There are a number of moving parts to this observation:

· The rapid institutionalisation of the Mecca Joint Defence Agreement between Saudi Arabia, Turkey and Pakistan.

· The divergence between the UAE and Saudi.

· The rising tensions between Turkey and Israel over influence in Syria (which, given the Mecca Pact includes an Article 5 equivalent, raises the worrying prospect of Israel finding itself embroiled in a wider regional conflict).

· Syrian consolidation under Ahmed al-Sharaa while simultaneously negotiating a security arrangement with Israel.

· The construction by Gulf states of physical alternatives to using the Strait of Hormuz for transit

· The willingness of regional states to publicly and collectively oppose Israeli policy (including settlements).

Syria

Syria is the best illustration of this strategic realignment. With the fall of Assad, Iran lost its main strategic partner and the rivalry to replace Iran is intense and growing:

· Russia had been one of the main external supporters of the Assad regime and therefore should have been one of the main losers of his fall. However, the recent conclusion of negotiations governing Russian facilities at Tartous and Hmeimim, has enabled Russian forces personnel to remain in-country (important, given Tartous’ importance to Russian Mediterranean and African operations).

· On 25 August the Kurdish-led Syrian Democratic Forces formally dissolved and completed their integration into Syria’s national armed forces.

· Israel and Syria are in negotiations over a broad-reaching security agreement. Damascus wants Israel to withdraw to positions held before the fall of Assad and restoration of the 1974 disengagement arrangements. Israel wants enforceable security guarantees and limits on military forces near its frontier.

· Turkey is attempting to extend its influence in Syria, creating the conditions for an increasingly tense Israeli–Turkish strategic competition.

Mecca Joint Defence Agreement

The Mecca Pact is a substantial collective deterrence agreement, which also encompasses defence-industry projects, counter-terrorism and broader security cooperation. Its first ministerial/military committee has already met and a permanent secretariat is in the process of being established in Saudi Arabia. Whilst this development does not suggest the US is being replaced in the region, it does indicate the construction of a parallel security architecture involving actors from outside the Gulf, to hedge against the dangers of over-reliance on Western security guarantees. How it will work in practice remains to be seen.

Pakistan

Nuclear-armed Pakistan is an increasingly visible actor in the Gulf security architecture. Islamabad was the key mediator and negotiator in reaching April’s US-Iranian ceasefire and June’s MoU between the US and Iran. Pakistan is a signatory to the Mecca Pact. And it has also signed a separate defence agreement with Kuwait expanding existing bilateral defence arrangements to include training, capacity-building and border management. It is interesting to speculate whether the Saudi rapprochement with Pakistan has anything to do with Pakistani willingness to share its nuclear technology with Saudi (certainly the Article 5 equivalent in the Mecca Pact would, if taken to its logical conclusion, involve Pakistan using its nuclear weapons to defend Saudi if Riyadh were attacked) – such an outcome would be very much in line with an apparently growing Saudi desire to diversify its dependence away from the single-source supply of the US…

Israel/Turkey Tensions

Tensions have been increasing for a while between Israel and Turkey, primarily over influence in Syria, but also regarding Gaza and the West Bank. On 18 August Israel carried out airstrikes at Syria’s Abu al-Duhur airbase, alleging that Turkey was on the verge of deploying troops there and that such a deployment would have violated a security understanding (Turkey, of course denied the accusation, as did the Syrian Foreign Minister). The tensions were so heightened that the US felt obliged to create a trilateral deconfliction mechanism involving the three countries.

Standing back from the detail of this particular incident, the rising tensions reflect the conflicting visions of Israel and Turkey about what sort of Syria will emerge after Assad. Whilst Ankara seeks a strong, unified Syrian state, capable of suppressing Kurdish separatism (and increasingly dependent on Turkish training, investment and defence cooperation), a divided Syria (prevented from acquiring military capabilities or external deployments that could eventually threaten it) is more to Israel’s liking: this fundamental difference in vision creates the possibility that Israel and Turkey, respectively the US’ principal Middle Eastern military partner and a NATO member could inadvertently enter direct conflict.

Israeli isolation

Several developments over the last month suggest that Israel is becoming more diplomatically isolated internationally (although, as demonstrated by Israel’s recent defence agreement with Greece, this does not mean Israel has run out of friends). The immediate cause of this isolation is the E1 settlements. In mid-August, the foreign ministers of Egypt, Jordan, Qatar, Saudi Arabia, the UAE, Türkiye, Pakistan and Indonesia jointly and publicly condemned Israel’s position. This is a doubly significant group of countries: the UAE – significant given its Abraham Accords relationship with Israel; and the significant overlap with the emerging defence relationship between Saudi Arabia, Turkey and Pakistan. This intervention was followed in late August by the joint declaration of 21 countries, plus the European Commission, describing E1 as damaging the territorial contiguity of a future Palestinian state and calling on Israel to retract the plans. Unusually, the declaration also warns businesses considering bidding for tenders of possible legal and reputational consequences. The impression of increasing Israeli diplomatic isolation is only increased by the strong international criticism of the decision by the IDF not to pursue criminal investigations into the April 2024 World Central Kitchen strike. This isolation is only likely to increase if reports of serious political consideration being given to the ethnic cleansing/ forcible displacement of the population of Gaza are correct.

Israel’s external woes are exacerbated by its internal problems. Elections in which Netanyahu’s long tenure in power may finally come to an end are pushing the right-wing to stake out increasingly extreme positions on the West Bank and Gaza. And the apparent stalemate in its struggles with Hamas in Gaza and Hizballah in Lebanon signal the limits of Israeli firepower (it is worth noting that the ability of the Lebanese state to monopolise force is a key test – along with Iraq - of whether the weakening of Iran’s traditional proxy network can be converted into stronger Arab state institutions).

The UAE

The UAE’s willingness to pursue its own course in international relations is exemplified by two trends. Firstly, the growing divergence between Saudi Arabia and the UAE, most recently illustrated by the 18 August instruction to Saudi banks to apply enhanced scrutiny to payments to the UAE. This is an unprecedented action between the two neighbours and should be seen within the context of wider Saudi–Emirati tensions (including the UAE leaving OPEC earlier this year and competition for investment and regional economic leadership as well as divergence of support for factions in Yemen and Sudan). The second area where the UAE is diverging from its traditional stance is in its relationship with Iran. On 19 August the UAE halted all trade, commercial exchanges and financial transactions with Iran until further notice. It is unclear whether it was renewed Iranian military coercion, or the threat of US sanctions which lay behind this decision, but, given that the UAE had spent years developing a pragmatic relationship with Tehran and had historically been one of Iran’s most important commercial interfaces with the international economy, severing commercial links represents a significant change in position.

Iran.

Iranian obstruction of the Strait of Hormuz continues to impact global trade. Although in late August, Tehran announced it had reached an understanding with Oman about passage through the Strait, the conditions attached to that agreement (an end to the war, removal of the US blockade, sanctions relief and compensation), were beyond what Washington was prepared to concede. Although highly effective in the short term, in the medium to long term, Iran’s use of the Hormuz as a weapon of mass economic disruption may begin to deliver diminishing strategic returns for Tehran. Every month that Hormuz remains unreliable increases the economic case for infrastructure that bypasses it with pipelines and ports that had previously seemed excessively expensive now coming to be seen as national-security assets. This is already happening, both on the supply side with Saudi and the UAE building new pipelines (to which Kuwait and Bahrain are negotiating access) and increasing their ports and logistics capabilities at Fujairah and the Red Sea and Iraq examining or reviving routes through Turkey, Syria and Jordan; and on the demand side as customers are buying more oil and gas replace Gulf hydrocarbons with supplies sourced in other countries.

Iranian recognition that their greatest coercive economic weapon may become increasingly self-defeating if it is used for too long may be behind recent appearances of divisions within the regime about when might be the best time to enter into serious negotiations with the US: tensions which could destabilise the regime in a way that US attacks have so far failed to do, with regional ramifications (a divided Iran is in no one’s best interests). In the short-term, though, the effective closure of the Strait continues to leave exports from Iraq, Qatar, Kuwait and Bahrain exceptionally exposed and US frustration with the pace of the decision-making in Iran will inevitably boil over into outbreaks of violence (such as we are witnessing at the moment) which serve only to strengthen the hardliners in Iran and further destabilise the region.

Yemen

The renewed fighting between Saudi and the Houthis in Yemen not only adds to the political/ physical uncertainty, but to the economic insecurity. If the Red Sea becomes unstable and passage through the Bab el-Mandab becomes problematic (an 11 August Houthi attack on an Egyptian-owned cargo resulted in the deaths of six people), then efforts to by-pass Hormuz through the Red Sea become more complicated, forcing cargoes heading to Asia to transit Suez and sail down the West coast of Africa to reach their destinations, adding weeks to the transit time. That additional sailing time creates a difficult strategic geometry for Saudi Arabia which needs both pipeline diversification and a sustainable security settlement in Yemen if its Hormuz-bypass strategy is to deliver strategic autonomy.

Iraq

US-led coalition forces remain on schedule to complete their withdrawal by 30 September 2026, and the Iraqi government has rejected proposals to retain a residual coalition force beyond the deadline. At the same time, Iraq has signed a multi-million dollar deal with the US for the purchase of helicopters and is seeking to bring non-state armed groups under its state authority. As in Lebanon, whether Iran-aligned militias actually comply, will be an important indicator of whether weakening Iranian influence can be translated into greater national control and sovereignty.

Comment:

These developments suggest the emergence of a new multipolar Middle Eastern security architecture. A major shift away from the historical hierarchy of Middle Eastern security huddled neatly under an American security umbrella with individual bilateral alliances underneath it, to a series of overlapping and in some cases competing regional networks. There are some important consequences of that development:

· Regional states’ conclusion that, although US power remains essential, US protection can no longer be taken for granted creates strong incentives to form alternative insurance policies through collective defence systems and to seek non-regional military assistance, moving the US role from one of military deployment towards arms supply, training, intelligence and bilateral state-to-state cooperation.

· The simultaneous existence of Israeli airstrikes and Israeli–Syrian negotiations, illustrates the way in which military coercion and diplomacy are increasingly occurring in parallel rather than sequentially - a new dynamic in the region’s approach to problem- solving.

· Israel finds itself in an increasingly asymmetric diplomatic position: fewer partners are willing to endorse Israeli political policy, whilst many remain willing to cooperate on defence and technology.

· Pakistan, Qatar and Oman have continued trying to mediate with Iran indicates that states building stronger defence arrangements with Saudi Arabia are not necessarily severing their relationships with Iran.

· Although Iranian closure of Hormuz is a card whose impact diminishes the longer it is played, its impact will not disappear overnight and, since LNG is much harder to reroute by pipeline than crude oil, Iran’s Hormuz leverage remains crucial for global LNG markets.

· Iran’s traditional regional strategy is under substantial pressure but has not collapsed and Houthi threats to the Bab el-Mandeb demonstrate that relatively inexpensive drones and missiles can continue giving Iran and its partners disproportionate strategic leverage.

· Alternative export routes from the Gulf merely shift vulnerabilities. They do not eliminate geography - Saudi oil reaching the Red Sea must still pass Bab el-Mandeb en route to Asia.

· The increasingly competitive (rather than cooperative) relationship between the UAE and Saudi raises concerns about whether the GCC can continue to be automatically treated as a single strategic actor.

As is usual in the Middle East, nothing is simple. But the complexity of and inter-relationships between the current set of moving parts is exceptional. It may be that the US war with Iran does indeed re-shape the region in a fundamental way: just not quite the way that US planners may have envisaged when they gave the ‘Go’ order on 28 February.

He is Doing the Little Things Well

Burnham has made it repeatedly clear that his top priority is to make life easier for the people that politics had forgotten. In his first Cabinet meeting, he demanded every member of his government to find ways to reduce daily living expenses for the UK public. To quote the Guardian ‘last year…Martin Lewis…advised the government to find “100 small things that piss people off” and set about sorting them out….That approach has been adopted… by Andy Burnham since entering office’ with a flurry of ‘small’ policy announcements. In his first weeks he has:

- Capped national bus fares at £2.00

- Scrapped VAT on electricity bills

- Granted a 20% business rates reduction for pubs, social clubs, and live music venues

- Brought forward the ban on deceptive consumer “subscription traps” by three months

- Announced plans to reduce betting and vaping shops on high streets

- Pledged to end rough-sleeping

- Undertaken to re-double the building of council houses

- Commenced a decentralisation drive

These announcements may not have made a huge difference to the cost-of-living squeeze, but they are visible signs of a sense of drive and purpose, indicating that Burnham intends to make a difference.

Proactive Government, Reconnecting with the Population

Burnham believes that voters want to see a government which is active in addressing and offering solutions to everyday frustrations. In contrast to Starmer who famously promised that his government would ‘tread more lightly on people’s lives’, Burnham believes that government should not be a spectator. That where necessary, government should not be afraid to intervene. Burnham wants people to know and see that he understands the pressures they are under; that his government will do more to ‘lighten their load’; that places which have been left behind will no longer be ignored; and that he will fight back against ‘rip-off Britain’. In making it clear that, wherever there is a confrontation between business and voter, he will take the voter’s side, Burnham is also sending a deliberate and very visible warning to companies not to overstep the mark in their behaviour towards voters.

So, a good start? Yes. So far. Small changes. But plenty of them, creating the impression of drive, intent and activity – especially given that he only took up the role on 20 July and that Parliament and his government have been on holiday for a large chunk of that time. Burnham now needs to pull all these small initiatives together into a compelling narrative arc which gives a structure, direction and meaning to his government – something, again, which Starmer failed to do – avoiding the danger of the much-derided “cones hotline” of policy announcements which are too trivial or inconsequential to merit Prime Ministerial attention.

And there is evidence that Burnham is building that narrative arc. He is a voracious user of social media, with more than a million followers. His online approach to politics has a serious intent, which is paying dividends. A disengaged youth is re-engaging with the things a PM is doing, offering the nirvana of believing in politics again: breaking down the youth antipathy and political alienation aligns absolutely with Burnham’s plan to reach the parts of the UK society that politics has left behind. His approach is already cutting through in a way that Starmer never managed: for the first time in over a year, Labour has overtaken Reform in the opinion polls (helped, no doubt by Farage’s bin-battle).

Difficult Decisions

As I say. So far, so good. But when faced with bigger challenges, Burnham has not shown the same steely sense of purpose and seems in no rush to take those more difficult decisions.

Take the controversy over prison overcrowding. The UK’s crime rate has fallen by 90% over the past 30 years; but 61% of the population believe it is increasing. Instead of trying to change or educate public opinion, politicians respond to the public perception by ratcheting up sentencing. As a result, the UK has the highest incarceration rate in western Europe, locking up more people than the prison estate has the capacity to hold and creating serial over-crowding crises, to which successive governments have responded with ‘early release’ programmes.

Under the current programme, two of the three killers of a Police Constable, Andrew Harper, were due to be released. Police Chiefs went on the radio to express their horror and anguish that PC Harper’s killers might be released early. A public petition quickly reached over one million signatures. Even Burnham’s most ardent supporters accept that he does not like to be unpopular, so, when, faced by his first piece of national public opprobrium, it was perhaps unsurprising that, fearful of a public storms over this particular crime, Burnham (having initially argued that he could not find a way to keep the killers in prison) folded, instructing his Justice Secretary to find a way to keep the killers in gaol. As every lawyer knows, hard cases make bad law. Creating an exception to keep PC Harper’s killers in prison undermines trust in the rule of law and the impartiality of the system. But in Burnham’s world, that outcome appears preferable to courting unpopularity.

The same is true of the Rosebank and Jackdaw, the two N Sea oil and gas fields to which Labour is apparently considering granting licences. The oil and gas industry and the right-wing of UK Media, political and public opinion argue that it is in the UK’s national interest to exploit the fields. The Greens and wider left of centre opinion is that the fossil fuels should be left in the ground. Burnham has promised to be ‘pragmatic’ in his approach to energy and has indicated he may will approve the licenses. But, whichever choice Burnham makes will be unpopular with some sector of the public. And we have not seen, so far, any indication that he is a rush to make that choice.

Which takes us on to climate change. As Mayor of Manchester, Burnham was not shy of addressing the climate crisis, committing the city to becoming carbon neutral by 2038 and arguing that local government lacked the powers necessary to deliver the changes demanded by the climate challenge. But, despite record-breaking summer heat which has left parts of the UK on fire and others looking drier than the Gobi desert, Burnham’s only response so far (after holding a COBRA meeting) has been to ask shops not to sell disposable BBQs. Given the impact this summer has already had on crops (and that farmers are being forced to break into their winter stocks now to feed their animals), as well as the higher death toll and the struggling public services and infrastructure, the absence of a sense of urgency - a policy speech or announcement of plans to accelerate Net Zero commitments or adaptation of public infrastructure to climate change - from such a proactive PM feels a bit odd. Net Zero is difficult. Reaching the country’s goals will be expensive and disruptive. Arguing for those goals now will court unpopularity with sections of UK society. And reaching them is almost certain to add to the cost of living, not the opposite.

And the UK’s drought brings us to one of the biggest decisions confronting the PM: what to do about the water industry? Burnham has repeatedly said that “Our water industry has…not been working for people for far too long” and that the government would study “how we can give the public more control and help keep bills as low as possible”. One of the reasons for public anger over the water sector is that the industry has failed to invest in new and existing infrastructure: the only way it can raise the money to do that is through hiking customers’ bills. But when Ofwat recently allowed an increase in consumers’ bills to permit that investment, Burnham was reportedly furious, stating publicly that “Customers cannot be treated as a blank cheque. Where water companies seek to pass…costs on to households, they will be challenged.” At some point, Burnham will no longer be able to straddle that fence – he must either grasp the nettle and nationalise the water industry (or introduce a series of SARs); or he must allow bills to increase to pay for the investment the sector needs. If he does the former, he will send a poor signal of the UK’s attractiveness as a destination for international investment and will have to find the money for that investment from State coffers (as well as recruit people into the civil service who have the capacity and experience to run a public utility company). If he does the latter, he will be accused of abandoning his pledge to help consumers. Either way, he will upset a part of his constituency.

Comment

Burnham has so far done exactly what he said he would – focussed on addressing the cost of living. Demonstrate to a dubious public that politics can make a difference to daily life. That the little person does count. That as PM, he is listening. And that approach is working. Labour is in the lead in the polls; the youth is re-engaging. But to govern is to choose. And once a government starts making choices, it inevitably disappoints a sector of society. When it comes to those difficult decisions, Burnham is going to find that (with apologies to the purists) Bob Marley was right: you can please some people some of the time, but you can’t please all the people all of the time. How he deals with that inevitable unpopularity will be the ultimate test of whether he succeeds as the PM.

The fact that Trump has declared victory in the war more than a dozen times; that he has declared a deal is imminent nearly 20 times; and that the US and Iran have teetered on the brink of a return to full-out war several times since June’s MoU (and even more since the ceasefire of early April) suggests that President Trump has not yet worked out how to manage this new reality. Each cycle of false declaration of victory; empty promise of an imminent deal to end the war; and renewed strike/threat of strikes has further eroded Iranian trust in the US, informing their negotiating stance and leading them to the conclusion that Trump’s declarations are not endpoints, but merely punctuation points in the protracted negotiation for power.

How did this happen?

The Iranian regime has years of practice of living under economic pressure. Western sanctions have inured the populace to daily hardship. Much as the Taliban calculated in Afghanistan that it could outwait Western patience, money and tolerance for lost lives, the Iranian regime appears to be calculating that it can bear the economic pain better and for longer than the US. The Iranians have therefore developed a strategy of ‘weaponising time’, which has successfully tied Trump into a cycle of endless negotiation, eating up the electoral calendar between now and November.

