedly add to underlying inflation in the UK economy, although Wetherspoon, as always, will endeavour to keep price increases to a minimum,” he said.
Martin also warned that prices for consumers are likely to increase due to the Iran war.
“The lesson from the 1970s is that when energy prices go up everyone becomes poorer apart from oil producers.”
He also said pubs were at risk from lower rates of alcohol consumption, lashing out at a perceived “revival of the temperance movement, which appears to have surreptitiously infiltrated the mainstream media and the medical profession.”
The cascading effects of Middle Eastern instability on supply chains threaten more shocks to energy and food security in Britain, the Strategic Climate Risks Initiative are warning today.
Laurie Laybourn, executive director of the SCRI, says there is the risk of a shock to UK food security:
In recent years, extreme weather has caused three out of the five worst arable harvests on record in the UK. A wet spring and a potentially climate-charged summer mean that farmers do not need another shock. Yet it’s coming - as a result of rising fertiliser prices, with many fertilisers usually passing through the Strait of Hormuz. It’s a perfect storm for farmers: higher fertiliser and fuel costs and worsening climate extremes.
In response, more is needed to support farmers to reduce their reliance on volatile fertiliser supplies and farm more sustainably, as part of a wider food security strategy for a more volatile world.
This morning’s surprise jump in UK borrowing to over £14bn in February means a renewed focus on whether the government has the fiscal space for a new cost-of-living support package, if energy prices remain high.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK has said the jump “highlights the precarious fiscal position the UK is in”, warning that the Iran war will put further strain on the public finances.
Pugh says:
“While widespread government support on the scale of the last crisis looks unlikely, and probably unnecessary unless energy prices rise further, the scheduled rise in fuel duty now seems in doubt. More importantly, if maintained through to the autumn, the surge in inflation, gilt yields and likely further rise in the unemployment rate could easily halve the Chancellor’s fiscal headroom.
Investec analysts are confident that the UK deficit is still on a downward path, adding:
Overall the figures are not quite as disappointing as the headline suggests. Even so the public finances face a number of challenges arising from the war in the Middle East, as a combination higher inflation and the rise in gilt yields raises financing costs. Moreover any energy relief packages to households and business would also increase borrowing, albeit perhaps for a limited period.
Energy price shock could add £1,500 per year to mortgage costs
UK mortgage rates have risen again today, even though the Bank of England left base rate on hold yesterday, at 3.75%.
Data provider MoneyFacts reports that the average two-year fix residential mortgage rate has risen from 4.83% at the start of March to 5.35% today. That shift will have added around an extra £900 per year to the cost of borrowing £250,000 over 25 years.
It’s already the highest two-year fixed mortgage rate since March 2025 (up from 5.32% on Thursday).
Five-year fixed mortgage rates are pricier too – with the average rate up from 4.95% at the start of March to 5.39% today. That’s the highest since July 2024, adding around an extra £775 per year to the cost of borrowing £250,000 over 25 years.
Moneyfacts has calculated that if Bank rate rises to 4% or 4.25%, as market pricing predicts, average rates on new mortgages could stabilise at around 5.50% to 5.75%.
That could add an extra £1,000 - £1,500 per year to the cost of borrowing £250,000 over 25 years compared to rates at the beginning of March.
Adam French, head of consumer finance at Moneyfacts, explains:
“Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75%, with markets interpreting commentary from the Bank of England as leaving the door open to rate rises amid ‘Trumpflation’ fears. With two- and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing.
“Moneyfacts analysis of more than 30 years of historic rates data shows mortgage rates have historically averaged around 1.5 percentage points above Base Rate. If markets continue to price in one or two rate rises, this could see average new mortgage rates stabilise at around 5.50% to 5.75%. That would leave borrowers paying £1,000 to £1,500 more per year on a typical £250,000 mortgage compared to just a few weeks ago.
“While a quicker resolution to the conflict in the Middle East could ease pressure on rates, the reality is that a more volatile world is a more expensive world. Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected.”
British energy price cap tipped to rise by £332 per year in July due to oil and gas shock
British energy bills are on track to jump by several hundred pounds per year once the official price cap is adjusted this summer.
