As the night sky over Doha bloomed with explosions, your personal wealth rose slightly. A ballistic missile is not what most people would consider an act of diplomacy, but Iran had given advance warning of its attack on Al-Udeid, the air base in Qatar that is the US’s command centre in the Middle East and home to about 8,000 American troops. Nineteen Iranian rockets were launched – five more than the number of bombs dropped by the US on Iranian nuclear sites – but they were taken out by US and Qatari Patriot missiles without any casualties. Financial markets warmed with optimism, equity prices rose and your pension quietly swelled as the prospect of recession receded.
The risk that war in the Middle East could impose recession on the UK remains very real, however. The fact that we are heavily dependent on fossil fuel imports for energy has not changed, and disruption of the oil price is not just in the hands of the Iranian Security Council. Israel might decide to strike the Kharg Island oil terminal, from which almost all of Iran’s oil is exported. These exports provide more than half of Iran’s government revenue – considerably more than it raises from the taxes paid by Iranian people – and the concentration of exports on a single small island are a critical weakness for the country. A desperate Iran might respond by striking oil infrastructure in other countries, such as Iraq, or by closing off the world’s most important corridor for energy exports, the Strait of Hormuz.
We have (at the time of writing) only experienced a slight whiff of the inflation such escalation could produce. Shipping rates on oil from the Middle East to China more than doubled from Israel’s attack on Iran on 13 June to Iran’s attack on Qatar ten days later. Liquefied natural gas can be highly explosive, so it seems reasonable to pay someone a bit extra to drive millions of cubic feet of it along a coastline bristling with weapons. (Sadly, that’s not what happened; the higher rates will be pocketed by shipowners and insurers, not sailors, because risking one’s capital is usually compensated more generously than risking one’s life.) Overall, these higher shipping rates added about $1.40 to a barrel of oil, according to Bloomberg.
This is a very different situation to the huge spike in the price of energy that followed Russia’s invasion of Ukraine. In 2022, oil and gas prices soared not because oil and gas from Russia stopped flowing – we continued to use Russian energy as the bombs fell on Kyiv, and we continue to do so today – but because markets were pricing in the risk that it could. The more stable price of oil today might reflect the deeply cynical reality that even when Vladimir Putin brought death and destruction to mainland Europe, we never really stopped paying him for energy.
A determined attempt to close off the Strait of Hormuz – through which almost a quarter of the world’s fossil fuel exports are shipped – would have a real impact on oil supply, however. As a member of the International Energy Agency (IEA), the UK is required to hold an oil stockpile equivalent to at least 90 days’ worth of net imports – so it’s unlikely we would run out, but prices would rise very steeply. Even a brief blockade of a week or so would then keep prices high, as IEA member countries bought oil to rebuild their emergency stocks. One energy analyst told me recently that the worst-case scenario – attacks on Iranian and Iraqi oil infrastructure, and a blockade of the Strait of Hormuz for two weeks – could produce a price shock for the UK comparable in size to the 2022energy crisis.
But the truth is that it would only take a minor shock to push the British economy, which is barely growing, into recession. We are still living through the consequences of the 2022 shock, which has raised prices across the economy by around 25 per cent. Despite the claims that Liz Truss “crashed the economy” with her mini-Budget, her response to the energy crisis was more significant. Truss had committed to cap the price of energy to £2,500 for a typical household for two years, but because she had no idea which direction energy prices would move in, this meant she had committed the UK to borrow an unknown, and theoretically unlimited, amount of money from financial markets. This was not a tempting proposition for buyers of our debt, and the cost of Britain’s borrowing began to increase rapidly. The mini-Budget mayhem that followed was the culmination of this episode, a cack-handed attempt to borrow even more to underwrite a questionable economic ideology. The 2022 price shock cost the government £52.2bn in energy bills alone, it cost British consumers and businesses an even larger, harder-to-quantify amount in higher spending on goods, services and debt, and it cost the Conservative Party the last of its credibility.
Keir Starmer’s government is obviously more competent, but its plans would also be torpedoed by an energy price shock. The new industrial strategy announced on 23 June promises economic growth through lower energy costs for businesses. The reality is that while we rely on fossil fuel imports, the UK does not control the price of its energy, and the path our economy takes can be changed in an instant by people like Benjamin Netanyahu and Ayatollah Ali Khamenei.
[See also: Thomas Skinner’s full English]
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This article appears in the 25 Jun 2025 issue of the New Statesman, State of Emergency