The Iranians have cause for personal animosity towards Trump. In his first-term he tore up the JCPOA and assassinated Qassem Suleimani. In his second term he killed the long-serving Iranian leader Ayatollah Khamanei and has twice sanctioned bombing campaigns against Iran whilst in the midst of negotiations with the Regime. If the Iranian ‘time-weaponisation’ strategy does not seem designed to deliver a solution to the crisis, that is because at least part of its aim is to exact revenge on Trump for these hurts by inflicting electoral humiliation on him.

- Trump’s political clock runs faster than Tehran’s: the more blame for the economic impact of the war that attaches to Trump, the greater the political cost to him.

- Iranian control of the Strait is not up for negotiation. If Trump is to gain the peace he so desperately needs for domestic political purposes, he will be obliged to accept a new situation of Iranian control in the Gulf – one that did not exist before the campaign began. Negotiating an alternative will eat up precious time.

- Tehran has increased the pain of conditionality of a deal, demanding sanctions relief, unfreezing of its assets, an end to the US blockade, security guarantees and reparations. Tackling these demands will take huge amounts of time.

- Tehran has separated the negotiations into stages. First Hormuz; then the more complex nuclear negotiation. However, to get to the nuclear part of the deal, the US must first pass through the forest of Iranian demands - a negotiating marathon that the Iranians believe will take three to four months (not the 30 days envisaged in the MoU) - time Trump does not have if he is to declare victory before the Mid-Terms.

- Trump’s tactic of threatening ‘destruction’ on Iran, only to withdraw the threat once there appears to be the possibility of a deal, has given Tehran an incentive to offer just enough diplomatic movement to defer escalation without conceding the central issues. Once the threat of force is removed, Iran returns to its original negotiating position. A time-consuming cycle.

As that cycle repeats itself, the two sides never quite revert to their previous positions. In April, the US was insisting that the phasing of any agreement would be nuclear settlement; peace; Hormuz. By contrast, the Iranian sequencing was: ceasefire; Hormuz/war settlement; sanctions relief; nuclear negotiations. Each round of negotiations has become narrower and more transactional, with the Iranian negotiating position on Hormuz strengthening, culminating in the June MoU (whose 60-day negotiation deadline runs out soon), which more closely reflected the Iranian than the US sequence.

The MoU should have been an endpoint, fixing the respective starting negotiation positions. But that is not how the Iranians have viewed it. The MoU set out a sequence in which ending sanctions, addressing frozen assets and a plan for compensation would be part of the final deal. The Iranians have manged to turn that sequencing on its head – to get to the nuclear negotiations requires the US to have already agreed concessions on economic relief; lifting of sanctions; ending the US blockade of Iranian ports; unfreezing of Iranian assets; and new commitments on non-belligerence. As if to make the point that the Iranians are now setting the pace, Tehran is now negotiating a solution to Hormuz with Muscat, reducing the US role to that of impotent bystander - the peremptory way in which Tehran dismissed Trump’s counter-demand earlier this week that Iran pay compensation for the deaths of US service personnel further underlines how the relative negotiating strengths of the two sides has shifted. And the Iranians have now added another rod for American backs. If /when a final agreement on access to and transit of the Strait of Hormuz (including possible transit fees) is agreed with Oman (a negotiation and agreement from which the US has been excluded), the Iranians have announced that nothing will enter into force until the US removes its blockade. Here again, the Iranians have been ahead of the US: it will be extremely difficult for the US for the US to accept an agreement which gives Iran such unprecedented control over a key global trading route. But if Trump does not, the blame for a further delay in re-starting global trade will be laid at the doors of the White House.

Another element success of the Iranian negotiating strategy has been to link the various wars in the Middle East. Thus, Israel’s conflicts in Gaza, the West Bank and Lebanon have become a key stumbling block to obtaining a wider peace in the region, which has in turn strained US-Israel ties (to Tehran’s delighted benefit). To find peace in the Gulf, Trump will not only have to swallow a number of deeply uncomfortable concessions, but he will have to persuade Netanyahu to do likewise. That may be harder than the actual negotiations with Iran: the Israeli PM is just as constrained as Trump by his own electoral time-table and pressure from the US to end the war in Gaza or accept difficult concessions in the negotiations with Iran is deeply unwelcome for Netanyahu – as his rebuff to the US 15-point Gaza plan earlier this week made clear.

Is Iran’s Strategy Self-Defeating?

The above analysis suggests that Iran has deftly seized the negotiating initiative, after what could be termed a ‘battering’ on the battlefield. The Iranian position appears to be predicated on stringing out peace negotiations until and beyond the mid-terms and using US domestic displeasure and economic pressure to destroy Donald Trump’s domestic political position in the US. But Iran should not push that advantage too far.

Humiliating Trump at the ballot box may seem like a victory for Iran. But there is a risk that it becomes a pyrrhic victory. If Trump loses the mid-terms badly, he may feel that he has no/less incentive to make the difficult compromises necessary to reach a binding agreement with Tehran. If Trump faces humiliation, he may decide that continuing a conflict he cannot win is preferable to accepting a peace he doesn’t like.

And, in the long-term, Iran’s weaponisation of the Strait of Hormuz may become a reducing asset. If the Gulf countries follow the lead of the UAE and Saudi and increasingly find alternative, overland routes out of the Gulf to trans-ship their products from the Red Sea, then, even if Iran does begin to charge tariffs on freight, over time, there will be less of it using the Hormuz route. Higher tariffs on dwindling transit will only accelerate that trend.

However, even if the approach of tying Trump into endless negotiations and seeing him beaten at the ballot box feels more tactical than strategic, there is a longer-term intent emerging: to use the war to create a new and much-changed regional security structure, with US military bases expelled from the Gulf and Iranian control over the Strait of Hormuz normalised. Such a radical re-think could also re-balance the relationship with the US and potentially – in the eyes of Tehran’s ‘moderates’ – open Iran up to US trade and investment, enabling Tehran to reduce its over-dependence on Russia and China.

Comment

If and when a lasting deal with Iran emerges, it is likely to fall far short of the wide-ranging objectives that President Trump set out in February. Faced by an obdurate Iran which has deployed a skillful negotiating strategy, the US objectives have progressively shrunk from encompassing nuclear weapons, ballistics and regional allies to just one: that Iran re-open the Strait of Hormuz. Such a retraction in scope of ambition is a strategic humiliation, leaving Tehran with control over access to the Gulf (and possibly charging vessels a transit fee) that would have seemed unthinkable before this war began.

Far from the “unconditional surrender” that Trump was demanding three months ago, Tehran’s success in converting the Strait of Hormuz from an economic waterway into a central component of its regional and strategic power has given the regime a new self-confidence and belief. For Trump, on the other hand, every route out of the quagmire that his Gulf adventure has become now looks politically fraught. With US missile interceptor stockpiles dwindling; a rebellious Israel; an American public increasingly dismissive of the war; and erstwhile Gulf and European allies alienated, there are few good options – escalate and further entrench the Iranian regime at the same time as exacerbating the damage to the US and global economy; or accept a humiliating peace deal and Iranian control over the Hormuz. Trump was harshly criticised by allies and opponents alike for the June MoU - since Iran has manoeuvred itself into a stronger position since then, any new deal is likely to provoke a more strident political backlash in the US. The kind of deal that would allow Trump to save face is simply not on the table.

Last week Europe’s only land border with Africa was overwhelmed by a human wave of people swimming and wading from Morocco into Spain. Cue recriminations, political posturing and the performative weaponisation of migration by the extreme right. The fact that nearly 100 people lost their lives and that 98% of those who crossed the border were back in Morocco within 48 hours was ignored by the baying populist nativists who consistently refuse to engage with both the need for and causes of immigration.

A little history lesson

Map showing Spanish territorial claims in N Morocco.

· Ceuta was captured by Portugal in 1415. When the Portuguese and Spanish crowns were united under the Habsburg monarchy in 1580, Ceuta became part of the united kingdom. When Portugal restored its independence in 1640, Ceuta remained loyal to Spain and Portugal formally recognised Ceuta as Spanish in 1668.

· Melilla was claimed in 1497 by a Castilian expedition and remained Spanish over the following centuries. Spain concluded a series of treaties and conventions with Moroccan sultans during the nineteenth century which established (and expanded) the territorial limits surrounding the city.

Spain explicitly excluded Ceuta and Melilla from its protectorate zone in 1912. The Protectorate, instead, bordering the two cities which Madrid regarded as existing Spanish national territory. When Morocco regained its independence in 1956 and argued for the restoration of the full territorial integrity of Morocco (including Ceuta and Melilla), Spain maintained that independence ended the protectorate, not Spanish sovereignty over Ceuta and Melilla. The sovereignty dispute remains unresolved, but managed through a willingness not to allow it to derail their wider cooperation.

So back to last month’s crisis

Spain and Morocco have an exceptional “rejection at the border” procedure for Ceuta and Melilla, which allows for the immediate return to Morocco of those people detained at the frontier whilst attempting to overcome ‘border-containment structures.’ On 8 July, the Spanish Supreme Court ruled that a swimmer would not be attempting to overcome a physical containment structure and therefore could not be immediately returned to Morocco under the rejection at the border procedure. Critically, the ruling made clear that anyone thus detained could still be expelled, but would be subject to a longer individual procedure and a formal decision by the competent government authority.

Whether deliberate or accidental, a misunderstanding of the Supreme Court judgement appears to have been the immediate trigger for a belief that those successfully crossing the Morocco-Ceuta border by sea would not be sent back. The Moroccans claim that on 22/23 July they began raising their concerns with Madrid that online network discussions of the ruling could create a border problem. By 29 July, more than 1500 people had crossed the border in less than a week (compared with a ‘normal’ average of around 40), sharing social media pictures of themselves in front of the Assembly of Ceuta building with its Spanish flag and sending the message that ‘if you swim in, you cannot be sent back’.

That online messaging had a snowball effect: the more messages that were sent from Ceuta, the more truth was accorded to the rumour. On 30 July, Spanish and Moroccan border patrols successfully turned back crowds at the border with Melilla. But, at Ceuta (easier to reach from Morocco’s centres of population than Melilla) nothing could hold back the huge numbers of people pressing at the border. Within 24 hours, around 72,000 people had crossed (Ceuta’s population is only 84,000). The response was prompt. Spain sent in the military. Morocco used water cannon. And within 48 hours, 70,000 of those who had made it into Ceuta were back in Morocco.

But that prompt response did not prevent Spain’s political opponents from wading in. In the US, Elon Musk, never one to miss an opportunity to push his hateful rhetoric, lost no time in comparing the TV footage to an out-take from the film World War Z. Vice President JD swiftly blamed the crisis on Pedro Sanchez’ Socialist government and Trump, describing the incident as “an invasion of a country by hundreds of thousands of people”, warned that electing Democrats would make what happened in Ceuta would “look small-time.”

European Fracture

This was a deadly crisis at Europe’s borders, not a collapse of its frontiers. So, it would have been reasonable to expect sympathy and solidarity from Spain’s EU partners – as required by the recently-enacted Migration and Asylum Pact. Instead, local disorder became a threat to European cohesion, as we were treated to the spectacle of the Italian Prime Minister Georgia Meloni (blithely ignoring both the fact that Ceuta and Melilla are specifically excluded from Schengen and that more illegal migrants enter Europe through Italy than by any other route) rounding on Spain, arguing it should be suspended from Schengen – a demand quickly supported by Finland and Denmark. Twenty-two other countries, including the Netherlands, Germany, Austria, Poland and Sweden, joined in the criticism of Spain, signing a letter demanding stronger border controls and blaming Spain’s regularisation campaign. The President of the Commission called the crisis ‘unacceptable’ (a remarkable contrast with her response to the Lampedusa crisis in September 2023). Not to be outdone, politicians from Reform and Restore, the UK’s far-right populist parties leapt on flights to Ceuta to compete in their manufactured outrage over a border crisis which was unlikely to have any impact on the UK.

The confusion over the impact and implications of the Spanish Supreme Court ruling was not helped by a comment from Magnus Brunner, the European commissioner for migration who (whether deliberately or otherwise) further muddied the water when he referred to Spain’s decision to regularise 500,000 undocumented migrants as ‘not a good signal, definitely not a good signal for the rest of Europe’. Leaving to one side the fact that immigration policy is a nationally-reserved competence, the Spanish regularisation process was completed long before the crisis in Ceuta and, even if it had still been open, the criteria applied to the process would have excluded those who only crossed the border on 30 July.

So, Who Dunnit?

Morocco?

According to this theory, Pedro Sanchez’ recent visit to Algeria in pursuit of a new gas deal so annoyed Rabat that they deliberately opened the migrant floodgates to send a signal to Madrid that such flirtation with Morocco’s worst enemy would not be tolerated. Morocco has form for doing this - the 2021 Ceuta migrant crisis was triggered by Spain offering medical treatment to the Polisario leader, Brahim Ghali.

I don’t have much time for this theory. The Morocco of 2026 is not the same as that of 2021 – it is a much more confident, self-assured nation. Madrid has recognised Morocco 2007 Autonomy Plan for W Sahara. The two countries work increasingly closely together, cooperating on everything from intelligence, to commercial exchange, to the 2030 Football World Cup. In 2021, Madrid was very quick to attribute blame to Morocco, an accusation Rabat never explicitly denied: this time Sanchez was equally quick to praise the bilateral cooperation with Rabat. 98% of the migrants were returned to Morocco within 48 hours (in 2021, it took nearly 10 days to reach that level of return). After initially appearing surprised and overwhelmed by the numbers, Moroccan border guards were resolute in deploying water cannon, tear gas and riot-control equipment to push back the crowds at Ceuta and prevented access to Melilla. That does not feel like the behaviour of a country trying to send a political message by facilitating mass migrant crossings of its borders.

The US?

According to this theory, Morocco relaxed its border controls to allow thousands of migrants to cross into Ceuta either at the (express or implied) request of, or to ingratiate itself with, the Trump Administration, whose loathing for Pedro Sanchez and his government is well-known. The US’ National Security Strategy commitment to ‘Cultivating resistance to Europe’s current trajectory within European nations’ and a 13 July State Department release announcing funding for furthering this aim, add weight to this theory.

I think it highly unlikely that Morocco would risk antagonising Spain and the EU (both collectively and individually, Morocco’s largest trading partners) simply to ingratiate itself with the US, with whom its relationship is currently extremely healthy. There is no question that the US was delighted by the incident, leaping upon it as proof of its accusations of civilisational decline in Europe and using it as a whip with which to beat Sanchez and his government, but it is a long way from there to arguing that Morocco initiated, facilitated or created the crisis to please Trump, or that (even) his administration would make such a demand of Morocco.

Russia?

The evident European disunity must have been balm to Vladimir Putin’s eyes and ears. The success of the Belorussian operation to weaponise border control issues between July and November 2021 would have left him in no doubt as to the political sensitivity of migration for EU Member States and the capacity of that sensitivity to set one state against the other, pulling at EU harmony.

I find it hard to believe that Moscow could have actually triggered the crisis. But I find it equally highly plausible that Russia did everything it could to aggravate the situation, mobilising its army of online bots to that end.

The most likely explanation is that signals of an impending crisis were missed by both Spain and Morocco, preoccupied by internal issues. 30 July is Throne Day. His Majesty King Mohammed VI was in N Morocco. There is always an enormous security operation around the event. The acceleration of the build-up of migrants was too sudden for an effective proactive response by Moroccan military and auxiliary units distracted by their focus on Throne Day security. From its side, Madrid was preoccupied with dousing the forest fires ravaging the country and likewise did not notice the build-up of migrants until it was too late. Once the migrant flows had begun, Russian online disinformation was central to creating a massive snowball effect with the explicit aim of destablising the EU and sowing disunity amongst its members.

Comment

There are a number of important observations:

· The Gen-Z protests which rocked Morocco of last year may have died down, but the root causes remain. The country still faces significant economic disparity and lack of economic opportunity for the youth (despite record levels of new investment for education and training that the King insisted were included in the most recent budget). That means there will always be a ready-made ‘supply’ of youth which can be weaponised by future online campaigns encouraging mass border crossings and the EU’s failure at the first hurdle to demonstrate solidarity, which is one of the key pillars of the recently enacted Migration and Asylum Pact, will not have gone unnoticed in Moscow.

· Europe needs a better system for managing and controlling its borders. The EU cannot keep looking to its neighbours to be policeman, doormen or gate-keepers. Its reliance on its neighbours creates a huge strategic vulnerability which can be exploited as leverage. This observation leads to the conclusion that the EU urgently needs to rebalance its relationships with its neighbours to make them more equal.

· The Ceuta crisis showed how fast European political divisions can transform a local emergency into a serious threat to EU unity. If that solidarity depends on political alignment, the Schengen area ceases to be a union and becomes a bargaining chip that the EU’s adversaries now know how to exploit. And those adversaries are many – both within the EU and outside.

· The far right will use immigration as a lever at every opportunity. Migration crises offer the perfect platform for nationalist populists to exhibit their favourite, facile performative outrage and political stunts. Their ability to channel and fan (legitimate) public concerns about immigration (amplified by online mis and disinformation campaigns) means they can effectively shape the EU response even without being in positions of power.

· Europe is ageing fast. Its dependency ratio is wholly out of line with the potential for continued economic growth – a recognition that explains in large part Sanchez’ regularisation policy. Sensible politicians have an enormous responsibility to recognise that the most effective response to tackling immigration relies on development, not security responses. They also have an obligation not to shy away from difficult conversations about the need for controlled immigration which brings enormous economic benefits, rather than parrot populist tropes.

Ceuta was a serious test of EU solidarity. The bloc’s fragmented response and the delight of the far-right populists almost guarantees it will be not be the last.

Why did the predictedmarket crash not happen?

As global supply crunched with the initial closure of Hormuz, the IEA commented that ‘The war in the Middle East is creating the largest supply disruption in the history of the global oil market.’ Logic and the laws of supply and demand seemed to make it inevitable that removing 20 mbd from a market that was balancing at around $70/barrel with supply and demand at 105 mbd would push prices up towards $130 before demand destruction caused by scarcity and pricing began to eat away at the imbalance.

In February, the IMF had been projecting global growth for 2026 of 3.4%. The projection was revised to 3.1% in their April forecast, with a warning that, if oil prices remained higher for longer, growth might drop to 2%. However, in July, the IMF update only revised its global growth projection down to 3 % - still a drop, but an indicator that the impact of the war on the global economy had been more limited than initially feared. This limited impact was caused by a combination of factors:

- Supply scarcity was directed at a market that was historically highly-cushioned by on-shore and at-sea inventories;

- Shifts in refining patterns (a market adjustment in the face of the initial price spikes);

- Huge releases from strategic reserves; and,

- The Chinese policy response:

o In 2025, China had been quietly building its oil inventory, so that, by February 2026, Chinese oil stocks were estimated at around 1.4 billion barrels. When the conflict started, China ceased its international inventory purchases, instead drawing crude from its existing stocks; reduced refinery runs; and blocked exports of both refined products and crude. These policy choices resulted in a reduction of Chinese crude purchases of around 40%, releasing around 5 mbd back onto the international market.

o Much of the oil that China had been buying came from Russia. Once the closure of Hormuz began to push international oil prices upwards, China stopped buying Russian oil: the size of its inventory meant that China did need to get into a bidding war with countries (such as India) for Russian oil. Instead, Chinese purchases of Russian oil and refined product actually fell, meaning more Russian oil was available on international markets.

