“Loose lips sink ships” was the Second World War propaganda slogan. Now Donald Trump ’s loose words – with shipping again at its heart – bring their own fresh risk to the global economy.
The US President declared America “the guardian of the Hormuz Strait” as he vowed to charge vessels 20 % of the value of their cargo to use the waterway. It came amid a fresh a flare-up in tensions between the US and Iran.
Now he has abandoned the plan after what he wrote were “highly productive conversations with Middle East leadership.” While welcome, the U-turn won’t help the President shake off his nickname of TACO – Trump Always Chickens Out.
Huge doubts were already hanging over whether his imposing fees on shipping through the key waterway was even workable, aside from the fact it was seen as illegal. Yet once again, a few words blurted out on social media raised far more questions than answers, and poured fuel on the flames of an escalating crisis.
Put to one side the fact Trump blasted Tehran for threatening to impose just such fees of its own, doing so would have only drive up energy costs even higher than they already are. And a 20% tax on the oil and gas that should be flowing through the waterway was the last thing the global economy needed, given the brake on growth the energy shock since the start of the Iran war in February has caused.
Once again, it is ordinary people who are counting the cost already for events thousands of miles away. After Washington and Tehran agreed a ceasefire, there was talk of inflation coming down faster than expected in the UK and elsewhere. Millions of British drivers will have already noticed thanks to a sharp fall in fuel prices as oil retreated from a war-triggered surge.
Now, with mounting tit-for-tat attacks, oil prices are depressingly on the rose again, reaching $87 a barrel – and the highest since the ceasefire was agreed – before slipping back to $83 as Trump’s U-turn emerged. While one threat has been lifted, the risks of higher prices as a result of the ongoing hostilities is still very real.
Quick to pass higher costs on, expect fuel forecasts to halt a decline in pump prices, and start whacking them up instead. And just as many families are filling-up for holidays and day trips as the school summer break starts. The new oil price spike also seep into increased costs for businesses.
And while heating bills is the last thing on most people’s minds amid soaring temperatures, the worsening situation has already driven up wholesale energy costs that run the risk of higher gas and electricity bills ahead. The prospect of falling inflation also paved the way for the Bank of England and other central banks to consider lowering interest rates at some stage, with the benefit for mortgage borrowers and businesses.
While it’s too early to know what will happen, the chances of a cut grow more remote as each day that passes, and the potential for rate hikes more likely instead. It is also the last thing Andy Burnham – and whoever the PM-in-waiting picks as his Chancellor – could do with, as the escalating hostilities have pushed up government borrowing costs. The yield on 10-year UK gilts have risen above 5% for the first time since May.
So whether it be the government’s already sky high debt bill, or mortgage costs and fuel prices, Trump’s ranting rhetoric and failure to hammer out a lasting deal with Iran is having a very real world impact. But, like before, the damage has been done, by extending a cost of living crisis that has dragged on for so long already.