Consultancy Cornwall Insight has predicted that the bill for a typical dual fuel consumer will rise to £1,973 per year in July, when the next quarterly review of the cap comes in.
That would be a £332 rise from April’s cap, of £1641 a year for an average bill-payer, and hurt strugging families [there’s no cap on the maximum bill, just the maximum charge for each unit of energy].
This prediction may harden calls for the government to launch a “social tariff” providing cheaper energy for poor households amid growing concerns over the Iran conflict.
The quarterly price cap is set based on the average energy prices in the three-month period before it is set (mid-Februry to mid-May), so the jump in oil and gas prices in recent weeks will have an upward effect on the cap.
Updated
Despite the dip in energy prices this morning, UK inflation is still expected to jump this summer.
Sanjay Raja, chief UK economist at Deutsche Bank, expects inflation to rise over 3% this year, rather than drop towards the official 2% target.
He writes:
Where to next? In our view, the inflation outlook has rarely been more uncertain than it is now. The Iran conflict has resulted in a surge in energy prices. Oil prices are tracking nearly 50% higher than pre-conflict levels. Gas futures are trading nearly 90% higher. The impact on the inflation outlook we expect will be meaningful.
While we do not account for fiscal support in our updated projections, we think there is a high likelihood that government support can help curb energy inflation. For now, we condition our projections on market expectations as of 18 March. This has pushed our 2026 CPI projections up from 2.4% (in our last update) to 3%, with a peak CPI of nearly 3.2% y-o-y expected later this year.
The London stock market is rallying this morning, led by travel and hospitality firms.
The FTSE 100 index has gained 50 points, or 0.5%, to 10,113, having yesterday tumbled by 2.35%.
Intercontinental Hotels (+3.3%), easyJet (+2.9%) and British Airways parent company IAG (+2.7%) are the top risers.
Stocks are rising as energy prices ease back, following efforts by the US and Israel to reassure investors unsettled by the latest escalation in the Middle East.
Jim Reid, market strategist at Deutsche Bank, takes a historic view:
Today will be the 15th trading day of the conflict so far…that is on average when we bottom out in US equities after a geopolitical shock.
However it would be hard to trade on the back of averages at the moment with so much uncertainty so headlines will be more important than history here but if you’re looking for optimism the normal geopolitical playbook would at least give you hope.
Oil and gas prices dip after Netanyahu agrees to 'hold off' attacks on Iranian gas fields
Oil and gas prices are dropping today, after Israeli prime minister Benjamin Netanyahu indicated he would hpld off on further attacks on Iran’s gas field at the request of US President Donald Trump.
The Brent crude oil price has dipped by 1.7% to $106.75 a barrel this morning. That’s rather lower than yesterday’s high of $119, but still nearly 50% higher than before the conflict began.
Gas prices are dipping too. The month-ahead UK gas price is down 2% at 153p per therm. That’s down from a high of 180p yesterday, but still almost double levels before the Iran war began.
Continental European gas prices are down 1.9%.
This comes after Netanyahu told reporters at a press conference that Israel “acted alone” in striking Iran’s South Pars gasfield this week.
He added:
“President Trump asked us to hold off on future attacks, and we’re holding out.”
Israel has, though, been pounding Tehran with airstrikes today.
Our Middle East Crisis Live blog has all the details:
Updated
‘Demand destruction has begun’
JP Morgan have published a very interesting note on the demand destruction theme, which FT Alphaville have covered here.
They’ve examined the economic damage that the oil market crisis is beginning to cause in Asia, and report:
Diesel has emerged as the region’s immediate choke point, with surging prices slowing both travel and freight. Governments are responding with a mix of demand management and emergency measures. Bangladesh brought forward the Eid-al-Fitr holiday and allowed universities to close early to save fuel. The Philippines and Sri Lanka instituted four‑day workweeks to curb diesel use and stretch dwindling stocks. Pakistan closed schools and shifted universities online. Officials in Thailand and Vietnam have been urged to use stairs, work from home, and limit travel, while Myanmar introduced alternating driving days to reduce road fuel demand. In parallel, authorities are intervening directly into fuel markets to stabilize fuel prices.