But that was then: this is now

The graphic above shows clearly the effect of the US/Iran MoU signed last month. Even though none of the problems associated with the conflict in the Gulf (well shut-ins, damage to critical infrastructure, mines in the Strait, tankers in the wrong place and the simple time it takes oil-on-water to get to its destination) had been solved, markets responded positively, apparently making the assumption that a return to war was a threat now behind us and that things would quickly return to the status quo ante.

But the graphic also shows the response of the oil price to this week’s events. If we are in fact returning to a hot conflict, then it would be reasonable to expect markets to respond in the same way as they did before: a policy response, a price peak and then a stabilisation. Maybe, but it feels as if things are different this time round.

a) Global Inventory Stocks

Any new, prolonged closure of the Hormuz would now occur against a significantly different inventory backdrop.

At the beginning of March, global inventory stocks were at an all-time high. Those stocks have been drawn down to cushion the global economy against the supply crunch. By the end of June, stocks held by OECD economies had fallen to lows not seen since the 1980s. US crude and petroleum product exports reached a record 12.9mbd in late April – an increase in supply driven by unsustainable draw-downs from the US’ Strategic Petroleum Reserve (SPR), which is now at its lowest level since 1983 with some analysts predicting that, if the drawdowns of the US SPR continue at May’s rate, the remaining SPR capacity will be exhausted within four months.

This picture of scarcity is reflected globally. The IEA calculated that the total global stock of oil in storage at the beginning of the conflict was between 2.6-3.2 billion barrels (depending on whether the approximately 600 million barrels of privately held industry stocks maintained under government obligations are included). Reuters calculates that around one billion barrels of that oil has been drawn down. That rate of decline is unsustainable in the absence of a durable peace agreement which re-opens the Strait of Hormuz – an outcome that seems as far away as ever this week with renewed US and Iranian strike and counterstrike.

(As an aside, the other part of the explanation for the IMF’s minimalist assessment of the impact of the war on global economic growth is the strength of the technology sector - in particular, AI. Since continued growth of ASI relies on availability of cheap, easy-to-access energy, a prolonged new closure of the Strait of Hormuz and subsequent tightening in global oil markets would risk impeding AI investment, triggering a growth and financial shock which would compound an energy price and supply shock to create a serious danger impact to the global economy).

b) Availability of Refined Product

In March, our attention was focused on the availability of crude: that was the wrong indicator. Availability of refined product is the indicator that gives a true picture of market tightness. Crude can recover faster than refined products because tankers can move stored crude immediately, whereas restarting a refinery safely and rebuilding product inventories takes longer.

Counter-intuitively, given that prices of refined products are between 35% - 70% higher than before the war, refineries are producing around 10% less now than they were in February.

Nearly 27% of refined product exported to global markets comes from The Gulf, China and Russia. Each of those origin producers faces its individual constraint:

- Gulf product has been removed from global markets by the blockade of the Strait of Hormuz (although piped oil has replaced some Gulf water-borne crude exports, the pipelines do not carry refined product). Even if the Strait were to be fully re-opened tomorrow, damage to Gulf refineries means it will be several months before the Gulf gets back to full production of refined product.

- As noted above, China has blocked the export of refined product to protect domestic demand from higher international prices (the relaxation of that ban earlier this month has not yet fed through into increased supply).

- That leaves us with Russia, the world’s second-largest supplier of diesel...

Ukraine’s current campaign against Russian shipping in the Sea of Azov and the Kerch Strait which leads into the Black Sea has been intensive and effective - 119 vessels hit and damaged in the last seven days. The aim of the campaign is to disrupt Russia’s fuel and logistics supply chains and degrade Russian capacity to sustain military operations in southern Ukraine and Crimea. But, because the (reduced volumes) of product produced in Russian refineries is now re-focused to domestic, rather than international markets, the export of Russian refined product has also been disrupted. That means countries such as Turkey, which had continued to buy Russian diesel, are now entering international markets increasing global competition for a scarcer resource.

And there is a secondary refined product problem: crack spreads (the difference in price between crude oil and refined product). IATA quotes the June spread for jet fuel in Asia as $80/barrel. It hit $160 a barrel in Asia on July 14th. That difference is driving refinery capacity towards jet fuel to the detriment of petrol (since the crack spread on diesel is also at a historic high of around $90/barrel, diesel has been less hard hit than petrol). Even though in Q2, US jet production was around 24% above its five-year average (whilst US petrol stocks are 11 million barrels below their five-year average) IATA warned earlier this week that jet fuel supply remains ‘wafer thin’.

The flight to jet fuel (pardon the pun) brings another problem with it. Since one barrel of crude oil only produces around 15 litres of jet fuel, compared with around 72 litres of petrol, a sustained switch to jet fuels has implications for a crude market in which supply is already constrained. The attractiveness of jet fuel reduces the efficiency of further releases from strategic reserves in lowering petrol prices - with implications for global inflation as higher input costs work their way through the supply chain.

Comment

There does not seem to be a military solution to the conflict in the Gulf. Finding a lasting resolution will require patience and diplomacy, tact and attention to detail – not President Trump’s strong points. The Iranian regime believes it has the greater resilience and capacity to bear the economic pain, perhaps even all the way through the summer, which can be used to pile pressure on Trump ahead of the November midterm elections to force him to back down. That may also be a factor in the (so far) limited price-rise response of the oil market we have seen this week.

For a brief moment after the signature of the MoU, it looked as if Gulf oil was going to return to the market which would settle back to normality and enable the global economy to dodge the bullet. But with this week’s renewal both of hostilities (albeit not quite yet a full return to all-out war and Iran has been careful not to draw Israel back into the conflict or to strike the UAE or Saudi Arabia) and the closure of the Strait, the global economic outlook has turned negative.

The levers the world had at hand the ‘first time round’ to mitigate the impact on the global economy are no longer available and the combination of constrained supply, weaker reserves and reduced refinery runs creates a very different and more vulnerable backdrop to the ‘new’ conflict in the Gulf to that which existed in March. This reduced resilience means the oil market is less able to respond to the prospect of a new kind of rolling on-off conflict in the Gulf, with worrying implications for the global economy.

On 17 July, it seems almost inevitable that Andy Burnham will become the UK’s seventh Prime Minister in a decade. He will do so unopposed from within Labour’s ranks and will take over government at a difficult time, with the international geopolitical environment in turmoil and UK government finances under sustained pressure. For someone who was not even a member of Parliament two weeks ago, it is quite the transformation.

It is clear that Burnham’s team has been surprised by the speed of events (though they should not be, given they set them in train) and are therefore working out their programme for government as they go along, it is perhaps not surprising that we have not seen detailed policy proposals, more what can perhaps best be described as ‘a direction of travel’.

Little is known about Burnham’s plans for government (apart from that he seeks to decentralise power, increase public control over essential services, prioritise living standards, and demonstrate fiscal reassurance) and, since he has not yet confirmed his choice for Chancellor, less is known about his economic platform. However, it is possible to paint a reasonably well-informed picture drawing on the contents of his speech on Monday, his comments during the Makerfield campaign, conversations with his supporters within the Labour Party and his 2024 book “Head North”.

Political style

Burnham is pitching a “broad church” government, less factional Labour management, and more cross-party cooperation. His message is deliberately place-based (“place before party”), problem-solving over Westminster point-scoring, and long-term reform over short-term politics. He plans to remove govern by consent, rather than force.

This approach is also reflected in his approach to the civil service, where he wants to end the adversarial system which pits individual government departments against the Treasury. Burnham clearly favours de-powering the Treasury and has apparently considered splitting it up. Comments by Louise Haigh (a key advisor and friend to Burnham) support this concept - “…no other country in the world has such an imperial finance department as we do…we have an underpowered Downing Street, in which the Prime Minister needs the agreement of the Chancellor to push ahead with the priorities on which they were elected” – a clear echo of the words in the resignation letter of Defence Secretary John Healy last month.

Burnham is comfortable with a more ‘interventionist’ approach to government than Starmer. His approach to ‘public control’ over utilities demonstrates that he believes in an active State, rather than one which follows a minimal state intervention, free-markets doctrine. And he is a better, more relaxed and more natural communicator than Starmer – the Guardian described this as ‘the power to communicate, the power to make an argument and the power to give people hope’.

Labour supporters will take great heart from a recent More in Common poll. When asked how people would vote with Burnham as leader: the party leapt from seven points behind Reform UK to one point ahead. And Labour MPs, for whom Burnham’s crushing victory over both Reform UK and the Green Party in the Makerfield by-election is a much-needed fillip, are likely to give him more space than they did to Starmer.

Main Policies

• Devolution

We will hear a lot about “Manchesterism” in the coming months. This is shorthand for Burnham’s core proposal of Revolution through Devolution - a major transfer of power from Whitehall to regions, local authorities and communities. Britain is the most centralised G7 country for tax and spending policy and is among the most economically unequal in the developed world. Burnham intends to address this through the creation of a “No 10 North” in Manchester, which will act as the “nerve centre of a rewired Britain” to drive devolution of power and resources out of Whitehall and across the UK. He has allocated three main tasks to this devolved Number 10: increasing public ownership of utilities such as water, energy and housing; reindustrialising parts of the country; and regenerating left-behind towns (addressing the ‘left-behinds’ in society is a recurring theme of Burnham’s political agenda).

Burnham is in favour of enabling greater fiscal devolution, including granting local authorities powers over business rates; enabling them to retain part of the increase in land value brought about by major building developments; and allowing them to “take greater public control of essential services like water, housing, energy and transport” – local authorities would have devolved power to decide how to spend this revenue, including on health services.

He would like to see every part of the UK to have its own devolved settlement, with elected mayors where areas want them, enabling local authorities to prevent central government from taking decisions that affect them (for example, scaling back plans for high-speed rail link). He would scrap the “Barnett formula”, which governs Whitehall funding for Scotland, Wales and Northern Ireland. This approach borrows from Germany’s Basic law to force central government London to demonstrate that its decisions always reduce regional inequality.

Burnham plans a radical overhaul of Britain’s governing machinery: a written constitution should be drawn up which would include the “human right” to “a good, secure home” (hence his focus on building council houses); the House of Commons and House of Lords should both be elected on a proportional basis; the whipping system for MPs should be abolished - Burnham has said he will not be “using the whip system to create fear or close down debate’ (though, in a message clearly aimed at backbenchers who might take this comment as an indication that he will be a pushover and always open to negotiation, Burnham quietly dropped a sentence into his speech that makes very clear he intends to lead from the front and expects others to follow - “The political direction I set will not be up for negotiation.”)

• Economics

Perhaps Burnham’s greatest weakness is his economic policy (exemplified by continued uncertainty over who he will appoint as Chancellor). He has worked hard to reassure markets worried by his comments that government should ‘not be in hock to bond markets’ and should borrow more to invest hard, re-contextualising his comments by saying he would stick to Labour’s 2024 manifesto pledge not to raise income tax, national insurance or VAT on working people and to Rachel Reeves’ existing fiscal rules: balancing day-to-day spending with revenues and reducing debt as a share of GDP.

In his book, Burnham advocated a radical shake-up to Britain’s tax system, introducing a 10 % “starting rate” for lower earners and raising the top level of income tax to 50 % (though he has not set the level of earnings at which this rate would kick in). Burnham favours a land tax to replace council tax, but in the interim, he has called for higher council tax on homes in London and the southeast.

Burnham has called for a 10-year mission to raise living standards and reduce the cost of living through reindustrialisation, housing, infrastructure and asserting “greater public control” over utilities which he believes will deliver better essential services. Helping address the UK’s continuing cost-of-living crisis is clearly an early priority for Burnham who commented in his speech that people needed a “bit extra now to help with rising costs” and “can’t wait forever for change”.

Burnham has promised to impose rent controls on local landlords and plans the largest council housebuilding programme in the postwar period. This is linked to his wider regeneration agenda: using devolution, local growth institutions and public investment to revive towns and left-behind communities. This is consistent with his belief that highly centralised politics have failed to serve the population because so many areas have been ‘left behind’ and explains his comment that “It is time for Whitehall to accept that growth cannot be ordered from the top down. Instead, it can only be nurtured from the bottom up.”

Burnham has proposed reviewing the 2024 rise in employers’ national insurance contributions and cutting business rates for pubs, clubs and music venues by 20%. He also proposed raising the rates threshold for smaller hospitality, leisure and retail businesses. He will fund this largesse by imposing higher levies on large online warehouses and owners of empty high-street properties.

Burnham wants public procurement to favour British-based firms and domestic jobs (even when that means accepting a more expensive contract). He also wants procurement to generate social value, including apprenticeships and work placements. He has said he will “safeguard sovereign manufacturing and production capability across the country in critical sectors like steel, defence, energy, food and farming”.

• Social Policy

Burnham believes that the tertiary education system is too focused on university access and does not give equal status to professional training and technical education. His record in Greater Manchester suggests that he may consider a national version of the MBacc-style technical route.

Burnham recognises that to achieve the transformation he envisages, he will have to spend more on public services. But his pledge to stick to Labour’s 2024 Manifesto and the Fiscal Rules limit the scope for him to find sources for that funding. Given how sizeable the welfare budget has become, that seems a sensible place to start. Burnham is on record as saying that he is not “squeamish” about reducing benefit spending, but that he favours a preventative model focused on helping people back to work. There are indicators he could be more radical than might seem in this area - as health secretary under Gordon Brown, he proposed a free-at-the-point-of-use National Care Service funded by estate levies, and has said he “wouldn’t flinch” from tax changes to fund care reform.

Conclusion

I confess to a degree of cynicism about whether Burnham can deliver the change the UK wants and the people need. But I also confess to a rising sense of excited anticipation about his time in government.

Whilst there are still a great many unknowns about Burnham’s policies and approach to government – including on funding and geopolitics (his big policy speech on Monday was tightly focused on ‘radical localism’ and did not, for example, mention AI, productivity, the deficit, migration, China, The Gulf, or Trump) - his personal manifesto is ambitious and promises significant and radical changes to the UK State (and status quo). That is no bad thing.

However, Burnham has only three years before the next General Election in which to deliver the change he clearly feels the UK badly needs (I agree with his diagnosis). Since devolution (which responds to a genuine structural problem in the UK economy) is a time-intensive undertaking and talk of ‘constitutional reform’ packages scarcely sets the blood racing (neither initiative proffers genuine solutions to the UK’s struggles with productivity or economic growth) and given that he is an unknown quantity for the general public, with his policies untested in debate, Burnham will need to deliver some quick and highly visible wins on cost of living to keep the electorate onside. If he can’t, he faces rebellion in the Labour Party, exacerbated by disillusionment and a rapid fall from his pedestal.

Burnham is the last chance - failure could well signal the end of ‘establishment’ parties holding power in the UK in 2029: an outcome that would be truly revolutionary.

He comes to the threshold of national power on the back of nearly a decade as Mayor of Manchester. During which time his major policy achievement appears to have been to reduce bus fares. Since buses have somewhat of a mixed success rate in recent UK political history, it is not unfair to ask those in the Labour Party who are so delighted by his imminent accession to power, whether this gives a clear idea of what his programme is for government.

Notwithstanding these questions, the stampede to install Burnham in Number 10 has succeeded. As set out in my note last Friday, Sir Keir Starmer will stand down after the NATO summit on 9 July. The National Executive Committee (Labour’s central governing body) will then be responsible for setting the timelines for the election of his successor. As also set out in my note of last Friday, Wes Streeting has confirmed he will not stand against Burnham (either because he did not have the numbers required to credibly challenge Burnham, or because his decision was eased by the offer of a senior Cabinet post – possibly Chancellor). In the absence of other challenger, Andy Burnham would be the single candidate for the role and therefore crowned as the next leader of the Labour Party and Prime Minister of the United Kingdom.

In this scenario, he would take the reins of power without having set out his plan for government. His policies would be untested, unscrutinised and uncosted. The fact that he apparently does not even know who to appoint as his Chancellor is scarcely a boost to confidence that he knows what he is doing and is anything other than a moderately successful Mayor of a large city, manifestly unprepared for the challenges of running the UK in uniquely difficult circumstances.

One area of particular concern is Burnham’s economic policy – especially regarding nationalisation (starting with water), which Burnham argues would help solve the chronic poor performance of that sector. At no point does Burnham attempt to describe where the money will come from for buying out existing creditors and investing in building new and maintaining old infrastructure. Nor does he attempt to explain where the capacity, skills, ability and experience of running huge public utility companies is going to be drawn from - I can say for sure that no one in government has the slightest idea how to run a water company, for example. Nor does he explain how loading the government with additional expenditure when the UK’s national debt is already running at nearly 100% of GDP will help address cost-of-living concerns.

There is a vague chance that a Starmer-loyalist could be persuaded to stand against Burnham – not with any prospect of victory, but more to try and flush out details of his governing agenda. I do not think it very likely that this will happen – welcome though that public scrutiny would be - since the Party and government need to move forward, rather than spend the summer navel-gazing (and it is unlikely that any stalking horse would be rewarded with a place in government). But a token competition of this sort would at least enable Burnham to take power with some fig-leaf of legitimacy and would give the Labour party and UK at large some concept of how he plans to govern. Burnham has until 9 July to convince any would-be challengers that he knows what he is doing and has a credible, costed plan for government.

Unchallenged, the process of Burnham’s accession to power could be completed by 17th of July, giving him the summer recess period to agree his cabinet appointments, begin to set out his agenda for change for the country and to be in place as PM and leader of the Labour Party in time for the Labour Party Conferences in September.

This may be a quicker hand-over than Burnham would have wanted and is perhaps be a deft parting gift from Starmer ‘you wanted me out, well off I go’. It gives Burnham only just over three weeks to set out a programme for government and persuade the doubters that he really does have the capacity to lead the country. Equally, short though it is, the fact of there now being a transition period is to guarantee that government will grind to a standstill over the next month as the lame-duck which is now Starmer waddles through to its conclusion, with each Cabinet member focused not on delivering on their legislative agenda, but rather on how to impress his successor. Since we will then move into Summer Recess and Conference in quick succession, it may be early October before we actually see enough of Burnham’s Cabinet in full operation to judge its capacity for governing.

There already appears to be some degree of buyers’ remorse, with social media today full of tributes to Starmer, including from a wide range of international leaders. Many commentators have noted the dignity and genuine emotion in his resignation speech and listed the achievements of his government over its two short years in power. Not least amongst those achievement was the rapprochement with the EU – and it is interesting that the EU was not slow in cancelling the UK-EU Summit which was due to have taken place on 23 July (either as a show of protest at Starmer’s defenestration or simply because the EU has larger fish to fry than waiting to see what Burnham’s flip-flopping policy on the EU might actually deliver).

It is worth noting that, although Burnham will be the 7th UK Prime Minister in 10 years (unique in my experience, but not in historical terms – between 1827 and 1835, the UK had seven different PMs in under eight years; and between 1762–1770, there were also seven different PMs), it is not unusual for a Prime Minister who has been elected at one General Election not to still be the leader at the next general election. In fact, I can only find 2 cases where a Prime Minister winning one election has been deposed by the electorate rather than their party at the next election (Harold Wilson in the 1970s and John Major in the 1990s).

As a final note, the irony of Andy Burnham (aided and abetted by the media in the UK, heavily right-wing dominated as it is and owned largely by people who do not even live in the UK) having ejected Sir Keir Starmer from Number 10 Downing St before he had even taken the oath as a Member of Parliament is surely not lost on those who, within the Labour Party, decried the Tory succession in rapid order of Teresa May, Boris Johnson, Liz Truss and Rishi Sunak.

You may have picked up from the tone of this note that I do not think that Andy Burnham is the UK’s saviour. Changing leaders does not change the UK’s structural deficiencies. It does not change the anaemic growth; the enormous public debt; it does not make it easier to reduce the welfare bill, or rework the relationship with the EU; it does not suddenly deliver extra money to invest in threadbare public services or the uplift in defence spending; and it does not give confidence to the man in the street, the investor community or the UK’s international allies that the UK has suddenly found a sense of direction and purpose.

