Iran reopened the Strait of Hormuz to commercial traffic, bringing immediate relief to global markets and, especially for British businesses, shaving nearly 10 basis points off government borrowing costs in the space of one trading session.
Foreign Minister Abbas Araghchi confirmed on Friday that the world’s most important oil field, through which about a fifth of crude oil passes through the sea every day, will be “fully open” until Lebanon’s deadline expires on April 26. Donald Trump offered limited thanks from the White House but was quick to stress that the ban on American ships in Iranian ports remains in place.
“The naval blockade will continue to be in full force as it only affects Iran, until the time when our transactions with Iran are 100 percent complete,” said the US president, referring to the peace agreement which he insisted was all done. “This program should go quickly because many points have been discussed.” Reports circulating in Washington suggest that face-to-face talks may resume in Pakistan from Sunday.
In British boardrooms, the financial consequences were immediate. Brent crude fell to $91 (£72) a barrel within minutes of the announcement, while the 10-year yield, which is the benchmark for government borrowing and, by extension, the price of corporate debt across the UK, fell from 4.85 percent to 4.76 percent. That’s the lowest reading since April 9 and a world away from the 5.1 percent peak touched in late March, when gilt markets briefly traded at their most depressed levels since the 2008 financial crisis.
The mechanics are straightforward enough. Low oil translates into soft-headed inflation, which eases pressure on the Bank of England to hold rates high for longer, which in turn reduces investor demand for Treasury yields. For the thousands of owner-managed firms up and down the country currently financing long-term debt, overdraft facilities and commercial mortgages, any further reduction in gilts should translate into cheaper cash within weeks.
There is, however, a bite in the tail. Mr. Araghchi was careful to clarify that ships must follow the route specified by Tehran, a requirement that industry insiders have begun to refer to, only half jokingly, as the “Tehran tollbooth”. Shipowners may find that safe harbor comes with a price tag attached, and those costs are bound to hurtle down the supply chain for British importers of everything from fertilizer to finished gas.
The broad lesson learned in business circles is not well received in the West. Nearly 50 days into the Hormuz squeeze, Tehran has achieved what decades of nuclear brinkmanship have eluded: forcing the United States, the Gulf states and the Europeans to sit down and negotiate in earnest. The strait, analysts now openly admit, proved a more convincing bargaining chip than any centrifuge. One hand on the tap moves Brent to around $30 a barrel and creates the impression of a global recession faster than any enrichment announcement.
From Tehran’s point of view, the reopening does not indicate approval but control. The government can turn off the water flow whenever it sees fit, and if Mr. Trump’s blockade continues to bite, it will not be difficult to blame for any new increase in the price of gasoline in the White House.
For UK SMEs, particularly those in transport, manufacturing and any business operating in small fuel-sensitive borders, the takeaway is two-fold. In the near future, enjoy some breathing space: cheaper diesel at the pumps, a soft monetary backdrop and slightly better lending conditions are all expected if detente continues in May. Long term, stress-check your exposure. Tehran has shown it can turn the faucets on and off at will, and the idea that cheap oil and predictable shipping routes are the birthright of the global trading system has been quietly abandoned.
Geography, it turns out, is still ahead of technology. Controlling the 21-mile zone between Oman and Iran’s coast has proved more important than any nuclear program, and British businesses would do well to plan accordingly.
