Britain’s biggest bank has issued a stark warning that the war in Iran is already undermining confidence in the global economy, as more British chief executives sound the alarm about rising costs, supply chain disruptions and the risk of renewed inflation.
Speaking at HSBC’s Global Investment Summit in Hong Kong, Chief Executive Georges Elhedery told Bloomberg Television that the Lebanese-born banker was “sad and worried” about events in the Middle East and increasingly worried about how long the conflict would drag on. He warned that uncertainty had begun to weigh on sentiment, warning that the impact would be felt far beyond the region, driving up prices of oil, refined fuels, fertilizers and metals.
The comments came as Brent crude, which broke $100 (£74) a barrel on Monday, slipped 0.9% to $98.50 on Tuesday morning, despite an American blockade of Iranian ports coming into force. U.S. and Iranian negotiators are reportedly preparing to return to Islamabad this week after 21 hours of weekend talks in the Pakistani capital concluded without a breakthrough.
In London, the FTSE 100 rose 22 points, rising 0.21% to 10,605. Imperial Brands, owner of the Davidoff and West cigarette brands and a growing range of e-cigarette products, was among the biggest losers after pointing to a “more uncertain geopolitical and macroeconomic environment.”
Recruiter PageGroup added to the gloom by describing conditions in the UK, Europe, the Middle East and Asia as “tough” and warning that the Middle East crisis would lead to an increasingly bleak outlook for the rest of the year. The company noted that salaries fell below 2022 and 2023 levels.
Thanks to its 31 percent stake in Saudi Awwal Bank, HSBC itself is among the European lenders most exposed to the region. Analysts at JP Morgan Chase estimate that the Middle East generates about 4% of the group’s pre-tax profit. However, Mr Elhedery stressed that the bank has seen only “very benign capital movements” from the region so far, although some wealthy Gulf investors have started looking for relocation opportunities in Singapore and Hong Kong since Washington and Israel launched attacks on Iran on February 28.
HSBC Chairman Brendan Nelson was even more explicit in a conversation with his CEO. He argued that a peace solution is essential to restoring global energy supplies, as oil-related inflation is now emerging as one of the biggest threats to the global economy. “The longer the disruption lasts, the more the indirect impact of higher energy costs will boost inflation and dampen growth,” he said.
The warnings hit small and medium-sized British manufacturers hard, particularly those that rely on raw materials derived from petroleum. Tom Beahon, co-founder and co-chief executive of sportswear company Castore, which supplies Premier League football teams and the England cricket team, told BBC Radio 4’s Today program that input costs had already risen by 10% to 15%. If the conflict continues for a few more months, some of that pain will have to be passed on to consumers, he said.
For Mr. Beahon, the volatility was even more destructive than the headlines. Prices for polyester and other synthetic materials at times rose by up to 40% in a single day before falling again, making planning almost impossible. Logistics have proven equally fraught, with airlines thinning out their schedules and ships still stuck in the Strait of Hormuz, although he expressed cautious optimism that a quick fix could spare customers the worst.
Corneel Koster, chief executive of Virgin Atlantic, made similar comments in comments to the Financial Times, revealing that jet fuel prices are now more than double what they were before the war. Whatever the outcome in the Gulf, he argued, some of the energy price shock will likely prove permanent.
The political temperature is also rising. As Chancellor Rachel Reeves flew to Washington for the spring meetings of the International Monetary Fund and the World Bank, she called for a coordinated international response and declared that the Iran conflict “must be a guide for dealing with global crisis and instability.”
For the UK SME community, already coping with stubborn inflation, a sluggish recovery and a tight labor market, the message from boardrooms and bank bosses alike is clear: the longer the guns ring in the Gulf, the harder it will be to protect balance sheets, margins and, ultimately, customers from the consequences.