I sincerely hope that I am wrong – for the sake of Burnham, the Labour Party and the country: this is the last chance. Get this wrong and Farage will be the next person to stroll into Number 10….

The MoU President Trump signed in Versailles on Wednesday has brought a glimmer of hope of peace to the Gulf. But it will not have escaped the attention of those who have been closely following this conflict over the past three months that virtually none of the initial objectives of this conflict have actually been achieved by the billions of dollars of ammunition fired, the thousands of lives lost, the enormous global economic disruption caused and the huge amounts of carbon emitted by it.

Nor will it have escaped the attention of observers that the talks on the details of implementation of the MoU (including about the nuclear file), which were due to have begun today, have already broken down over the ongoing conflict in Lebanon. As I wrote in my article on 10 June, without a lasting ceasefire in Lebanon (and probably a full Israeli withdrawal), the chances of a lasting ceasefire begin to look extremely thin. Despite the evident and public irritation of both Trump and Vance with Israel, US leverage over Tel Aviv is clearly reaching its limits when it comes to tackling Hizballah. If that is the case, and reining in Israel is beyond this Administration then there is a real risk the MoU will fail before it has got off the ground (and there are many in Israel who would welcome its collapse), unless Iran can use its leverage with Hizballah to find a solution.

What’s in the MoU?

It is not without irony that Trump signed the MoU at Versailles – the same Palace where the Germans signed the humiliating eponymous Treaty of surrender after the First World War. The MoU is at once an ambiguous and astonishing document. If you have not read it, I cannot recommend highly enough that you do (there is no formal version of it, for reasons that become apparent on reading it, but a US official dictated it and Axios has published the transcript). It is worth pulling out a few of its core passages as the MoU certainly does not read like the victorious imposition of terms on a defeated enemy by the US – quite the opposite in fact:

· The US agrees to remove all its forces ‘from the proximity of…Iran..’ (no definition of ‘proximity’ – would that include Bahrain, for example?);

· The MoU leaves it open for Iran to charge for passage through Hormuz after 60 days (‘Iran will make arrangements using its best efforts for the safe passage of commercial vessels with no charge for 60 days only from the Persian Gulf to the Sea of Oman, and vice versa’);

· the USA will ‘develop a definitive…plan with at least $300 billion for the reconstruction and economic development of …Iran’;

· ‘The USA undertakes to terminate all types of sanctions against … Iran’;

· ‘The US will issue [immediate] waivers for the export of Iranian crude oil, petroleum products, and derivatives, and all associated services, including banking transactions, insurances, transportation’

· ‘The USA undertakes to make fully available for use the frozen or restricted funds and assets of…Iran’

Is this Progress?

It is instructional to compare three moments in time – the 31 May 2025 US offer, made on the eve of Israeli strikes on Iran; the deal that was under discussion on 26 February 2026; and what was signed in this week’s MoU. The table in the Annex, which sets out the main elements of those three offers, leads to the stark conclusion that the US has gone backwards in its demands and expectations of a peace deal with Iran over the past year.

· Nuclear enrichment. In the May 2025 negotiations, Iran was to have no domestic enrichment capabilities beyond limited enrichment for medical and agricultural needs; all nuclear supply would be imported from outside Iran; all existing enriched uranium stockpiles to be shipped out of Iran; all enriched stockpile material would be down-blended to the level of civilian nuclear purity – around 4%; Iran would not build any new enrichment facilities; and would dismantle all programmes capable of uranium conversion. At the G7 meeting earlier this week, Trump conceded that Iran had a right to continue enrich uranium, saying it could not be excluded because other countries in the region had nuclear programmes (“It’s a little hard when other people have it, other adjoining states have it, and you’re not letting them have it for purposes of electricity and things like that. You have to use a little common sense.”). Instead of the highly enriched Uranium (HEU) being down-blended outside Iran, the MoU permits the stockpile to be diluted under IAEA watch inside Iran (a stipulation which sounds surprisingly similar to the proposal under the JCPOA).

· Ballistics and missiles. One of the stated objectives at the outset of Epic Fury was to denude Iran of them. Neither word even features in the MoU. In Evian, Trump was quoted as saying ‘If other countries have them, it’s a little bit unfair for [Iran] not to have some’ and ‘They have to have some because other people have some. You’ve got to have some.’

· Sanctions relief. Last year, the US position was that sanctions relief was only possible after Iran had demonstrated real commitment to the nuclear file to the satisfaction of the US and the IAEA.. The MoU, despite the US’ great and ‘overwhelming victory’, promises an immediate waiver of sanctions on Iranian oil sales, along with the sanctions on all associated services. Since the waiver will apply until wider sanctions relief come into effect ‘as part of the final deal’, it effectively signals the end of US oil and financial sanctions against Iran, removing the leverage the US holds over the regime. Even though full relief from primary and secondary sanctions, as well as UN sanctions would represent the biggest recasting of US-Iran relations since 1979, if the waiver achieves the same as sanctions relief, I am not sure what the incentive is for Iran to engage wholeheartedly in the nuclear negotiations.

· Access to assets. Trump has repeatedly attacked the JCPOA, saying that President Obama had sent over “pallets of cash” to bribe Iran into not making a bomb. But Trump has just justified handing over a far larger set of assets, saying “It’s not our money, it’s their money, and we froze it at a certain point in time…I guess we’re going to have to give it back.”

· Hormuz. Absent from the 2025 and February 2026 negotiations. The US/Israeli war, launched on the precept of preventing Iran from obtaining a weapon of mass destruction (which Trump also claimed had been achieved by the 2025 bombing campaign), instead gave Iran a weapon of mass disruption. Neutralising that weapon by getting the Strait re-opened became the over-riding US priority for the MoU. Trump was very frank in admitting that the risk of a worldwide recession and oil reserves running out in a matter of weeks would ‘have caused an international depression’ (as noted in my blog last week) and “The one President I did not want to be was… Herbert Hoover,” (the US President blamed for causing the Great Depression of the 1930s) “I didn’t want to see economic catastrophe. If you kept this going, that could have happened.” But admitting to that priority handed the negotiating advantage to Iran, an advantage which has clearly seeped into the MoU which suggests that free navigation of the strait could end after 60 days, at which point Iran could begin to charge for passage and ‘maritime services’ in the Strait, creating an impediment and cost to international trade that did not exist before the war.

· Economic reconstruction. Absent from the 2025 and February 2026 negotiations. Instead, in the MoU, there is provision for a proposed $300bn Iran reconstruction fund. The US has said it will not contribute to this fund. Instead in the most ironic and tone-deaf section of the MoU, the US proposes to turn to the very Gulf countries that have borne the brunt of the Iranian military retaliation and ask them to foot the bill.

Can the deal hold …?

I think the answer is mixed. Certainly, there is a political imperative from the US side for get Hormuz re-opened for the sake of the global economy (Iran also needs to Strait to re-open so it can re-commence oil exports and bring in desperately-needed revenue). That dual imperative on its own probably guarantees that the US and Iran will not revert to direct military action against each other. But I am not sure that the other parts of the deal will survive.

Perhaps the biggest failure of the MoU is the absence of coordination with regional and international allies. In keeping with his insular (and self-defeating) approach of keeping allies outside the negotiating room and proceeding on an America-first basis, Trump and Vance failed to take account of other countries’ positions. The first paragraph of the MoU declares the ‘immediate and permanent termination of military operations’, mentioning ‘Lebanon’ three times and including the key phrase ‘ensuring the territorial integrity and sovereignty of Lebanon’. The central importance of this paragraph to the overall success of the peace negotiations is only underlined by the refusal of the Iranian delegation to attend talks scheduled for today, citing ongoing Israeli attacks in Lebanon.

As set out in my article, the Israel/Lebanon element of the deal remains its Achilles heel. The only certain road to a sustainable peace in the Gulf is through a lasting settlement in Beirut. That does not seem to be an easy road to navigate with Hizballah unable to keep from attacking Israel; and Israeli elections due before October putting Netanyahu under pressure from all sides not to give further ground as both his allies and opponents seek to capitalise on Israeli anger over the MoU.

From the Israeli perspective, the campaign has not been an unmitigated disaster (Iran’s military has been significantly degraded; the regime (for all that it is still hanging on) has been weakened; and there is now a discernible split between the Lebanese government and Hizballah, with support draining away from the latter as the general public suffer the consequences of their battle with Israel). However, there is also deep anger at the MoU. As Mark Regev said yesterday, “The straits are open.. the Iranians can start exporting their oil… you’ve taken away the economic pressure.. [and]… given Iran’s regime a return to life.” The fact that Israel, which was not included in the peace talks, has rejected the MoU and yesterday announced the creation of a ‘security zone’ which covers an area of up to 25% of Lebanese territory – a position which is clearly incompatible with the ‘territorial integrity’ wording of the MoU’s first paragraph – serves only to underscore the importance of finding a way forward in Lebanon if the MoU is to survive. It may be that, if the US cannot rein in Israel, then it will fall to Iran to rein in Hizballah.

Conclusion

Donald Trump was persuaded to enter the war with Iran by Netanyahu, ignoring advice that Iran would shut the Strait and underestimating the resilience of the Iranian regime and its readiness to use asymmetric warfare to attack US and foreign facilities in the Gulf. Between them they set out unrealistic, maximalist goals: regime change; eliminating Iran’s country’s nuclear programme; destroying its ballistic missile programme; and ending its support for regional proxies.

Trump exits the conflict with a regime in Tehran even more entrenched; a vague Iranian reaffirmation ‘not [to] procure or develop nuclear weapons’; no mention of the ballistic missile programme; Hizballah still fighting Israel and celebrating as “victory” the inclusion of Lebanon’s territorial integrity as a key element of the MoU; sanctions relief; and the unfreezing of Iran’s assets.

The result of the MoU is anger in Israel, jubilation in Tehran and frustration in Washington that so much US firepower, time, energy, money and goodwill has been expended in achieving none of the US goals, but rather creating an increase in Iranian power that would have been unthinkable before 28 February, in the process transforming the region into one that looks very different from four months ago.

The rest of the world will have at once noted the impressive US military might and its limits, including US inability to convert its military prowess into concrete and lasting change on the ground. For its part, the reversal of US goals which may serve to encourage Trump to turn inwards away from ‘far off’ military ventures and to focus instead on the Western Hemisphere that his NSS set out as the ‘US Hemisphere’ – a focus which may bode ill for Cuba and other S American neighbours.

ANNEX:

There are three main scenarios:

1. Starmer accepts his fate and stands down

In this scenario, Starmer reflects on the scale of Burnham’s victory and is persuaded/ encouraged by his close allies to stand down. Wes Streeting decides not to launch a leadership challenge and Burnham quickly meets the formality of obtaining the support the Labour Party’s constitution requires from MPs and party groups (20% of sitting MPs, 5% of all local branches; or three party-affiliated groups representing at least 5% of affiliated membership, two of which, at least, must be trades Unions). With no opposition to his accession, that process would be swift. Labour’s ruling national executive committee (NEC) would set a timetable for the contest, and without a vote of the membership, the process could be completed rapidly and within days, Andy Burnham is in Downing street by the end of next week.

There is a variation within this scenario in which Starmer reflects, indicates he is still going to fight, but is then dissuaded from doing so by mass resignations of his Cabinet (similar to the process that eventually brought down Boris Johnson). This variation had seemed possible, even likely earlier this month, but it appears that Burnham has been actively persuading Cabinet members not to do this. Which takes us to…

2. Starmer accepts his fate and sets out a timetable for departure

The fact that Burnham actively persuaded Cabinet members not to resign and force Sir Keir out precipitously indicates that this appears to be Burnham’s preferred approach – giving Starmer the time to make a dignified withdrawal at a time of his choosing (possibly after the NATO Summit but before Summer Recess, which begins on 16 July). This scenario also gives Burnham some time to put together a transition team and his Cabinet and begin planning for government. If the timetable is too extended, however, Burnham (or Streeting) will trigger…

3. Starmer refuses to go and a leadership challenge is triggered

This is the worst outcome for Labour and the UK. If Burnham is forced to dethrone Starmer via a full leadership challenge, it seems likely that Wes Streeting would also throw his hat into the ring. To divert the stream for a moment… Streeting has said he will launch a formal leadership challenge to Starmer next week. But there is some doubt about whether he can muster the support of 81 MPs and he has held back from launching a formal leadership bid, despite having resigned from Cabinet last month with the apparent intention of doing so.

Starmer, as current leader would automatically be on the ballot paper as well. The NEC sets the timetable for the election (and they appear to have some latitude in doing so – the election that brought Starmer to power as the leader of the Labour Party took three months; the election for deputy Leader was truncated to six weeks). But whether it is three months or a month and a half, a leadership election before the full glare of the media and public opinion would not only be bad for Labour, it would leave the UK in stasis, adrift on currents of global uncertainty just when a sense of direction is most needed.

So what will Starmer do?

The scale of Burnham’s victory is remarkable. To put it in context, of the 90 seats where Reform finished second to Labour at the 2024 general election, Makerfield was the seventh closest result. At the May local elections, Reform won more than half the vote, with Labour way behind on 23%. However, yesterday, Burnham won 54% of the vote, doubling the majority of his Labour Party predecessor and leaving Reform (on 35% of the vote) trailing in his wake. The fact that the (even further) right-wing Restore Britain received only 7% means that Burnham won more votes than the two far-right parties put together, robbing Farage of the argument that he could win this seat at a general election by uniting the hard right and sending a clear message to the Labour Party that, with the right candidate and the right message, Reform is beatable.

Starmer is well-known for his stubbornness. To be fair to him, I genuinely believe him when he says that he is not hanging on to power for the sake of power. I think he really does believe that he has a duty to see out the mandate that he was given in the 2024 election. That belief means there is every chance that he will stand and fight Burnham – after all, he has an increasingly good story to tell: inflation hardly moved in May, despite the effects of the Gulf war; the UK had the strongest growth in the G7 in the first quarter of 2026; NHS waiting lists are down for the first time since 2013; immigration is down to 171,000; business confidence is growing; the relationship with the EU has improved; he kept the UK out of the Gulf conflict. And he believes that Burnham can be beaten on substance and on consistency (Burnham has a reputation for flip-flopping on issues). All Starmer’s recent statements take – including offering Burnham a Ministerial Cabinet position - suggest this is the approach he will.

However, the scathing resignation letters of Healy and Carns; the scale of Burnham’s victory; polling that indicates Labour would be doing 6% better with Burnham as PM; and the fact that Burnham is more popular than Starmer both amongst MPs and the Party membership (voting is by one-member-one-vote, with an alternative vote system) suggest that Starmer, following weekend discussions with his closest advisors, may recognise the writing is on the wall and choose the dignified exit. There seems to be a consensus amongst the Burnham tribe that Starmer deserves and should be given the time and space to choose the manner of his departure. But there is an expectation that he will announce his resignation next week and set the date for his departure after the NATO Summit on 7-8 July, allowing Burnham the smoothest route into Number 10. In that scenario, Streeting would not challenge Burnham (or Starmer), but would expect a senior role in the next Government.

There is also the not unimportant question of who follows Burnham into the City Hall in Manchester. If Reform wins that contest, it would give them their biggest platform yet from which to demonstrate an ability to govern effectively and competently. A platform that they will not be slow in using on a national stage…

But back to Burnham – what should we expect from his government?

Burnham’s government will be less technocratic in its language. It will prioritise greater demonstrative patriotism; public order; local pride and the dignity of work.

Burnham’s victory speech gives the best indication of how he will govern:

Makerfield would “never be a stepping stone to me – but instead will be my touchstone: A Makerfield test at the heart of British politics will ensure the places that Westminster has neglected will now get fairness.”

We should therefore expect greater devolution and a focus on local priorities (including local and regional investment plans and more power to local authorities and mayors); more State capacity and visible delivery; constitutional reform (including the introduction of PR voting); more public ownership (this policy is very popular with the electorate – especially when it comes to the water sector - but it ignores the cost implications, as well as the fact that Government has not proved itself particularly adept or capable of running, managing or delivering major projects or organisations); more housing and renting reforms (including buying and building more council houses); closer relations with the EU (though rejoining the EU is one of the areas on which Burnham has flip-flopped during the course of the Makerfield campaign).

Who will be in his Cabinet?

Politics is a tough game. Starmer is not even out of Number 10 yet and Burnham has been an MP for less than 24 hours, but the speculation about who will be in Burnham’s Cabinet is already at fever pitch. Burnham needs to reassure three audiences at once: Labour MPs, bond markets, and voters tempted by Reform – and to include those who have been instrumental in his Makerfield campaign, so it is likely to be a soft-left unity cabinet with a few market-reassurance appointments.

The honest truth is no one really knows who will be in the Cabinet, but for the sake of sticking my neck out, I would hazard a guess that the following are likely to feature prominently in a Cabinet of continuity and change:

· Lucy Powell (DPM),

· Ed Miliband (Chancellor or Energy),

· Streeting (Foreign Secretary or Chancellor),

· Shabana Mahmood (Home Sec),

· Jarvis (Defence),

· Angela Rayner (Housing and Devolution),

· Louise Haigh (Chief Sec to the PM),

· Heidi Alexander (Transport),

· Bridget Phillipson (Education),

· Lisa Nandy (Culture),

· Nick Thomas-Symonds (Europe and Constitutional Reform),

· Jonny Reynolds (returned to Business).

There is a possibility that Starmer could be offered the post of Foreign Secretary (he has proved adept at international relations, but whether he would accept a demotion/his presence at Cabinet would be conducive to smooth relations is unclear).

The internal Number 10 management machine will matter as much as the formal appointments, given the chaos that has surrounded Starmer’s team, so we can expect wholesale change which is likely to include a senior role for Josh Simons (who stood down as MP so that Burnham could stand), Kevin Lee and John Wrathmell. The Guardian is reporting this morning that Burnham has also sought advice from ‘Andy Haldane a former Bank of England chief economist, as well as Richard Hughes, a former chair of the Office for Budget Responsibility and Jim O’Neill, a crossbench peer and former Treasury minister who worked on George Osborne’s “Northern Powerhouse”.’

Comment

There is a story in Labour circles that no one in the Party really thought, when Starmer was elected as leader in 2020, that it was possible to overturn Johnson’s crushing 2019 majority. Starmer would therefore, lead the Party to a gallant, narrow defeat in 2024, opening the door for the ‘real’ leader to emerge victorious in the 2029 election. The fact that Johnson imploded so spectacularly meant Starmer – a leader without vision, constituency or charisma - became Labour’s Accidental PM.

Whether that is true or not, Starmer’s demise is sad for him and tragic for Labour. After 13 years in the political wilderness, Labour failed to leverage the goodwill surrounding its 2024 election victory by gaining power without a clear plan for using it, or narrative of the purpose of gaining it. Now, two years into a five-year mandate, Labour is preparing to ‘change horse mid-stream’. With Reform snapping at its heels (and in some places threatening to overwhelm it), this change is Labour’s first and only shot at a re-launch – something Burnham himself acknowledged in his acceptance speech: ‘There will be no second chance…to build a new politics based on unity and hope, turning away from the path that takes us to a divided politics…’

Time is not on his side to deliver that new politics: in three years, we will be back at the ballot box. How Burnham uses those three years in Downing Street will determine whether the next occupant of Downing Street is the populist who has already brought the UK the disaster of Brexit…

Anyway, here goes…

Politics First

To recap…

On 8 May, Labour got ‘spanked’ in the local elections. 95 MPs wrote publicly to call for the PM to stand down (over 140 wrote to say he should stay). The Health Secretary stood down and said he would challenge Starmer for leadership of the Labour Party. Josh Simons stood down from his seat in Manchester to allow Andy Burnham to run to become an MP (only a sitting MP may challenge for leadership of the Labour Party and an MP may only launch a challenge if they have the support of 81 MPs).

