Iran reopened the Strait of Hormuz to trade, providing immediate relief to jittery global markets and, crucially for British businesses, cutting the government’s borrowing costs by almost 10 basis points in a single trading session.
Foreign Minister Abbas Araghchi confirmed on Friday that the world’s most strategic oil chokepoint, through which about a fifth of sea-borne crude passes daily, would remain “fully open” until Lebanon’s ceasefire expires on April 26. Donald Trump offered measured thanks from the White House, but quickly emphasized that the American naval blockade of Iranian ports remains in place.
“The naval blockade will remain in full force and effect as it affects only Iran until our transaction with Iran is 100 percent complete,” the US president said, indicating that a peace deal he claims is all but complete. “This process should be very quick as most of the points have already been negotiated.” Reports circulating in Washington suggest that face-to-face talks in Pakistan could resume as early as Sunday.
The financial consequences were immediate for British boards. Brent crude fell to $91 (£72) a barrel within minutes of the announcement, while 10-year British government bond yields, the benchmark for government bonds and therefore the price of corporate loans across the UK, fell from 4.85 percent to 4.76 percent. That’s the lowest since April 9 and a far cry from the peak of 5.1 percent reached in late March, when gilt markets briefly traded at their most stressed levels since the 2008 financial crisis.
The mechanics are quite simple. Lower oil prices translate into weaker overall inflation, reducing pressure on the Bank of England to keep interest rates higher for longer, which in turn reduces investors’ return requirements for loans to the Treasury. For the thousands of owner-operated businesses across the country currently refinancing term loans, overdrafts and commercial mortgages, any sustained easing of gilts is likely to translate into cheaper money within weeks.
However, there is a sting in the tail. Mr. Araghchi has carefully specified that ships must follow the route dictated by Tehran, a requirement that industry insiders have come to refer to, only half-jokingly, as the “Tehran tollgate.” Shipowners may find that safe passage comes with a price tag, and these costs will inevitably travel up the supply chain to UK importers, from fertilizer to finished electronics.
The broader lesson being learned in diplomatic circles is uncomfortable for the West. In about 50 days of pressuring Hormuz, Tehran has accomplished what decades of nuclear risk-taking never could: force the United States, the Gulf states and the Europeans to sit down and seriously negotiate. The strait, analysts now openly admit, has proven to be a far more compelling negotiating tool than any centrifuge. A single hand on the tap is sending Brent soaring nearly $30 a barrel, raising the specter of a global recession faster than any enrichment announcement.
From Tehran’s perspective, the reopening is not a demonstration of concessions but of control. The regime can cut off the power again at any time it deems the right time to do so, and if Mr. Trump’s blockade continues, it will have little difficulty shifting the blame for another rise in gasoline prices to the White House.
For UK SMEs, particularly those in logistics, manufacturing and any business with low fuel-dependent margins, there are two practical benefits. In the short term, take a breather: cheaper diesel at the pumps, a weaker exchange rate and slightly more favorable credit terms are all on the cards if the easing continues into May. In the longer term, you should stress test your exposure. Tehran has shown it can turn the taps on and off at will, and the assumption that cheap oil and predictable shipping routes are a birthright of the global trading system has been quietly withdrawn.
It turns out that geography is still better than technology. Controlling a 21-mile stretch of water between Oman and the Iranian coast has proven far more valuable than any nuclear program, and British companies would do well to plan accordingly.