Other key points include:
As jet fuel approaches $200/bbl, carriers are shifting from cost management to outright service withdrawal, with many routes rendered uneconomic
In many regions, demand isn’t being reduced by choice but by the physical absence of input
Oil demand is, on average, highly inelastic in the short run because most end uses have few immediate substitutes — factory boilers rely on fuel oil, aircraft require jet fuel, and most cars still run on gasoline.
World’s energy watchdog advises emergency measures as oil prices rise
The world’s energy watchdog has advised governments to reduce highway speeds and encouraged workers to carpool or, ideally, work from home to combat soaring oil prices and impending fuel shortages caused by the Middle East conflict.
It has also recommended countries consider limiting car access to designated zones in large cities, by giving vehicles with odd-numbered plates access on different weekdays to those with even-numbered plates.
The International Energy Agency (IEA) has advised member countries, including Australia, the UK and the US, to take the emergency measures to curb oil demand, following the military strikes on Iran that have triggered the most significant supply disruptions in the history of the global oil market.
UK borrowing jumps to over £14bn in February
Britain’s government borrowed more than expected last month, new data shows.
The difference between total public sector spending and income widened by £2.2bn year-on-year in February, to £14.3bn.
That’s more than expected – the City had expected a £8.5bn deficit for the month.
It’s also the second highest February borrowing since monthly records began in 1993, behind that of 2021 during the Covid-19 pandemic.
It follows a record surplus in January, though, when a surge in tax payments boosted the government’s receipts.
So, after 11 months of the financial year, borrowing is 8.7% less than in the same 11-month period a year ago.
Today, ONS senior statistician Tom Davies says:
“Borrowing was higher than the same month last year and was the second-highest February figure on record. While receipts were up on last year, that was outweighed by a rise in spending, including the later timing of some debt interest payments.
“However, across the first eleven months of this financial year as a whole, borrowing was down, as receipts increased by more than spending.”
Introduction: Demand destruction fears rise after Iran war drove up oil and gas prices
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Three weeks into the Iran war, investors and analysts are increasingly worried that the world economy faces ‘demand destruction’.
The jump in oil and gas price this month, as supply from the Middle East has fallen and production facilities have been attacked, leads to a remorseless logic: if supply is short, prices have to rise until demand falls.
You can’t, after all, print more molecules, a truth that has been brought home by the attacks on Iran’s massive South Pars gasfield, and QatarEnergy’s huge LNG production site.
And there are signs that demand destruction is underway, especially among energy importers.
Egypt, for example, is beginning curbing some electricity use, including by ordering shops and cafes to close earlier.
India, which has also suffered a drop in fuel imports this month, is also taking action. Refineries have been directed to maximise LPG production for household use and supplies have been prioritised for hospitals and educational institutions, leaving businesses scrambling.
Oil and gas prices are dipping this morning, but Brent crude is still trading at over $100 a barrel.
Jet fuel prices have been rising sharply this month too, leading to predictions that airlines will hike prices, subduing demand, or even cut routes.
These changes mean that oil is “dictating the tempo of global activity”, says Stephen Innes, managing partner at SPI Asset Management.
He explains:
Asia is the first to blink, as it always is when the energy complex starts to bite. Japan’s petrochemical sector is already throttling back, not as a strategic choice but as a forced response to feedstock scarcity and elevated costs. Ethylene runs are being cut, restarts delayed, and the entire chain is starting to behave like a machine that no longer trusts its fuel supply. South Korea is moving down the same path, with major producers stepping back from full capacity and even invoking force majeure, which in market language is less a legal term and more a flare shot into the sky signaling that the system is under stress. When governments begin labeling inputs like naphtha as economic security items, you know the conversation has shifted from price discovery to resource preservation.
China, which typically absorbs shocks with scale and policy cushioning, is not immune either. Refinery runs are being dialed down to conserve crude, not because demand is booming but because supply certainty has evaporated. Downstream, petrochemical operations are shutting units and suspending deliveries, effectively pulling liquidity out of the physical market. This is how demand destruction actually looks in real time.
The agenda
7am GMT: UK public sector finances for February
9:45am GMT: Speech by FCA CEO Nikhil Rathi at JP Morgan Pensions and Savings Symposium.
10.30am GMT: Bank of Russia interest rate decision
11am GMT: CBI Industrial Trends report