Opinion polls were initially tight in the Makersfield by-election between Labour and Reform. But over the last week, Burnham has built a lead of around 10% in opinion polling. So it seems likely that he will win on 18 June. And that, shortly after returning to Parliament (he resigned as an MP in 2017 to stand for election as Mayor of Manchester), Andy Burnham will challenge Sir Keir Starmer for leadership of the Labour Party.

It is unclear whether Wes Streeting has the support of the 81 MPs. If he does, he is likely to enter the contest (unless Burnham offers him a prime Cabinet position). Starmer, as current leader, is automatically on the ballot. If Burnham does not win the by-election, other candidates who may fancy their chances in addition to Streeting, include Ed Miliband, Angela Rayner, Al Carns and Darren Jones (none of whom are likely to challenge Burnham, but all of whom will expect a seat in his Cabinet).

Until today, I thought it quite likely that Starmer would stay and fight. Starmer has gained a reputation for stubbornness and I thought he might actually fancy his chances in a stand-off against Burnham - a fairly light-weight member of the last Labour Administration, with a reputation for flip-flopping on policy issues and who has been out of frontline politics at a national level for nearly a decade. Starmer has an increasingly good story to tell – highest first quarter growth in the G7; NHS waiting lists falling for the first time since 2013; immigration down to around 120,000; passage of flagship bills on renters rights and employment rights (you can argue about their merit, but not their impact – and they were core to Labour’s Manifesto commitments); a reset of the relationship with the EU; and keeping the UK out of military engagement in the Gulf (amongst other things).

However, I think that the resignation of the Defence Secretary today (over a row about funding for the defence sector in the UK) is probably Starmer’s final death-knell. Even though Healy was one of the Cabinet who privately urged Starmer to consider his position after the local elections, he was seen as a loyal Cabinet Minister, so his sudden departure is all the more damaging for the PM (coming as it does weeks before a critical NATO summit, in the middle of the conflict in the Gulf and on the eve of a crucial byelection). But possibly more wounding for the PM’s chances of survival is the stinging criticism contained in Healy’s resignation letter, accusing Sir Keir of being too weak to drive through his own policy agenda and find money for the proper funding of the MoD –particularly damaging for Starmer who had built such reputation as he had on foreign policy and defence. Uncharitably, perhaps, I cannot help but wonder whether Healy is also keeping an eye out for a possible Cabinet post in Burnham’s government - resigning with a searing thrash at Starmer is a good way of catching Burnham’s eye.

And so to Social Tensions...

Social tensions have been building in the UK for a while now – caused in part at least by massive immigration in the aftermath of Brexit as companies sought to replace transient labour from the EU with labour from outside the EU (labour which required visas and family rights). This level of immigration led to a perception, created and fanned by the hard right, that immigrants were treated differently/better than UK citizens and somehow jumped the queue for services. The fact that public services are on their knees after 14 years of austerity only added to this perception.

In December last year, a student was brutally murdered in Southampton. On its own, that is an appalling thing to write. But the murderer, Vickrum Singh Digwa, claimed that he had been racially abused by the student, who was arrested by the police as he lay dying on the ground from the stab injuries he had received from a ceremonial knife that Digwa was carrying. When the case finally came to trial and the details of the murder were released (Digwa was allowed to carry a knife that would ordinarily have been illegal because he claimed it was part of his religion; he had stabbed the victim, Henry Novak and claimed to have been racially abused, leading the police to treat him in an utterly different manner to the real victim who died in police custody from his wounds), the result was violent riots.

The riots were in part born of a genuine frustration at progress in addressing social inequality in the UK; a feeling that the ‘wrong people’ were being listened to and given preferential treatment; and a reaction to the apparent decision by the police to treat claims of racism more seriously than claims of having been stabbed, but they were also goaded on by the far right (including by Elon Musk who claimed the country was heading for civil war - a statement bizarrely echoed by the Leader of the Opposition last week).

And whilst the country was still reeling from this deeply upsetting and disturbing event, another awful, shocking and upsetting violent attack took place in Belfast – this time by a Sudanese asylum seeker on an NHS worker. The video is appalling and the reaction was predictable. Despite appeals for calm, riots have rocked Belfast for the last two nights with police and local volunteers evacuating terrified residents from burning houses, dodging burning cars and flying missiles as they run away from their homes. The reporting in France depicts a country on edge and, watching the images, it is easy to see why.

So where are we now?

Despite a Kings Speech only three weeks ago, laying out a full legislative agenda, Labour now feels like a Party in stasis, waiting for the King Over the Water to reinject some life and purpose. If Burnham does not win, all bets are off: if Labour cannot win in Manchester, with Burnham as the candidate, the Party hierarchy will be asking itself where it can win….

For me, though, the bigger question is what actually changes if Burnham comes in: the UK will still be facing a challenging domestic and international economic and geopolitical situation; will still need to fix its relationship with the EU (and the US); there will not suddenly be a magic money tree (to quote Teresa May), so battles for funding will continue between Departments; and social tensions will continue to run high.

It seems the coming of Andy Burnham is inevitable, but whilst the Labour Party waits for his arrival, the country feels lost and rudderless, bereft of leadership, unsure of its place in the world, struggling to meet the needs of its people: in need of leadership reassurance and a sense of purpose. If Starmer chooses to fight, that sense of drift could continue over the summer and into early autumn: an outcome the UK desperately could do without. If Burnham is crowned King, we may have a new PM by the end of June. He will have to bend his back to the task of delivering radical change if he is to avoid Nigel Farage marching into Number 10 in a little over three years time….

The basic law of supply and demand is that if supply goes up but demand remains the same, the price goes down. Equally, if demand goes up, but supply remains the same, the price goes up and vice versa. If the oil market was balanced at $70/barrel when demand was at just under 105 mbd and supply at 106 mbd, then according to the basic law, the market price must go up if supply suddenly drops to around 88 mbd. Even if demand destruction lowers demand to around 101-102 mbd, there is still a delta of around 13-14 mbd between demand and supply. That gap should force prices up by much more than we have seen. In fact, given the extended shortfall in supply, I would have expected prices to have already risen to around $120-$130/barrel. That they have not done so appears to be based on a number of factors.

High inventories

· When the war began in the Gulf, there were historically high volumes of oil-on-water (essentially oil being transported around the globe in tankers). On 1 March, there were about 2.05 billion barrels of oil at sea. That is around 220 million barrels more than normal. The final tanker of oil that loaded in the Gulf before the conflict began, discharged its cargo in California last month.

· Just as there were historically high volumes of oil on water at the beginning of the conflict, so too were terrestrial inventories historically high - at around 6.16 billion barrels. According to the IEA, OECD industry stocks at the end of 2025 had risen above their five-year average for the first time since 2021, and data from January showed another global increase.

These two factors, as well as a sudden and dramatic drop in Chinese oil imports (5 mbd in May) due to aggressive inventory draw-downs and export restrictions, have combined to create a buffer which has (so far) sheltered global markets from the worst of the supply shock. But the buffer is becoming threadbare. Gulf oil-on-water is now exhausted and draw-downs from inventories are preceding at unprecedented and accelerating speed, with the IEA describing the 250 million barrels extracted in March and April as ‘the fastest inventory depletion on record’.

Dangerous Complacency

I think that markets have felt confident in ignoring predictions of impending doom because this buffer has so far insulated markets from the supply-demand imbalance. Markets are also confident that, once the Strait of Hormuz is re-opened, things will return to normal. As I have written before, that confidence feels misplaced and is possibly even dangerously - a rapid return to the status quo ante will not be the case:

· Gulf hydrocarbon infrastructure has taken a furious pounding. A French government report of late March assessed that 30-40% of Gulf refinery capacity had been damaged. There are no equivalent figures for damage to overall hydrocarbon infrastructure. But there is credible reporting that up to 90 installations have been hit and damaged by missile or drone attacks.

· Oil wells across the Gulf have been shut-in. A shut-in oil well can take 5-7 days to bring it back into production if the well was correctly shut-in, had been properly maintained and was relatively new. If those conditions do not apply, a well can take up to 7 weeks to re-open.

· Oil supply from the Gulf relies on a regular supply of tankers to move it. Since March, the US has increased its exports of crude oil by around 1.8 mbd, doubling tanker traffic to US ports – in May alone, the US loaded 28 VLCC, compared with a normal monthly average of just five. The fact that these tankers would, in normal times, have been engaged in lifting oil from the Gulf, means that they are now in the wrong place to lift Gulf oil. At best, it would take up to six weeks before they could be ‘repositioned’ to start doing so again (and a further 6 months before there is sufficient confidence that the mines have been cleared from the Strait of Hormuz).

· The final part of the picture is the time lag for delivery of oil-on-water which will delay the re-starting of ‘normal’ delivery from the Gulf. It takes between 24-34 days for laden ships leaving the Gulf to deliver to Africa. 24-35 days for ships from the Gulf to deliver to Europe. 25-38 days for delivery to Asia. And 42-50 days for the US.

These issues compound one another, meaning that, even if the Strait of Hormuz to magically re-open tomorrow, it would take around 12 months for production and delivery of crude oil from the Gulf to return to 95% of its status quo ante. And even then, things would not really return to the way they were…

The Competing Impacts of Demand and Inventory Replacement.

· Higher prices have sucked oil out of storage onto the world market. On 1 March 2026 there were approximately 8.2 billion barrels of oil in global stocks and inventories (on land and on water). By extrapolating the IEA’s March and April figures, we can calculate that by 1 June 2026 that figure had dropped to approximately 7.7 billion barrels — a reduction of roughly 500 million barrels in three months.

· Higher prices and scarcity have forced demand destruction, reducing overall demand from around 105 mbd to just under 102 mbd. As consumers make rational economic choices and governments increasingly push energy efficiency policies, some of that destruction will be permanent - since 1 March, the export of Chinese battery and storage solutions has risen by an average of 100% per month; US purchases of new and second-hand EVs have risen by 20% and 54% respectively; and European purchases of new EVs have risen by 50%. Energy diversification will become the new energy security (I have not been able to find credible figures for coal consumption over the last three months, but it would not be at all surprising to find that it had increased as energy companies switch from gas to coal).

· Once the Gulf re-opens, there will be a huge short-term rush to refill depleted global oil inventories as governments and private companies race to shore up the fragility of their energy security provisions.

These three observations present oil companies with a dilemma: demand is likely to rocket once the Strait re-opens as States and companies stampede to refill their reserves. But that demand is ‘frothy’. Once inventories are refilled, demand will fall back again. Returning to previous levels of global supply of around 106 mbd against a new demand projected to be around 102 mbd will leave global oil markets heavily over-supplied, driving down prices. Oil companies are unlikely to decide to invest in long-term, capital-intensive projects to meet the additional short-term demand created by inventory re-supply, if actual demand is likely to be lower in the longer-term, not least since the Gulf conflict has also created volatility in financial markets, slowing investment decisions and pushing up long-term financing costs.

Global Economic Meltdown Beckons?

The IEA, OECD, IMF, World Bank and WTO have all warned that the pace at which global oil inventories are being drawn down is unsustainable and poses a grave threat to the world economy. If oil were to reach $150/barrel it would significantly raise the risk of global stagflation creating a deep recession and forcing central banks to make aggressive interest rate rises, which (alongside global fertiliser shortages) would hit poorest countries hardest. As US oil inventory stocks reach lows not seen for two decades, the likelihood that the US will be unable to continue filling the global gap in supply caused by the blockage of the Hormuz increases, ExxonMobil and Chevron have added their voices to warnings about the risk of surging prices because of the loss of “shock absorbers” – especially if China’s inventories run down at the same time and Beijing is forced back into the global market.

Can this Outcome be Avoided?

That depends on how fast the Strait of Hormuz can be re-opened.

Even if we put aside the Iranian/Israeli exchange of rocket and missile attacks over the weekend and assume that the US bombing runs overnight in response to yesterday’s downing of an Apache helicopter and the Iranian retaliatory attacks this morning do not spiral further (and it is worth noting that Iran fired missiles at Jordan for the first time, underlining their willingness to escalate), the competing lists of negotiating demands show how far apart the two sides are – a fact which underlines the reality that the Strait is unlikely to be opened quickly. Every day it remains shut normalises its closure; worsens the risk of significant long-term damage to the global economy; entrenches positions in Washington, Tehran and Tel Aviv; and piles more pressure on an extremely fragile ceasefire.

Iran’s continued resistance, the resilience of its institutional structures and the arrival of more hardline IRGC figures in power have given the regime greater confidence, triggering a shift from its traditional posture of ‘strategic patience’ to one of ‘strategic escalation’ (Tehran could still escalate further by asking the Houthis to close the Bab el Mandab Strait - cutting off the Saudi Red Sea oil export route). US confusion over how to respond to this shift in strategy (clearly demonstrated by President Trump’s inability to even extend the current ceasefire by a further 60 days, let alone get into the more complicated negotiations about a longer-term peace) has encouraged the regime in Tehran to assert their maximalist demands:

- Monetisation of their control over the Strait of Hormuz;

- An Israeli withdrawal from Lebanon;

- Reparations for the war damage caused by the US/Israeli attacks;

- Sanctions relief and the return of frozen assets; and

- The right to continue to enrich uranium.

Although, on the face of it, none of these demands are acceptable to the US, there are clearly some in Iran who calculate that, with world oil inventories running out, the West’s economic pain threshold (which is lower than Iran’s) may soon be reached, forcing President Trump, who is facing his Mid-Term challenge and therefore increasingly desperate for a way out of the political, economic and military cul-de-sac into which he has blundered, to accept an agreement which re-opens the Strait in the short-term, kicking the other (more complex) elements of an agreement into the longer grass.

I would like to think that was a possibility. That somehow we could get to an agreement to re-open of the Strait, which would avoid the worst-case scenario painted by the IEA, OECD, WTO and World Bank. However, sadly, I do not think that is a realistic prospect:

- The reality of US politics is that any solution which is ‘less than’ the JCPOA is unlikely to be acceptable to Trump’s political base;

- President Trump, despite asserting that Netanyahu would have to accept any deal the US agrees with Iran, has struggled to rein in the Israeli military and may have reached the limits of his leverage;

- Iran is unlikely to surrender its leverage of the Hormuz closure without agreement on its other demands - in particular, Tehran has made clear it will not accept a deal which does not include peace in Lebanon;

- Iran, Israel, Hizballah and the US seem to be itching for a fight and as a result, unable to leave each other alone, so the pressure on the ceasefire will continue to build, reducing trust and willingness to find compromises;

- Netanyahu, who is facing his own electoral High-Noon, is under significant pressure from right-wing members of his coalition not to cede ground – either militarily or diplomatically – to the US, Iran or Hizballah;

- Meaning Israel would almost certainly find an outcome which leaves the harder-line regime intact in Tehran and successfully linked a peace agreement with Iran to the conflict in Lebanon, to be wholly unacceptable.

Which leads me to a surprising conclusion…

Lebanon has been a flashpoint since the ceasefire began and is now the most awkward and complex hurdle standing in the way of a more durable end to the conflict with Iran. Bizarre though it may seem, the Iranian success in converting the Israeli battle with Hizballah into the key factor around which a solution to the wider conflict now pivots, means that the route to re-opening Hormuz now lies through Beirut. Plotting that route will be difficult and painstaking, but to avoid a global recession it is a path to peace that negotiators will need to begin to tread – and quickly.

And in the process discarding globalisation as a poison. Globalisation has not conferred a uniform benefit on international society, minded, it has left significant chunks of society behind in its wake. But it has also delivered incredible benefits, including the longest sustained period of economic prosperity and peace that the European continent has ever seen. Globalisation has lifted millions out of poverty in Europe and across Africa and Asia and delivered extraordinary improvements in economic efficiency and innovation. Rather than the wholesale rejection of globalisation, there is therefore a strong counter-argument that we must maintain and improve it, to ensure that its benefits are more equitably distributed in the future.

Whichever side of that argument you sit on, there is no getting away from the basic fact that we are living through a period of unique global uncertainty and change. For companies which trade across international boundaries, that simple observation means that awareness of geopolitical risk should be at the forefront of planning processes, underpinning all economic and commercial decisions. The risks of failure to identify, plan for and mitigate geopolitical risks are so high that it is almost negligent not for a company not to now have a chief geopolitical officer.

Let us break some of this down.

The place to begin is the US National Security Strategy - a 33-page document which sets out US plans for its international relations. The first point to note is the claim that the Western Hemisphere is the US hemisphere. And concomitant with that claim, the view that the world should be divided into spheres of influence (similar to the 19th century). The second thing to note is that of its 33 pages, eight are dedicated China and a further five to energy – specifically hydrocarbon energy. Written through the NSS is the notion that the US does not need its allies, that they can be subjugated to an American First policy characterised by a US willingness to use trade policy as a weapon for leverage in its international relations on the basis, it seems, that what is good for the US is automatically good for everyone else. For what it’s worth, I do not happen to agree that isolationism, insularity and selfish self-interest are, actually beneficial, either for the reputation or the economy of the US.

But to return to the NSS…

The twin dominance of reference to China and energy clearly demonstrates that the US recognises the risk to US global dominance of the advantage that Beijing currently enjoys over the United States in renewable energy. According to the IEA, China is the leading refiner for 19 out of 20 important strategic minerals; the EU’s 2023 critical raw materials assessment names China as the largest global supplier for 21 of the 34 critical raw materials on the EU list. The US is decades behind. There is perhaps an argument that the energy transition will run into trouble simply because the incentives get smaller and the costs get higher as the low-hanging fruit is picked. But I think its momentum is now so strong that, whilst it may slow down, it cannot be stopped. From a US standpoint, therefore, a continuing energy transition means the inevitability of the Chinese economy accelerating away from the US economy. Being able to use hydrocarbon energy as a geopolitical lever could help the United States to best catch up with China or at least narrow the gap.

In 2024, China imported about 11.1 mb/d of crude oil, equal to roughly 74% of its domestic oil consumption. If the price of those hydrocarbons goes up, it increases the input price for Chinese manufacturing goods, making them more expensive and less competitive on international markets. Venezuela and Iran accounted for between 15 to 19% of its imported oil. That means that around one-fifth of China’s imported oil is now missing and having to be replaced by oil which is scarcer and more expensive: a fact which suggests that the US is achieving its NSS US goal of using energy as a geopolitical tool and in the process making Chinese manufacturing more expensive to the US advantage.

So the US is winning the wider geopolitical battle…?

The US has benefited financially from the closure of the Straits of Hormoz. Whilst domestic US crude production has increased by only about 30,000 b/d since the beginning of March, US crude exports, drawing heavily on domestic stocks, have increased by around 1.5 mbd (in the week of the 24th of April, the US became a net crude exporter for the first time). The US is almost self-sufficient in refined products (only importing 8% of refined products) and has also increased its export of refined product by about 600,000 b/d day. In total, these increased exports (at higher prices) have benefitted the US economy by approximately $40 billion since 1 March, with the higher tax take on the increase in exports bringing in a further $10 billion. A cynic might argue that the fact that the US is extracting significant financial benefit from the closure of the Strait of Hormuz may suggest a diminished incentive for the US to actively seek a solution to the crisis in the Gulf...

