QPerhaps the most well-known author on the oil markets is Daniel Yergin. His work has won a Pulitzer and his advice is sought after by every president from Bill Clinton to Donald Trump. Let’s start by looking at an example.
Fifteen years ago, before the US and Israel started their war against Iran, killing thousands of civilians in the process, before the strait of Hormuz became as infamous as the Bermuda Triangle, and before experts declared “the greatest threat to global energy security in history”, Yergin published The Quest: Energy, Security and Remaking of the Modern World. After hearing Trump announce an “imminent” end to the conflict for the second – or was it the third? – time, I dug out my cup. Just as I remembered, it is about the Persian Gulf chapter.
Since 2011, Yergin has been concerned about the strait of Hormuz, which he calls “one point of the world’s oil production”. Both oil buyers and sellers know how quickly Iran can close this bottleneck. A general in Tehran warns: “The enemies know that we can easily block this line indefinitely.” Even before the deployment of drones, the Islamic Revolutionary Guard Corps had a firepower to prepare the geography of the Gulf. The leader of the Arab Emirate calculates that his country is “46 seconds from Iran as measured by the flight time of a ballistic missile”.
I do not present this verse as a great act of prophecy, but quite the contrary. Yergin was simply combining what was publicly threatened, known by active observers and presented in the government’s war games: use Tehran’s military and it will respond by causing economic suffering. That simple truth was glaringly obvious, yet Trump ignored it. Last month could be summed up when a big orange man stepped on a rack – and wondered how he got a black eye.
But now the top leader in Washington has provoked the seizure of 20% of the world’s oil supply, the whole world will have problems. For a taste of what’s to come, look to Asia, which usually buys 80% of the oil that goes through the Strait of Hormuz. Countries throughout the region have been hit before and hit hard. Governments are scrambling to conserve energy by imposing driving restrictions and shortening the work week. Residents are facing the problem of high food prices and shortage of petrol and diesel. In Bangladesh, the government reportedly believes it will run out of oil and gas within weeks. To save fuel, some temples in Thailand have stopped cremation. Almost a month since the start of this war, the most populous continent has already been plunged into chaos.
A power supply storm could hit our shores ahead of next month’s election. No wonder Keir Starmer calls Cobra meetings, while Rachel Reeves calls business leaders to Downing Street. For now, it’s all words and pictures and action, but the effects of the polls ensure that we’ll get some action soon. Starmer was already facing cancellation in May, but he certainly understands how rising prices will add to his losses. After all, he owes the global collapse in 2024 to the unholy combination of Vladimir Putin, for raising prices, and Liz Truss, for raising interest rates. The prime minister who promised that by 2026 the country will turn around now faces rising prices and prices, followed by recession.
So what should you do? Let me take a page from Yergin’s book and state three truths that many MPs and critics should know but may be tempted to forget.
First, let’s all get together. The cost of health problems does not affect us all, because we all come into it with the same amount of money or wealth. This is becoming the third national crisis in more than half a decade, and as with Covid and the earthquake in Ukraine, there will be calls for consolidation and public spirit.
However for those with a decent job and a home, their Covid experience was more tolerable than that of a large family squeezed into a small apartment and dependent on the wages of Uber drivers or sick people. For some, this epidemic meant banana bread and lots of Duolingo; for others, it meant facing the daily risk of serious illness.
Similarly, the inflation shock of 2022-23 affected British households in very different ways, as shown by a new study from researchers at the Basic Economics team. Between 2019 and 2023, households in the bottom 20% had to spend 96% more on the bare necessities of food, housing, transportation and energy. The top 20% spent less than 45%: they benefited from the Truss energy price guarantee, shopped from Waitrose to Aldi and cut back on luxury. This time, food producers are predicting that prices will rocket by almost 10% this year. According to figures produced for this column alone by the Energy and Climate Intelligence Unit (ECIU), it will add £127 to a family’s annual food bill. But ECIU also recognizes that since the poorest people spend enough money on food, they will be hit harder.
Of course, Nigel Farage and the right want help with air fares and petrol prices – because, whatever they say, they don’t care about low-income people. According to the noise from the Treasury, Reeves understands that inequality means that some people need more help than others. It’s beautiful.
Second, our equipment prices are decreasing. Why should a poor family pay the same amount for energy, water or basic things as a rich family? We have not adopted a poll tax for local government; We don’t have to pay for the equipment. I’ve written before about the need for continuous charging. The same is true of power. There is also a need to move away from fossil fuels and the current human system. Recent Guardian pieces from Mathew Lawrence and Chaitanya Kumar sum this up well.
Third, the days of relying on the miracle of growth are over. Two years ago, Starmer won the election promising “the highest sustainable growth in the G7”. A few days ago, the Organization for Economic Co-operation and Development predicted that the UK will have the lowest growth in the G7, apart from Italy.
The original promise was always part of the reward craze, as I and others wrote at the time. But there was a philistine refusal to think about the performance of the British economy and the relationship between GDP growth and the success of families. Instead, Starmer and Reeves seemed to think that by acting as managers, they would somehow control the economy and soon welcome investors from all over the world.
That didn’t happen before this oil shock – and it certainly won’t happen now. Anyone in No 10 after May needs to change their mind. He could do worse than listen to the new MP for Gorton and Denton. When Hannah Spencer won the election in February, she spoke of “people who work hard but can’t put food on the table. That struck a chord, as she concluded: “I don’t think it’s too much or too much to think that hard work can bring you a good life. [shouldn’t] I’m still living a good life.”
You’re right: it’s not extreme or extreme. It’s a simple fact – forgotten by many people in Westminster.
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Aditya Chakraborty is a reporter for the Guardian
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