00:00Stephen Millard is Deputy Director of Macronomic Modelling and Forecasting at the National Institute of Economic and Social Research.
00:08It's great to have you on the programme, Stephen.
00:11I want to start by asking you about what the markets think about this.
00:16Are they still assuming that this disruption is going to be temporary, or are they starting to price in a
00:21much longer crisis?
00:23Well, I think they are starting to price in a longer crisis.
00:28This is why we've seen oil prices rise over the past week or so.
00:35It's looking like the hostilities between the US and Iran are going to last for a while.
00:41And this latest threats around the Babam and Mandeb Strait just makes things even worse.
00:48How much worse? I mean, how does this threat of a second closure, a second disruption, change the broader economic
00:57picture?
00:59Well, about 15% of all global sea trade goes through the Red Sea, Suez Canal at one end and
01:07the Babam and Mandeb Strait at the other end.
01:09You close off the Babam and Mandeb Strait, that puts the Red Sea out of action for sort of most
01:16global shipping.
01:17So they have to go around the Cape of Good Hope, sorry, yeah.
01:23And it takes longer and it's more expensive to transport global supplies all around the world as a result of
01:30it.
01:30So if these disruptions drag on, where would Europe, where would Asia feel the impact first?
01:38Is it going to be energy? Is it going to be inflation or supply chains more broadly?
01:46Well, it's going to be all of those, but the ordering will be it will be energy prices first, because,
01:52again, you know, the Saudis will struggle to to transport oil out through that strait.
01:59We'll have to go through the Suez Canal. Already, the Strait of Hormuz is effectively closed.
02:04So oil and gas prices immediately, they'll pass through to petrol prices, to energy prices domestically.
02:12But the effect on global supply chains that will happen and we'll see prices rise much more generally over a
02:19longer period of time if this closure continues.
02:23Shipping companies, economists, the markets in general must have been looking at contingency plans since we had all the disruption
02:31around the Strait of Hormuz.
02:33Is this a worst case scenario or could things take another turn?
02:41Well, I mean, it'd be very hard to predict something that's worse than what we're seeing at the minute.
02:47Although, of course, if the conflict in Iran were to become much wider and bring in the Gulf states themselves,
02:58if, you know, their production of oil and gas, if that were to be affected, that would make things worse.
03:04So, yeah, it could get worse, but it's already pretty bad, which is why the onus on the U.S.
03:12and Iran to find some way of restoring that peace treaty is so important just now.
03:17Time to revise those growth forecasts. Stephen Millard, thank you very much indeed.
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