Given the figures in the preceding paragraph, it could be argued that the US is emerging as a winner from the conflict. However, I would argue that actually history will judge the US to be a loser. Not only has its reputation for honest-dealing suffered a serious blow, undermining trust, especially amongst the countries of the Global South, but in rushing headlong into an ill-considered war, ostensibly to deny Iran a weapon of mass destruction, it has handed Tehran a weapon of mass disruption which is proving extremely damaging to the global economy.

On the other hand, China, which is currently spending more money on importing more expensive hydrocarbons and running down its own strategic oil reserves, may at first sight appear to be a loser from this conflict. However, on closer examination, in the longer term, it seems likely that the Chinese economy will profit from this conflict. The higher prices and scarcity in international oil markets is already obvious in the most recent set of IEA figures, which show that demand for oil fell by 2.8 m/b in April, 4.3 m/b in March and 5.5 m/b in May: a significant cumulative reduction in demand, much of which may not come back if and when the Hormuz finally re-opens. Ironically, instead of slowing China’s advance in the renewable sector, since 1 March, new EV sales in Europe have increased by over 50% and by over 20% in the US (where used EV sales have increased by 54%). In the month of March alone, Chinese exports of energy storage solutions (mainly batteries), increased by 129%: over the whole period since the beginning of this conflict, those exports have increased by 100%. Once that capital investment has been moved into renewable solutions, it is unlikely it will revert to hydrocarbon investment, converting demand destruction into demand replacement.

Iran too is emerging on the ‘winner’ side of the ledger. Its military has taken a pounding, but it still seems capable of lobbing the odd drone or missile at its Gulf neighbours and the regime is even more tightly in control than it was on 27 February. Tehran has long threatened to close the Strait. But I suspect that the economic ‘effectiveness’ of actually doing so has surprised even them. Sure, the US counter-blockade is hurting them, but it looks as if they may get sanctions relief (and/or unfreezing of assets) in exchange for opening Hormuz up again. That is not where they were in the Geneva negotiations on the eve of this unnecessary war…

As a footnote on victors and losers, it is worth briefly noting that Russia (which is now able to sell more of its oil onto international markets, at higher prices - China has purchased over $365 billion of Russian oil since 2022 - 25% of all Russian hydrocarbon exports) and (counter-intuitively) the UAE (whose relationship with Israel is becoming one of strategic mutual benefit, giving the UAE the confidence to leave OPEC and emerge from the Saudi tutelage) are also emerging as victors.

So what does this mean for geopolitics?

Which sort of brings me back to my original point. As this crisis plays out, it seems likely that global geopolitical instability and uncertainty will increase as relationships shift, reputations are damaged (or enhanced) and the longer-term economic winners and losers become clear. That observation, combined with growing insularity; the breakdown of the international rules-based system, championed by populist nationalism; the repudiation of the West as a reliable trade partner by the Global South (and its replacement by the opportunistic Russians and the strategic Chinese); the weaponisation of trade policy; and the division of the world into spheres of influence (in the process, destroying 80 years of peaceful prosperity), may appear a very solid basis for pessimism.

However, I am beginning to wonder whether we may have reached an important tipping point. As people look over the precipice into the chaotic abyss created by the rejection of the Washington Consensus and its replacement by the nihilistic absence of international accountability offered by nationalist economic populism, I wonder whether collectively, we will not all pause and look back on the stability of the period since the Second World War and decide that, in the end, we prefer the stability and certainty of established institutions and rule of law to the chaos of nationalism…

Democracy depends on trust that all members of society will voluntarily ascribe to the principles of democracy and to maintaining them. That is why democracy is so fragile. And why it is so important to nurture it.

· Trust that power will not be abused.

· Trust in a basic level of competence in government.

· Trust that government will act for and in the best interests of the population and the country, rather than its own narrow personal or party interests.

· Trust that the instruments of State (police, judiciary, legislative, military where necessary) will be deployed in a neutral manner and in accordance with the law.

· Trust that the social contract will be observed and preserved.

· Trust that the State will intervene with effective regulation to protect the citizen from the unconstrained animal instincts of capitalism.

And trust is also fundamental to the effective functioning of capitalism itself.

· Trust that the State will be consistent in its policy direction, creating reliable conditions for investment.

· Trust that the State will not seek to seize control of private sector assets.

· Trust that the State will act as a neutral arbiter in the inevitable tensions between creating and enforcing legislation to protect workers’ rights and enabling companies to innovate and make profits; or between profit seeking and environmental protection.

· Trust that the State will not seek to deprive companies of the benefit of those profits.

· Trust that bills will be paid on time and services delivered effectively.

· Trust that companies will not abuse their workers, not pollute the environment, nor seek to prioritise profit-making over prevention of harm to consumers.

And trust underpins the capacity of society to function.

· Trust in experts using their expertise to help others, not to abuse their position.

· Trust in our friends, family, neighbours.

· Trust in the concept of not doing to others what we would not have done to ourselves.

· Trust in the principle of placing a greater emphasis on societal, rather than individual benefit.

In the same way, trust underpins international relations.

· Trust that agreements and treaties will be observed.

· Trust that promises made will be kept.

· Trust that during good faith negotiations the other party will not launch lethal attacks.

· Trust that even in times of tension, honesty and transparency will prevail (President Reagan had this right when he famously said of the START ‘trust but verify’).

· Trust that one country’s behaviour will be governed by an enlightened sense of common interest.

· Trust that a more powerful country will not abuse that power to suppress or bully a weaker neighbour.

· Trust that war will only be turned to when all other avenues have been tried and exhausted.

· Trust that countries will not seek to deliberately undermine international institutions and law.

· Trust that international law will be observed and upheld.

Trust is a fragile thing. Like a reputation, it arrives on foot and departs on horseback. Once it is lost it is extremely hard to regain. And the underhand or untrustworthy actions of any one country can and will undermine the willingness of all others to trust not just that one country, but all other countries that do not take a stand against the original breach of trust.

And that is why the world we live in now is so intensely complex. Wherever we look, trust is breaking down, leaving a much more fragile world. Once we no longer believe in each other, or the news we read, or the images we see, or news we read, or the information we hear, or the capacity of our governments, or the impartiality of our institutions, we open the way for populism to sow its pernicious seeds of grievance and blame. Trust is an increasingly rare and elusive quality.

Every company needs trust. Trust that our contracts will be honoured. That our invoices will be paid. That the work promised will be carried out honestly and to a high standard. That our suppliers will provide the quality of goods we need. And yet every company also operates in today’s world of decaying trust. A world where destabilised geopolitics complicate the business environment. Where norms established over the past 80 years, which we have come to trust as the backdrop to our investment and growth decisions, are being pulled apart. Where trust in the capacity of institutions to impartially referee disputes and impose penalties for infringement is undermined on a daily basis. Where disinformation is used to undermine trust as a geopolitical weapon and gain competitive advantage at a commercial and political level.

To manage these tempestuous seas, I would argue firstly that every company should have a chief geopolitical officer to help navigate these.

And secondly that, with trust becoming a rare, but vital, commodity, companies (who, despite all the negative press, continue to be one of the few sectors of society in which the public repose their trust) have a crucial role to play in rebuilding trust. By being honest. By being transparent. Yes, by making money. But not by achieving that objective at any cost or by disregarding fence-line communities or the environmental impact of our operations. But rather by being honest, transparent and open in our communications with the public, our shareholders and our governments.

I would add to this that I do not believe companies exist outside the political and geopolitical environment in which we operate. We are not neutral outside observers. We are part of society. We have a duty to form and create that society. And to make it better. That means calling out the government when it acts to damage trust. It means being prepared to take a stance when we see power being abused. And it means looking out for each other - our colleagues, employees, supply chain companies and our communities. Because if we do not strain at the leash to restore trust, we cannot then complain when the absence of trust comes back to bite us at some point in the future.

And as always, where there is a loser, there is a winner: Reform UK has broken through the so-called Red-wall and is sweeping up Council seats in Labour’s traditional heartlands. In some places, it has taken every single one of Labour’s town councillor seats, with some areas recording swings of up to 50 points. And in Wales, Reform beat Labour into third – the first time in 100 years that it has not been in control.

In Hartlepool (where Labour’s by election loss five years ago nearly persuaded Starmer to resign as Opposition Leader) Labour lost every single council seat it was contesting to Reform, leading the local Labour MP (the appropriately-named), Jonathan Brash to comment “I think the very best thing the prime minister could do now is…set out a timetable for his departure”.

How bad are the results, really?

It is true that these are ‘only’ local elections (though the elections in Scotland and Wales are for Parliamentary seats). And it is also true that ruling parties traditionally get badly bruised at local elections, but even so, these results are so bad for Labour that many MPs will be drawing the conclusion that - since, MPs rely on local Councillors for the ground campaign whilst they are sitting in Westminster - their time in Parliament may be limited...

But Labour is not just losing votes to Reform on the right, it is also losing votes to the resurgent Greens on the left, which have already picked up seats in places like Exeter, Southampton and Oxford.

Beyond Reform and Labour, the picture is mixed. For the Lib Dems, the results so far have been good with gains in councillors second only to Reform.

If things have been bad for Labour, they have been equally so for the Tories, who have been almost to an irrelevance in large parts of the country.

Reform’s performance in England, Wales and Scotland (where Labour clung on to second place) mean there is now some legitimacy to Reform’s claim to be the real representatives of right-wing Britain. That would be a challenge to the status and authority of the Conservative Party as the Official Opposition in Parliament and would intensify talk of Reform ‘absorbing’ the Tory Party before the next general election.

.

Labour’s loss in Wales may result in the Welsh Labour leader following the Scottish Labour leader in demanding that Starmer resign.

The Untied Kingdom? (and no: that is not a typo)

With seven parties now vying for power in the UK, there is a credible claim that today’s votes could come to be seen as the moment at which Britain’s 250-year history of two- party politics came to an end. With the first-past-the-post system, a fragmented UK political scene could mean that a party which had won the votes of just one-in-six of the electorate could end up with an absolute majority of MPs: that scarcely feels representative. I would place a small wager that this observation means the issue of proportional representation will bubble back to the surface.

And the big questions do not stop there…

With separatist parties in power in Scotland and Wales and Sinn Fein already in power in N Ireland, it does not take a political genius to ask what this means for the future of the United Kingdom. I don’t think it signals an imminent break-up, but it does suggest that centrifugal forces are becoming more powerful. The SNP has already said that, if it wins again in Scotland, it will take that victory as a mandate to demand another independence referendum. Sinn Fein has for years been campaigning on the basis of when, not if, a Border Poll takes place. Those facts pose important questions about the future constitutional construct of the UK…

So, back to Starmergeddon….

Number 10 will be relieved at two things. Firstly that there have not been more MPs joining Brash in calling for a change in leadership. And secondly that the results in the constituencies of Streeting and Rayner have been just as bad as the results for Labour in other constituencies, depriving them of a story of difference and resistance…

They will also be relieved to see that ‘ Sir John Curtice, one of the country’s pre-eminent pollsters, has predicted that Labour may contain its losses to under 1,500 councillors — the threshold many MPs suggested would trigger a leadership challenge. This suggests that while the narrative is horrendous right now for Labour it could soften a bit throughout today’ (quote from The Times).

However, my feeling is that things have now got so bad that Labour is going to proceed with the defenestration of Starmer. Surely, at some point, they have to lance this boil or (to mix my metaphors) it will become a running sore that will distract from the exercise of power. I do not think it is any longer a question of ‘if’ but of ‘how’ and ‘when’…

Starmer knows he is under intense pressure, but he is (so far) refusing to even countenance considering departing. The point made by so many voters that they are voting for Reform or the Greens, Plaid or the SNP because they are disillusioned by the ‘status quo’ suggests that, after just two years in power, Labour has become the Party of the status quo. This is important because Starmer’s comment this morning that he is “not going to walk away” because people are “Frankly…fed up with the status quo” suggests he has not realised that he now represents the status quo.

Starmer’s position was already fragile. He has had a ‘good war’, winning praise and support for his refusal to join the US/Israeli war in Iran. But (as I have mentioned before) he is politically clumsy and the combination of the number of unforced errors he has made (not least appointing Mandelson as UK Ambassador to the US); his lack of natural constituency in the Labour Party; and the absence of what President Bush famously called ‘the vision thing’ mean that set of bad results have exacerbated concerns about what the next three years of his leadership might mean for Labour in 2029.

Ed Miliband is rumoured to have told Starmer to prepare a dignified retreat from Number 10 by arranging a transition of power to Andy Burnham. There are rumours that Burnham has found a backbench MP ready to step down as soon as this weekend to enable him to return to Westminster and launch his own leadership challenge. Miliband believes that an orderly transition to Burnham is the only way to avert a civil war between Wes Streeting and Angela Rayner who are both said to have the support of the 81 Labour MPs required for a leadership challenge one which would be likely to lead to governmental paralysis and, in the current geopolitical circumstances, turmoil in bond markets. Even if, in the end, Starmer were to survive such a struggle, he would be even more weakened by it.

The biggest question that confronts the Party is ‘with whom to replace Starmer? And frankly, none of the alternatives are hugely attractive – which may be what saves him…again. And so the stasis in the Labour Party continues. With criticism from the sidelines and no one prepared to make the first move to depose Starmer, as the country sinks deeper into political crisis and Reform make the running.

At some point the Party must act: either to quell the plotters or to replace Starmer. The Party would prefer a bloodless coup if at all possible (a leadership contest is always damaging for Party unity and its national image), but if Starmer won’t go quietly, the Party may have now reached the point where it will force him out.

Energy

• OPEC was formed in 1960. Abu Dhabi joined in 1967. The UAE formally joined in 1971. The UAE’s departure is therefore a genuine body-blow to the organisation.

• There were 12 countries in OPEC (11 after the UAE’s departure). Total OPEC crude production was around 28 mbd before the Gulf war.

• OPEC is no longer the force it once was. Until 2000, OPEC’s share of global crude production was roughly stable at around 44%. By the end of 2025, it had slipped to 36%, reflecting increased US production (around 13.6 mbd).

• OPEC+ (which includes an additional 10 countries) accounted for around 54% (c. 42 mbd) of global crude production before the war.

• The UAE’s full crude production capacity is around 4.8 mbd. OPEC quotas kept it at between 3.4– 3.5 mbd crude, which has shrunk to around 2.4 mbd due to the war. The UAE aims to reach 5 mbd of production by 2027.

• Its crude exports (before the war) were around 2.7 mbd (the UAE refines some of its production domestically).

• About 60% of that volume (1.6 mbd) left the Gulf via the Strait of Hormuz, with the rest (1.1mbd) leaving through the Fujairah / ADCOP pipeline route (currently the UAE’s only export pipeline).

• Before the war, the Fujairah / ADCOP pipeline was being used at around 1.1 mbd. Since the war began, it has been operating at full capacity (1.8 mbd).

• The UAE is planning to open a second pipeline, the Jebel Dhanna–Fujairah pipeline with a capacity of 1.5 mbd.

• When fully operational, the combined capacity of the two pipelines will be around 3.3 mbd.

Better off Outside?

Given that global crude production is around 75mbd, the UAE’s extra 1.5-1.6 mbd of production looks small. But in the context of a pre-war global crude and refined products market, where supply (104 mbd) and demand (105 mbd) were finely balanced, an additional 1.5 mbd would make a noticeable difference. At today’s prices (around $120/barrel), it would also represent additional revenue of around $180 million/day - vital for the UAE which is currently losing around $600 million/day from absent tourism revenue. It is no secret that the UAE has been unhappy for some time about production allocation and Saudi-led oil governance. So the UAE may be calculating that, since the hydrocarbon era is drawing to a close, there is only limited time to cash in on its hydrocarbon assets and it would be well-advised to use the revenue to accelerate its economic diversification. It is better doing that outside OPEC, unconstrained by quotas, rather than remaining in, with production curtailed, running the risk of ending the era with stranded assets.

Taking all these factors together, on the face of it, the UAE departure from OPEC makes good sense. Freed from OPEC’s own supply controls, the UAE can increase its production to its own maximum and, with the new pipeline coming online later this year or early next, the UAE can almost double the number of barrels it can export via routes which avoid Hormuz. Given the compounding effects of damage to oil and refining infrastructure in the Gulf, the consequent running-down of global crude and refined product inventories, well shut-ins, tanker displacements and the time lag of oil on water, it is likely that oil prices will stay higher for longer (at least a year), so the UAE gains not only from higher production, but also from higher prices.

Seems Too Good to be True…

However, I think that assessment misses two key factors. Firstly, demand destruction. The IEA released an assessment last month which found that demand had fallen from 104 mbd to around 100mbd – the fastest and steepest drop on record. Unlike previous oil price shock crises, this one is hitting markets at a time when viable substitution technologies exist. With oil demand already projected to plateau by 2030, the longer the crisis in the Gulf continues, the more likely it is that (temporary) demand destruction becomes (permanent) demand replacement as consumers respond to volatility, risk, high prices and scarcity by shifting their demand and investment away from hydrocarbons to renewable solutions and governments implement demand-side policy measures in response to the supply crunch. That means that it is possible there will be a return, not to the status quo ante market of 104 mbd of demand, but rather to a market where demand hovers around 95-98 mbd, in which supply of 106.5 mbd becomes an over-supplied market in comparison to historical norms, driving prices down. Normally a drop in prices would encourage demand to pick up – but not if capital and consumer habits (EVs, for example) have shifted permanently into renewables. In this scenario, the UAE’s additional barrels would only sell into a market above $100/barrel for a relatively short period of time.

Secondly, the beneficial ‘sell more, higher’ scenario ignores any possible OPEC response. I cannot imagine that other OPEC members will be thrilled about the UAE’s defection – to say nothing of the potential impact on GCC relations. OPEC could respond by reducing its own production to keep the market balanced. This seems unlikely, since that would be to OPEC’s cost and the UAE’s advantage. Alternatively, OPEC could leave its own production quotas untouched, which would potentially bring prices down, but essentially leave the UAE’s new market share untouched. The third, and most likely scenario is that OPEC responds by using its bigger market muscle, increasing its own quotas to try and flood the market (indeed, although OPEC has attempted to project a ‘business as usual’ response, it has already signaled a, partly symbolic, 180,000 b/d increase in production for June to demonstrate the organisation is still functioning, despite the body-shock of the UAE’s departure).

Further increases in production would serve not only to drive prices down, helping prevent demand destruction becoming permanent by chasing wavering consumers, but would also have the ancillary effect of depriving market share and financial benefit from the UAE’s new barrels. Since Saudi is the biggest swing producer in OPEC and their break-even costs remain substantially above those of the UAE, any fall in prices will affect Saudi most (though Riyadh may calculate that by pushing prices lower, it can gain market share and force higher-cost producers out of the market). The UAE departure is therefore likely to inject unwelcome further tension into its already difficult relationship with Saudi Arabia…

So What is Going on, Then?

If these two observations are correct, then they are unlikely to have escaped the attention of the UAE’s strategic planners. Which begs the question: is the upside gain worth the downside risk? Feels to me as if the answer to that question is extremely finely balanced. Which leads to the second part of my hypothesis – namely that the UAE decision to leave OPEC is as much (possibly more) about international and regional geopolitics as it is about the economics of crude oil production.

It’s All About the Geopolitics

At the outset of the war, I had wondered whether Iranian attacks on its Gulf neighbours might act to bridge the gap between Saudi and the UAE which had been widening (including over policy in Yemen and Sudan). Instead, the differing responses of Gulf countries have actually exacerbated tensions. Oman has been almost conciliatory towards Iran, whilst the UAE has done the opposite, calling Iran ‘the enemy’ and being pounded by considerably more Iranian artillery than other Gulf States. The UAE decision to leave OPEC is taken against the backdrop the growing rivalry between the UAE and Saudi Arabia for regional influence, with Abu Dhabi using oil policy to demonstrate its independence and autonomy from Riyadh.

Seen in this context, the UAE decision to leave OPEC can perhaps be read as their acceptance of the collapse of the fiction that a shared interest in hydrocarbon production could somehow paper over incompatible visions of the region and its future. Under fire and feeling abandoned by its neighbours the UAE turned instead to the US and Israel for support - with Israel reportedly sharing its cutting-edge ‘Iron Beam’ laser system with the UAE to defend against short-range missile attacks.

The US angle is even more interesting. President Trump’s historical antipathy towards OPEC is well-known. I have no doubt that he would have welcomed the UAE’s departure as an act which weakened the organisation. The fact that the UAE can produce and export more oil outside OPEC aligns with Trump’s ‘drill baby, drill’ view of energy markets. And – perhaps in recognition of this alignment - in late April it was reported that the US had offered financial support to the UAE for reconstruction, further strengthening the UAE-US relationship (perhaps slightly at the cost of the US-Saudi relationship). This sort of economic, philosophical and political alignment with the US may also suggest that the UAE hopes to benefit from further US technology deals as part of its drive to use oil revenue to diversify its economy.

Finally, there is the Russian angle. The UAE has traditionally leant towards Russia – I was struck last time I was there by how many Russians there were in Dubai. But Russian relations with Iran have intensified since the invasion of Ukraine, with Iranian drone technology initially boosting the efficacity and lethality of Russian attacks on Kyiv. In return, Russia offered its military assistance to Iran, including, it has been widely reported, by providing detailed targeting information. And, in a reversal of alliances, it has, instead, been Ukrainian anti-drone technology which has helped the UAE. As a perfect encapsulation of the souring of the UAE/Russia relationship, it is no coincidence that one of the few vessels to have recently left the Gulf was a Russian super-yacht, with a sanctioned owner which sailed out of Dubai at the end of last month…

Conclusion

All of these issues – tensions with Saudi Arabia; imbalance in attacks on and solidarity with/from other Gulf neighbours; increasing cooperation with Israel; closer economic and political alignment with the US; and a growing disillusionment with Russian links to Iran - will have played a crucial role (alongside economic considerations) in the UAE strategic re-alignment decision to move decisively away from playing its traditional role with OPEC and seek a new, freer space outside the organisation. It speaks of a new self-assurance born out of its maturing relationships with Israel and the US which has given the UAE the confidence to break out from under the Saudi shade.

It remains to be seen whether this new independent streak will break OPEC and what the ramifications are for continued UAE membership of other regional fora – including the GCC and perhaps even the Arab League. But it is clear that the decision to leave OPEC signals a weakening of OPEC and a new chapter in hydrocarbon policy and regional relationships in the Gulf.

· Roughly 150 ships/days carried around 20% of the global supply of oil and refined products through the Strait on a daily basis before the Israeli/US attack on Iran.

· The Strait effectively closed on 28 February. Since then, Iran has allowed a number of vessels through the Strait, providing they paid a transit fee. There have been roughly 300 sailings through the Strait since 1 March).

· Following the ceasefire, there was an expectation that Iran would re-open the Strait. Instead, they kept it closed – the $2 million/ship transit fee was proving an extremely useful revenue source.

· The US after rattling its sabres, realised that re-opening the Strait by force was going to be very difficult/costly/impossible and so, on 13 April, imposed its own counter-blockade on Iranian exports.

· Since then, the, already low, volume of traffic transiting the Strait has slowed to a trickle, to the point where trade through the Strait is negligible (although the media is reporting a VLCC from Saudi heading for Japan left the Gulf overnight): no products can leave the Gulf and nothing can get in either.

An Economic Arm Wrestle

It has become an arm-wrestle – which side can take the resulting economic pain for longest? From the Iranian side, the pressure is clear: the IMF has forecast a 6.1% contraction in Iran’s GDP in 2026. Inflation is already running at nearly 70%, with food and healthcare rising at even higher rates. From the US side, the pressure on President Trump is less immediately obvious, but no less pressing for that: the political cost of high petrol prices and general inflation is rising with the Mid-Terms now looming on the horizon; and there are growing concerns that a global shortage of jet fuel could have a severe impact on the Football World Cup in June and July. More pressingly, Trump has a date with Xi Jinping in Beijing in mid-May. Even though the size of China’s strategic oil reserves and the large volumes of Iranian oil on water mean that China is currently fairly well-insulated from the supply shock, since Iran supplies around 15% of Chinese crude oil imports, the US will be concerned that oil supply issues could become an irritant during the bilateral meetings.

Advantage Iran?

On Monday, the German Chancellor, Friedrich Merz commented that the US was being humiliated at the negotiating table by the Iranians. The US may have won the hot war, but it could not enforce a cold peace. The US had been caught off balance by the resilience and resistance of the Iranian regime to the US/Israeli onslaught. This should not really have been a surprise - Iran (or at least the Iranian regime) is in an existential battle, so resistance is a question of survival, not economic pain, which means that Iran had been apparently willing to absorb a much higher economic cost, one which (because of the lack of democratic accountability in Iran), the Iranian regime had no hesitation in transferring to its population.

Until Monday, I agreed with Merz’ analysis In the Strait of Hormuz: the Iranians had discovered a genuinely powerful economic weapon with which they could effectively hold the global economy hostage, and, combined with the other two Ms (munitions and mid-terms) their calculation was that they could eventually combine to push the US to offer and accept a compromise which was to the Iranian advantage.

Not any more…

However, the Iranian offer to re-open the Strait (albeit subject to their conditions of payment of transit fee and leaving discussion of the nuclear file until later) reflects a very important shift in the gridlock. It signals, for the first time, that not only is Iran really feeling the economic pressure of the US blockade, but there is now a sense of urgency to their search for a solution.

Since the start of the conflict Iran had actually managed to increase its volumes of exported oil and refined products (Reuters reported that Iran was exporting a ‘record 1.8 mbd to China in March’). And, with the US loosening sanctions on Iranian oil on water, the Iranians were selling more oil and at a higher price. Although there is only limited evidence to suggest that Iranian production had actually increased, their production had certainly not decreased. However, since 13 April, Iran has essentially not been able to export its oil. As a result, its ‘traditional’ storage is filling up quickly. And the US blockade prevents empty Iranian tankers from returning from to Iran to act as floating storage. As a result, Tehran (in an exact mirror-image of the problems inflicted on its Gulf neighbours by its own closure of the Strait) is now running out of storage space for its oil.

Once there is no storage left, Iran, which has no viable alternative export routes, will be forced to shut-in its wells. Shut-ins are difficult to manage at the best of times, even with new, well-maintained oil wells: for Iran’s oil fields which have been subject to decades of sanctions, shut-ins are a disaster – it would take them months to re-open their wells and some of them may be in such poor condition that it would simply not be possible to re-open. Iran has already decreased production from its fields to slow down its storage fill-rate and is desperate to avoid this outcome. But, depending on how successful Iran is in scaling back production, if the US blockade remains in place then by mid to late-May, that is exactly what Iran will have to do if it cannot re-open the Strait to its exports.

If it is correct that the Iranian proposal was made from a position of growing desperation, it suggests that the balance of power in the arm-wrestle between Iran and the US has shifted. The Iranians may continue to ‘humiliate’ the US in negotiations, but as the Iranian storage fills up, the US will increasingly benefit from the economic upper-hand: maintaining the US blockade of the Gulf is highly damaging to the global economy, but it looks as if it will become increasingly more so to Iran. That offers Trump a way out of his Cold Peace impasse, one that avoids the need to deploy the formidable military force available to the US from the three aircraft carriers and over 55,000 US troops now in theatre. Given that the US is currently benefiting from increased hydrocarbon sales (and at a higher price) to a world desperate to source scarce supply, I have no doubt that Trump will happily accept the wider global economic damage if it enables him to claim victory in the Gulf.

I have set up a new addition to my Substack publication: Thomas Reilly subscriber chat.

This is a conversation space exclusively for subscribers—kind of like a group chat or live hangout. I’ll post questions and updates that come my way, and I would really welcome your views and thoughts as we create a discussion. The objective being to share points of view and learn from each other.

I really look forward to hearing from you.

Join chat

How to get started

1. Get the Substack app by clicking this link or the button below. New chat threads won’t be sent sent via email, so turn on push notifications so you don’t miss conversation as it happens. You can also access chat on the web.

Get app

2. Open the app and tap the Chat icon. It looks like two bubbles in the bottom bar, and you’ll see a row for my chat inside.

3. That’s it! Jump into my thread to say hi, and if you have any issues, check out Substack’s FAQ.

Why has that not happened?

One part of the explanation is the IEA’s co-ordinated release of 400mn barrels of strategic oil reserves which has also helped offset lost production from the Gulf. A further 200 million commercially-owned barrels have been sold from inventories outside the Gulf since the start of the conflict. And China has been quietly refilling its storage. But the main explanation of the price discrepancy is that demand destruction (caused by scarcity and higher prices) has already set in – and for reasons set out below, I do not expect the news of the re-opening of the Strait to have an immediate impact on that destruction.

On Monday, the IEA released an assessment of the impact of the Iran war on global oil demand. The conclusions are startling. Global oil demand fell 3.4% in March and the IEA anticipates a further fall of 1.1 % in April, down to just over 100 million barrels a day – the lowest figure in more than three years and the steepest quarterly decline, outside of the Covid-19 pandemic, since before the 2008-2009 global financial crisis. Global oil deliveries fell in March by 800,000 b/d compared with last year and, now that Gulf oil on water has been delivered, the IEA is expecting a fall of 2.3mn b/d in April - the biggest monthly fall since the start of 2021. The IEA is projecting a drop in annual oil demand for 2026 – if correct, that would be the first annual decline (excluding the pandemic) since 2009 - which itself was the biggest economic recession since the Great Depression.

I have read a lot of commentary suggesting that we should not be worried about the price of a barrel of oil, since the futures’ curve is relatively flat (the futures price is essentially what the market thinks a barrel of oil will cost at a given point in the future for example, the August contract is below $90 a barrel). That feels complacent to me: all wars end at some point, so the futures market can afford to be sanguine. The spot price gives a clearer picture of the impact of scarcity. The refiner who needs the next barrel of oil now (rather than in August) is prepared to pay a premium to make sure they get it. And pay it they are: Georges Elhedery, the HSBC CEO, quoted the full delivery price of a barrel of oil to Sri Lanka at $286!

The gap (spread) between dated Brent and front-month ICE Brent futures contract makes clear the reality of this shortage. It is usually between $1-2/barrel over a three-month period: earlier this week, it reached $35. This gap clearly indicates a market under huge strain as it struggles to source barrels for delivery now, even if it still assumes supply will normalize in the near future. With 20% of oil and products supply missing from the market and the last of the tankers which left the Gulf before the conflict due to discharge their cargoes in Malaysia and Australia by April 20, the competition between refiners for new cargoes is only going to intensify.

Asia’s refineries buy 80% of their oil from the Gulf, meaning they have been hit hardest first. In response, they have reduced their operations, but have also aggressively bought record volumes of Atlantic basin crude which would normally sail into Europe. Later this month, when those cargoes leave the Atlantic Basin and head to Asia, instead of the Europe, refineries in Europe and the US will have to cut their production in response. This will send the price shock rippling out of Asia into Europe, driving crude oil prices even higher and bringing closer the certainty of shortages in other parts of the world. The difference between the price of a barrel of crude (around $100 until today’s announcement by Iran) and the price for a barrel of diesel (around $150) suggests that the crude oil spot market is under-pricing this risk and that that the crude oil market may have a long way still to rise before it accurately reflects the seriousness of the situation.

Despite the Iranian closure of Hormuz, some oil had been reaching global markets through the Strait of Hormuz – either Iranian oil or oil on ships which had paid the reported $2 million transit fee. But none of it was ‘newly laden oil’ from other Gulf states. Three Iranian vessels carrying oil left from Kharg Island this morning. Since 1 April around 17 million barrels have made their way through Hormuz - as compared with around 20 mbd before the war. Whilst Iran has announced the re-opening of the Strait, the US blockade (which has already turned 72 ships back, raising the question of whether the three Iranian vessels noted above will be allowed through) will apparently remain in place. If it does and it continues to prevent cargoes leaving the Gulf, it will bring closer the time of acute shortages as there is no short-term replacement supply which can be switched on.

How Are Governments Reacting?

As noted above and in previous blogs, the economic impacts of the Iran war were initially cushioned because so much Gulf-laden oil and gas was already at sea. But that cushion has now expired and governments in Asia are being forced to take some quite drastic measures in response to the supply shock.

- The Philippines (imports more than 95 % of its oil from the Middle East), has declared a national energy emergency.

- Indonesia and Vietnam have instructed people to work from home.

- Australia (due to receive its last cargo from the Gulf on April 18), has released fuel reserves, cut fuel taxes and rolled out a national fuel security plan.

- India has cut excise duties on petrol and diesel, imposed windfall taxes on diesel and aviation-fuel exports, invoked emergency gas-allocation measures and told refiners to raise LPG production.

- Pakistan has required that markets shut earlier; imposed a 2200 cutoff for weddings; a 50% cut in fuel allowances for government departments; and reduced the working week to four days for government offices.

- Bangladesh has shortened office and bank hours, ordered malls to close by 1900, cut power use in offices, banned decorative lighting, restricted non-essential travel and sought $2 billion in external financing to secure fuel imports.

- Nepal has cut fuel quotas for senior officials by 50%, extended the weekly holiday for schools and government offices from one day to two, raised petrol and diesel prices, imposed cooking-gas rationing, and moved toward easier conversion of petrol and diesel vehicles to EVs.

- Sri Lanka has introduced fuel rationing, added an extra day off/week, reduced train and bus services, and raised power tariffs for households and industry.

- China has adjusted retail petrol and diesel price ceilings three times, capped the size of later increases to soften the shock, moved to diversify import sources, expanded energy reserves, and pushed to increase domestic oil production.

- Tuvalu and the Marshall Islands have declared states of emergency, Fiji has introduced fuel-saving measures, and Tonga, Solomon Islands and Palau have invoked a regional emergency mechanism.

The impact of the war is beginning to affect Europe, with fuel-price protests in Ireland and Norway and governments taking measures in response in Germany, Italy, Poland and Hungary. But the longer-term implications are even more worrying. Jet fuel shortages are now almost certain to impact the summer holiday season with repercussions for the tourism industry (the UAE is reportedly already losing $600 million a day in lost tourist revenue). The UNDP has warned that as many as 32.5mn people risk falling into poverty as a result of the shock of energy affordability / availability; food price increases (and lack of the urea which is crucial to the production of next year’s fertiliser); and the economic downturn linked to the Iran war.

What does this mean for the global economy?

Although the visible economic impacts of the Iran conflict have been limited so far, economists appear united (which is rare) in their view that a stagflationary shock is coming and that monetary policy is poorly placed to respond to it, with countries’ resources depleted by Covid and therefore lacking the economic firepower they collectively had in 2008/2009. In its half-yearly update published earlier this week, the IMF reported that the UK was the least well-positioned of the G7 countries and would be hardest hit by the coming economic crisis, with some calculations suggesting the UK economy may be 0.7% smaller as a result (by contrast, the IMF merely downgraded US growth by 0.1% to 2.3%). The market is pricing in an increase of inflation of 1% in the Eurozone and 1.3% in the UK (which would take UK inflation above 4%). The IMF report found that ‘even our most hopeful scenario involves a growth downgrade’ causing ‘permanent scarring to the global economy’. In the worst case outcome in which Hormuz remains closed for an extended period (a protracted conflict or a long drawn-out series of negotiations), the IMF projected it would be ‘a close call for a global recession’ with global growth falling to 2% and inflation rising above 6%.

Conclusion

Whilst the Iranian announcement is very welcome, it does not lessen the supply crunch, especially not if the US blockade remains in place. Even though there are maybe 100 fully-laden tankers waiting upstream of the Hormuz, their cargoes alone will not solve the tightness in the market. Even if the Hormuz were to fully re-open tomorrow, the compounding effects of well shut-ins, tanker diversion, damage to Gulf infrastructure and delivery time for oil on water mean that it will be many months before a return to full supply. The picture for gas is even worse.

I sincerely hope that the Iranian announcement signals that a solution to this crisis is at hand. But the lack of trust between Iran and the US suggests that the road to a lasting peace will not be smooth. And the conflict, far from making the region safer, has given the Iranian regime new confidence, empowering it by demonstrating they have a very powerful economic lever at their disposal - Hormuz. One which I do not think they will be slow to deploy again if the need arises.

What Happened?

It is hard to tell at the moment what persuaded both sides to step away from the brink. But it is clear that China and Pakistan both played an important role. Whilst President Trump‘s threat would have caused trepidation in Tehran, the regime was fighting for its very survival and was therefore unlikely to back down without being able to obtain significant concessions from the US. It appears that China put pressure on Iran to make an offer which the US could accept as a way for both sides to step away from the brink. Pakistan has also played a key role in mediating between the US and Iran and may have persuaded the US to accept the Iranian offer, enabling President Trump to claim that his threat of annihilation had had the desired effect of forcing Iran to offer a ceasefire. 

How does the Iranian 10-Point Plan Compare with the February Negotiations

It is interesting to compare the position of the negotiations as they stood on the eve of this bout of US Israeli attacks on Iran, with the content of the 10-point plan proposed by Iran overnight. The late-February US - Iran talks were centred on the nuclear file and therefore had a significantly narrower and more transactional focus than today’s Iranian 10-point plan, which is much more geo-strategic than the February negotiations. 

What was on the table in February:

- Iran had offered to send part of its highly enriched uranium abroad, dilute the rest, and discuss limits on the level and purity of enrichment. 

- In return, Tehran demanded US recognition of its right to peaceful enrichment, sanctions relief, and a practical timetable for lifting those sanctions. 

- the US wanted tougher nuclear concessions and demanded that the agenda include missiles and Iran’s regional proxies. 

Iran’s new 10-point plan includes:

- an immediate halt to US and Israeli attacks on Iran and its allies.

- UN-backed guarantees against renewed attacks.

-  compensation for war damage.

- a permanent peace framework that would let Iran charge fees for passage through the Strait of Hormuz.

- sanctions relief.

- release of frozen assets.

- Iranian commitments not to pursue nuclear weapons, but a recognition of Iran’s enrichment rights for civil nuclear programmes.

- withdrawal of US combat forces from the region.

- a broader regional ceasefire on multiple fronts (including in Lebanon - a condition Israel has already rejected). 

- A formal, binding international agreement (likely via the UN) including:

• Recognition of Iran’s rights (including enrichment, in some versions)

• A long-term peace settlement and security framework  

Advantage Iran?

The shift in scope and focus between February and now is remarkable, with the agenda shifting from a narrowly-focused nuclear bargain to a much broader regional war-termination package where the emphasis is less on Iranian concessions and more on ending US/Israeli attacks, reopening Hormuz, and setting terms for a permanent peace. The February talks were about managing the nuclear dispute: today’s ceasefire is about redefining the regional balance after the war.

This shift in focus reflects the shift in leverage that has resulted from the five week military campaign against Iran. In February Iran had very few levers. The fact that five weeks later it is still able to launch missile attacks on its neighbours and keep the Strait of Hormuz closed, effectively holding the rest of the world’s economy hostage, is a shift in the power relationship, which is clearly observable in the change of focus of today’s peace agenda.

What is striking about the 10-point plan proposed by Iran is that it includes many Iranian demands that had previously been rejected out of hand by the US. Some, such as the total withdrawal of US forces from the entire region, war reparations and leaving the stock pile of Iranian nuclear fuels intact, seem highly unlikely to be agreed in the long-term by the US. On the other hand, as extraordinary as it may seem, Iran has realised the economic power of its chokehold over the Strait of Hormuz and now believes that it can monetise that chokehold to charge a transit fee. Iran will not lightly relinquish that economic advantage - if it charges $2 million for each ship that transits Hormuz and we calculate that roughly 140 ships sail through the passage on a daily basis, it does not take a mathematical genius to see that this is a significant revenue raising opportunity for Iran. Allowing Iran to charge that transit fee could enable the demand for war reparations to be removed from the list of demands.

Does the Market Reaction Underprice The RisK Of Continued Oil Supply Disruption?

The reaction of stock markets and the oil price reflects global relief that the escalation threatened by President Trump will not now take place and that the ceasefire offers the opportunity for something approaching peace to break out in the Gulf.

Whilst the ceasefire is extremely welcome news, significant scarring to the world economy has already occurred. As I have written in previous blogs, there is a time lag between the departure of a fully laden tanker from the Gulf and its arrival to offload at its destination.

For Europe that delay can be up to 32 days. Last Saturday the UK received its last load of jet fuel from The Gulf. There are no more tankers following. That means that, even if every piece of oil, gas and hydrocarbon infrastructure in the Gulf were fully functioning and the Strait of Hormuz were to be opened this morning, there would still be a month’s delay before the next load of Gulf crude or refined product were to arrive at its destination.

But the hydrocarbon infrastructure in the Gulf is far from 100% intact. It is difficult to work out how much of the Gulf energy infrastructure has been damaged and to what extent. A reasonable estimate seems to be that one third of all hydrocarbon infrastructure in the Gulf has been affected. Two weeks ago, the French economy ministry estimated that 40% of the Gulf’s refining infrastructure had been damaged to a greater or lesser extent. Iran’s attacks have continued since then, which suggests that the percentage of hydrocarbon infrastructure in the Gulf that is damaged will now be significantly higher. Further strikes were reported overnight on oil and gas facilities in the UAE and Qatar. Added to this high attrition rate is the fact that many Gulf oil and gas wells have been shut in due to lack of storage capacity. Restarting shut-in wells can take anything from a week to 5 weeks depending on the age of the well and the way in which it was shut in. These factors compound and exacerbate each other and mean that, even if Hormuz were to open today, it would be a minimum of many months before energy supplies from the Gulf return to anything approaching 100% export capacity: a fact which much mainstream reporting appears to have overlooked and which oil markets appear to have failed to have priced in accordingly.

…And Wider Economic Disruption…

And it is not just in energy markets where the longer-term impact will be felt. Urea, which is produced from natural gas, is a fundamental ingredient in the production of fertiliser.  The severe damage to the world’s largest gas plant at Ras Laffan in Qatar (where the damage is so severe it could take up to 5 years to repair!) means the delay to a return to 100% urea production and shipping will be significant, raising the worrying prospect of food shortages next year. Another big concern is the aluminium sector. The Gulf is responsible for almost 10% of global production of aluminium. The smelters in the Gulf’s largest producers (UAE and Bahrain) have been powered down, estimates suggest it could be up to a year before the Gulf returns to full aluminium production.

In conclusion then…

This US/Israeli unnecessary war of choice has resulted in:

• The strengthening of Iran’s regional position and leverage at the expense of significant and widespread damage to its neighbours economies.

• Israeli acceptance of the ceasefire as it applies to Iran, but not to Lebanon, where Israel seems determined to raze the Lebanese houses along the border and prepare a 30 km strip of southern Lebanese territory for illegal settlement and occupation.

• Severe and long-term damage to the global economy, which will be felt most acutely by less- developed nations.

• Irrevocable damage to the US reputation as an upholder of international rules based systems caused by President Trump‘s intemperate threats to send Iran back to the Stone Age.

And we are left with the rhetorical question ‘was this really worth it?’ The answer to which seems to be a resounding ‘No’.

With the Strait of Hormuz still closed, a major energy supply crunch looming and deep uncertainty continuing over the eventual outcome and duration of the war in the Gulf, it might seem an inappropriate moment to take stock and assess who are the potential ‘winners’ and ‘losers’ from the conflict. However, assessing this may also give us an indication of the path the conflict may follow and will certainly guide geopolitics for some time afterwards.

It is clearly not possible to chart the fates of every country affected by the war with Iran. Nations such as Algeria and Egypt, for example, are already being affected in opposite ways by the conflict. This note therefore limits itself to attempting to chart the fortunes of some of the main protagonists.

Let us start with the biggest losers.

The USA.

It seems odd to start here when the US military has demonstrated again its prowess and its capacity for extraordinary force projection. But this conflict is about much more than military force projection: it is about soft power, economics, alliances and reputation. The Gulf conflict has been damaging to the US on all those fronts. It has found itself isolated internationally – no European country has offered assistance. Even those Gulf countries which have been hardest hit by Iranian retaliation have not (so far) joined the US/Israeli assault. NATO allies (already rocked by Trump’s threats to Greenland) are, frankly, appalled by the lack of US consultation and planning in the weeks and days leading up to the beginning of the conflict, with their leaders alienated by the verbal assaults President Trump has unleashed on them.

Global public opinion has turned quickly against the US. Trump’s approval rating languishes at minus 20 (as low as the worst days of Biden’s presidency after his disastrous debate performance). Leaders who once vaunted their closeness to Trump are now attempting to put as much distance between themselves and him as possible (Meloni in Italy and Farage in the UK are good examples of this phenomenon). The impact of that shift in public opinion may be seen in possible future consumer boycotts of US goods and the football World Cup.

The Global South has not missed the fact that twice in less than a year, the Iranians had been negotiating in good faith with the US, only for the latter to attack during those discussions. Both the Qataris and the UK Government have stated that a credible deal with Iran was on the table in the round of negotiations which were brought to a premature close by the launching of the assault on 28 February. This observation, combined with the unpredictability of President Trump (who still has more than half his Presidential term to run) has undermined even further the US’ reputation with countries of the Global South and their trust in the US, which will tend to push those countries towards closer ties with China (whose reputation has been enhanced in inverse proportion to the damage to the US reputation – see note below).

The limits of US air power have been clearly demonstrated against a regime as entrenched as that in Iran. The US’ failure to adequately defend its allies in the Gulf and the apparent inability of the US to do anything about the closure of the Strait of Hormuz has exposed a US weakness in confronting asymmetrical and hybrid warfare, which the US’ rivals and opponents will not have been slow to notice.

Finally, if Trump feels he has been thwarted in Iran, there is a risk he may feel he has to double-down to prove he is still in control. That may lead him to lash out at his ‘next’ target – whether that is domestic or international. Such a knee-jerk reaction would only serve to exacerbate the perception of American decline and worsen the transatlantic rift.

The Gulf Countries

In some respects the UAE, Saudi, Qatar and the other Gulf countries have been the biggest losers of the war. They are collateral damage in the poorly-considered and unnecessary war of choice on which the US was persuaded by Israel to embark. They relied on the US security umbrella, one which has proved porous at best, disinterested at worst. Not only has their infrastructure been ravaged by Iranian missile and drone attacks – damage which (in the case of the crucial Ras Laffan LNG installations in Qatar) may take years to repair – but their economies have suffered as a result. Whilst the Saudi economy is insulated to some degree by its Red Sea ports which enable it to switch the arrival point of imports from East to West and support the country by using West to East land transit, the other Gulf countries are effectively cut off from the world by the closure of the Strait of Hormuz, an isolation exacerbated by Iranian attacks on their airport infrastructure.

But, perhaps even more damaging in the long-term is the impact on their reputations as oases of calm in a chaotic region. Places which were well-run, free from crime, stable and open to investment. None of that now applies. Although the UAE Government response has been applauded by those ex-pats who have remained as impressive, measured and transparent, those plaudits cannot disguise the fact that more than 2,000 Iranian missiles have been launched against it, exploding its status as a place of safety – not least since Iran has suddenly learnt the apparent strength of its position when it comes to inflicting economic pain (see note on Iran below). And the UAE has not helped its reputation by arresting people who have taken and posted photos of missile damage. It is said that a reputation arrives on foot and leaves in a fast car: the Iranian attacks on the UAE may prove the truism of that saying.

The EU

The EU is another big loser in this conflict. The Gulf was not a major beneficiary of the diversion of European energy demand after the Russian invasion of Ukraine – in fact, despite an increase in imports of Qatari LNG, the share of Gulf hydrocarbons in the EU’s energy mix actually went down as Russian hydrocarbons were replaced with imports from Norway, the US, Kazakhstan and Algeria. In addition, the EU, Norway, Switzerland and the UK have over 70 refineries in operation, meaning there is significant scope for ‘domestic’ refining.

However, since oil and oil products are a global market, a world-wide price increase caused by the loss of 20% of global supply will have a major inflationary impact on Europe. Eurostat notes that the Euro area headline inflation rate has already risen from 1.9% in February to 2.5% in March 2026. Germany’s inflation rate has reportedly risen to 2.8% in March from 2.0% in February, with energy prices up 7.2% year on year and prices at the petrol pump are now at their highest since 2022. As the war drags on, there is a risk that this inflationary pressure could feed through to the whole European economy at a macro level, further flattening growth.

This new economic drag compounds the lingering impact of Covid on European growth rates and lends weight to the narrative of the hard-right that nothing works and that the current economic and social model of the continent is broken: a narrative which will be further strengthened if the EU sees an increase in migration caused by the war in Iran, the disproportionate, ruthless and indiscriminate destruction that Israel is wreaking on Lebanon and a food crisis caused by the interruption to the supply of essential fertiliser ingredients from the Gulf.

Europe’s commendable (if surprising) resilience in resisting Trump’s increasingly strident demands for assistance in the attack on Iran, cannot disguise the fact that Europe remains reliant on the US for its defence needs - brave talk of strategic autonomy notwithstanding. The creaking transatlantic relationship was already under significant stress after Trump’s threats to Greenland, but it has been further strained by the attack on Iran, with countries including Spain, France and Italy either denying the US use of air-bases or closing airspace to US military overflights. That fracturing of the relationship has important implications for the fight against Russia in Ukraine (see notes on both countries below). The US feels bruised by the refusal of its EU and NATO allies to come to its assistance in the Gulf and is threatening to pull out of, or at least to withhold military assistance from NATO/Europe in retaliation. Since Europe is not (yet) able to arm either itself or Ukraine without US assistance, this US reticence exposes the EU even further to a growing threat from Russia.

However, there is a glimmer of hope. The MAGA cheerleaders of the political hard-right in the EU have been wrong-footed by the attack on Iran: initially supportive, they have had to back-track quickly as the economic impacts have become clear. If the centrist parties can use that fact effectively in campaigning, they can portray the hard-right as irresponsible and incapable of government. Furthermore, if the EU can use this crisis to wean itself off defence-dependency on the US and genuinely grow its own strategic autonomy, this war may yet prove to be the springboard to a new and more self-confident EU on the global scene.

Amongst European countries, it is probably not unfair to single out the UK as being particularly hard-hit by the war in the Gulf. One of the arguments deployed by those in favour of Brexit (which separated the UK from its natural trading partners in the EU) was that the ‘Special Relationship’ with the US – a term much over-used and largely devoid of any real meaning (although it is true the UK/US Intelligence relationship remains very close) – would enable the UK to be in an advantageous position to gain a favourable trade deal with the US. That benefit has never quite worked out – the UK’s trade deal with the US is, in reality, more of a tariff-mitigation deal than a trade deal. Overall, inflation in the UK has been higher for longer than in the EU and economic growth has been lower for longer. Now outside the EU, a market of last resort for energy and products surplus to EU needs, targeted by Iran and Russia and with an unpredictable President in the White House, acting more like an adversary than an ally and dangerous storms on its geopolitical horizon, the UK finds itself worryingly isolated.

But, as with the EU, the war also offers a small glimmer of hope. If the government can turn this crisis into an opportunity and build a closer and more positive revitalised relationship with Brussels, then the UK may find its way back into a stronger, more confident EU just at the moment that such a change would deliver real benefits for both sides.

Ukraine

Ukraine has created cheap and effective responses to the Iranian drone threat from its experience, painfully accumulated, of having learnt the hard way how to counter Russian-launched Iranian drones over the last four years. It has been successful at marketing that experience to Gulf countries and demonstrating a usefulness and willingness to engage and help other countries under similar threat.

However, that positive approach cannot offset the very clear damage that Trump’s intervention in the Gulf has unleashed. With global attention rivetted on the war against Iran, the intensity of Russian attacks on Ukraine has increased. And with Gulf countries burning through expensive interceptors at a breath-taking rate (using more, according to one report, in the last month than the US produces in an entire year), there are fewer available for Ukrainian air defences, increasing the deadly potential of intensified Russian drone and missile attacks. To add to this depressing picture, the irritation of the US Administration with the reluctance of NATO and European allies to get involved in the Gulf may impact on the willingness of the US to continue to provide munitions to Ukraine (as one US contact told me ‘You told us the Gulf was not your war; well, we will tell you Ukraine is not ours’). As noted above, Europe is unable on its own to supply the military hardware that Ukraine needs in sufficient quantities, potentially leaving Ukrainian forces dangerously short of crucial weaponry.

And the winners?

Israel.

Make no mistake. This is Israel’s war. This is a fight that Netanyahu has been lusting after for 40 plus years. He has tried to inveigle successive US Presidents into this war; they all proved too wise. Until Trump. And now Netanyahu has his war - Israel is pulverising its number one regional adversary and flattening southern Lebanon in preparation for the territorial expansion of Greater Israel – and is, apparently, unbothered either by Hormuz or what comes next in Iran, confusing Israel’s national interests for those of the wider world.

At some point, when the US has had enough of the war and Israel has not, their mutual war aims will diverge so far as to be unreconcilable. But for the moment, the US appears to have granted Israel carte blanche to act with impunity in the region and seems unconcerned at, even supportive of, its abuses of international law – displacement of civilians and illegal occupation of the territory of a neighbouring country - as evidenced by the failure of the Trump administration to disown the comments by its own Ambassador to Israel that ‘Israel had a right to the lands promised in the bible’.

I was surprised when Hizballah decided to enter the war, given the pummelling it received last year. It was a foolish miscalculation and one that has brought misery on Lebanon. Israel now occupies 10 % of Southern Lebanon and has made over one million Lebanese people homeless: when the war with Iran ends, Israel will occupy and illegally settle the land up to the Litani River. Under cover of the fog of war, Israel has passed a law, described as abhorrent by human rights organisations, imposing the death penalty on any Palestinian found guilty of an attack on Israel - including those convicted in the absence of due process by military courts - and has re-doubled its attacks on the West Bank, accelerating settlements land-grabs.

In the long term, it is unclear whether regularly ‘mowing the lawn’, reducing neighbouring countries to rubble and destabilising their political systems is actually the best policy to ensure the sustainability of Israel’s safety (and there is no room for doubt that Hizballah, Hamas and Iran did and do represent a real and credible threat to Israel’s security). But in the short term, Israel will emerge from this war victorious, with its regional competitors and greatest foes weakened, occupying increased territory and enjoying the unconditional support by a US administration blind and deaf to the legitimate rights and concerns of the Palestinian and Lebanese people.

Iran

Given the preceding paragraph and the incredible battering it is receiving at the hands of the Israeli and US military, it feels counter-intuitive to list Iran as a winner out of this conflict. At the outset of the war, commentators assessed that ‘for the Iranian regime, survival is victory.’ But so far, Iran has done more than merely survive and has clearly surprised the US (and Israel) with its resistance and its resilience - over a month into the conflict, it is still capable of launching surprisingly accurate attacks on neighbours and foes alike.

The war has given Tehran strategic levers and negotiating power it did not previously possess. Although Iran had frequently threatened to choke off the Strait of Hormuz, neither the regime nor the international community really believed it could/would do it. I think Iran has been surprised at how easy and effective it has been to do and, having done it once, there is little to prevent Iran doing so again in the future should the need arise. Iran is now able to pass its tankers through the Strait and, because Trump has loosened sanctions on Iranian oil on water, Iran is now selling more oil into the international market (and at a higher price) than it had been doing before the war. Once the war is over, Iran will seek to monetise this control over the Hormuz, choosing which tankers to allow through and charging them a fee for transit (much as the Egyptians do for the Suez Canal, or the Panamanians do for their Canal), giving them even greater leverage over the global economy (and raising funds for reconstruction).

The success of the closure of Hormuz has shown the regime that, if it cannot compete militarily, its asymmetric response can be highly effective in inflicting pain on the global economy; and the absence of reaction from its neighbours, who have borne the brunt of its retaliation, will give Tehran confidence that it now holds a the whip-hand in the relationship with Gulf countries and can negotiate terms with the US from a much stronger position.

Russia

Russia is a big winner out of the ill-judged attack on Iran. With global attention now fixed on the Gulf, Russia is free to escalate its assault on Ukraine. The mirror-image of Ukraine’s concerns about the wanton despatch of interceptors in the Gulf applies to Russia. As stores of those missiles deplete, Russian drone and missile attacks on Ukraine will gain in lethality and Russian ground assaults will be met with decreasing Ukrainian defensive firepower.

Russia has watched with glee as the global oil price – the life-blood of the Russian war economy – has nearly doubled and, to rub salt in that wound, Trump, in his desperation to tame the markets, has loosened sanctions preventing the sale of Russian oil on global markets resulting in an increased inflow into Russian coffers. Whilst this has obviously not solved Moscow’s economic woes (as reporting that Putin summoned the country’s oligarchs to demand they contribute to the war effort clearly demonstrates), it is no doubt a welcome boost to the national treasury.

Finally and most importantly, the very evident split in the NATO alliance will delight the Kremlin. As delusional and far-fetched as it may once have seemed, there is now a real risk that, under President Trump at least, a Russian assault on a European NATO ally would be met with stone-walled silence from the US, meaning that the Alliance that has penned Russian aggression back behind its frontiers, may no longer be dissuasive. Putin can hardly believe his luck.

China

In the short-term, Chinese industry is likely to suffer from the higher price and lower availability of oil. Given the dependence of its heavy-industry on imported hydrocarbons, increased input costs will make its products more expensive and less competitive on the global market and push up domestic inflation. Since the US National Security Strategy specifically sets out that the US will use energy as a geopolitical lever and dedicates 8 of its 33 pages to China, depriving Beijing of Iranian oil to slow down the Chinese economy and allow the US to narrow the growth gap may have been one of Trump’s original war aims.

But in the longer term, China is perhaps the greatest winner out of the conflict. The great political maxim ‘do not interrupt your opponent whilst they are making a mistake’ applies here in spades. The US is shedding allies; shredding its reputation; creating doubt and suspicion; and demonstrating an abject failure to think strategically. China, simply by staying calm projects itself as the diametric opposite of the chaos and unpredictability that reigns in Washington. Countries of the Global South are making that comparison and their conclusions are not favourable to the US.

Moreover, nations all round the world are looking at the chaos that the US attack on Iran has wrought in global hydrocarbon markets and are concluding that the faster they can reduce their dependence on oil and gas, the better. That is likely to accelerate the transition to renewable energy. And if there is one country that has cornered the renewable energy market, it is China – as set out here. This is in many respects the ultimate irony of the US assault on Iran: far from weakening its most feared opponent and strengthening its own standing on the global stage, the US’ force projection has achieved the exact opposite.

Conclusion

The geopolitical ‘winner and losers’ of this war are surprising in many ways. Trump wandered into war in the Gulf blindly, enticed by Netanyahu and seduced by US military success last June and in Venezuela. It is clear that he does not know how to extricate the US without getting mired even deeper. With every passing day the depths of the strategic mis-calculation by the US become clearer and deeper, a geopolitical error for which they and the world economy will pay dearly over the coming months and years.