Global industries squeezed as Iran war enters third month

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0:18Good morning from the Financial Times. Today is Monday, May 4th, and this is your FT News Briefing. We're counting the cost of the war in Iran as industries face shortages and disruption. Plus, Britain's governing party is bracing for local elections this week. We're expecting a devastating set of results for Labour. It could be their worst ever showing at a local election in England. I'm Victoria Craig, and here's the news you need to start your day.

0:57The U.S.-Israeli war on Iran is now in its third month. The critical Strait of Hormuz, where a fifth of the world's oil traveled before the war, is still closed. And that is causing a commodity shock that's hitting a lot of industries. Firstly, airlines. They're slashing thousands of flights globally because they're worried about running out of fuel in the coming weeks. Since the start of the war in late February, the cost of jet fuel has doubled. But driving instead of flying might not be any cheaper. Not only are petrol prices soaring, but the cost to buy a car might also soar too. U.S. automakers estimate they're going to take a$5 billion hit from the war this year.

1:37That's because the domino effect from stalled oil shipments in the Gulf is making everything from aluminum to plastics and paint harder to get. If those weren't enough shortages to worry about, agriculture is on edge too. Prices of the world's most widely used fertilizer have also doubled since the start of the war. Now, one of the world's leading fertilizer companies, Emirati Fertiglobe, will start trucking its cargo out of the Gulf rather than shipping it through the Strait of Hormuz.

2:11The OPEC Plus group of oil producers said Sunday they will increase June production by 188 ,000 barrels a day, and slightly less than May's increase. It was the first decision without the United Arab Emirates. That country's shock departure, announced last week, became official on May 1st. But despite the boosted production, there is still no plan to reopen the Strait of Hormuz. And that has the world wondering where it can turn for more supplies longer term if needed. The answer, at least for now, seems like it's not to U.S. oil majors. Stephanie Findley is our correspondent in Houston, Texas.

2:46She's been talking to a couple of the biggest American oil producers and joins me now. Hi, Stephanie. Hi there. So ExxonMobil and Chevron told you they do not have plans to increase production. Why? The U.S. oil majors have decided not to deviate from their pre-war plans because they are focused on capital discipline. So this is a recurring theme in the sector after boom and bust cycles and more recently a wave of consolidation. So we're seeing companies are focused on being efficient and having healthy balance sheets over chasing higher prices that may fall just as fast as they rose. Additionally, and I think we've talked about this before, it's not easy to ramp up production.

3:31Fracking requires a large amount of investment per well and complex coordination to bring in all the necessary equipment and crews to get it done. So it's not something you can just turn on and off like a light switch. In a reflection of this caution and discipline, Chevron Chief Executive Mike Worth said on the earnings call that with so much uncertainty out there for now. It's really steady as she goes. And that was his words. On the consumer side of this equation, you know, we've seen gas prices here in the U.S. soar to more than$4 a gallon on average. In some places, it's much higher than that since the start of the war.

4:10If domestic companies do decide that they want to pump more, would that make a difference to prices at home? And how quickly might that happen? Let's say there was a light switch you could turn on and off and up production by millions of barrels. It would take months to get the rigs up and running, and then it would need to be refined. And US refiners are already running at capacity. The administration can ask to boost supply, but it's obviously not so simple. Almost 50 % of the retail price of gasoline is made up of crude oil, which means a change in the price of oil reflects in the price at the pump.

4:44And the price of oil is traded on global markets, which has risen due to the supply shock from the Iran war. U.S. production adds significant supply to global markets, but it can't compensate for the shortfall caused by the disruption in the Middle East. My colleagues have a story on the U.S. suffering the sharpest fuel price shock in the G7. It's a real pain point for Americans as the conflict drags on. Yeah, that's a great story, and we will pop a link to that in our show notes today. Stephanie, I do want to ask you one more question before we go. one of the world's biggest oil traders told the FT that there's going to be, quote, huge pain if countries stop using fuel and that something will have to give by what he sees as a June tipping point when it comes to those energy supplies.

5:29Could the U.S. fill some of this global need that's caused by the Strait of Hormuz closure longer term? I was talking with Clearview Energy's Kevin Book, who was emphasizing exactly as you're saying, it's now going to get really interesting. There was a whole bunch of oil and gas inventory out on the water when the conflict broke out. We saw countries, including the U.S., release strategic reserves. Both of those acted as a kind of cushion for this supply shock, but soon those are going to run out, which means the pockets of shortages, which we're seeing now, may become more severe, or we start to see people using less oil, bringing down demand.

6:09On the ConocoPhillips earnings call, Chief Financial Officer Andy O 'Brien said the company had actually downgraded global oil demand to be flat this year as a result of the conflict, and also warned import-dependent countries will potentially start to face critical shortages as we head into the summer. So again, coming back to the point, I think a rise in shale production would help, but it can in no way compensate for the severe amount of barrels, which are offline now because of the war. Lots of problems still ahead. Stephanie Finley, our correspondent in Houston. Thanks so much for your time.

6:47Thank you.

6:54Local elections in the UK this week could spark a seismic shift in British politics. Polls are predicting heavy losses for the ruling Labour Party in what some have dubbed Starmergeddon. Prime Minister Keir Starmer came to power less than two years ago in a landslide general election, but he's facing turmoil in the wake of his appointment of Peter Mandelson as Britain's U.S. ambassador and the fallout of Mandelson's association with convicted sex offender Jeffrey Epstein. Lucy Fisher is the FT's Whitehall editor and hosts our Political Fix podcast, so who better than her to join me now to talk about what we can expect when voters head to the ballot box on Thursday.

7:32Hi, Lucy. Hi, Victoria. All right, so first, let's just talk numbers here. How bad are the predicted losses for Labour? We're expecting a devastating set of results for Labour. It could be their worst ever showing at a local election in England. In Wales, it looks like they will lose control of the Senedd, the devolved assembly, for the first time in 100 years. And in Scotland, while Labour was sort of on track at the time of Keir Starmer winning the election in 2024, it looked like they could regain Holyrood, the Scottish devolved parliament. It now looks like the Scottish nationalists are going to hang on in there and Labour could even be shunted down to third place in Scotland.

8:14So it's going to be a very, very difficult night for Keir Starmer. And you and your team have been out talking to voters across the UK ahead of these elections. Where is the outrage directed at Starmer coming from? And could it force his resignation after all these results are tallied on Friday? Well, in truth, the anger at Starmer is everywhere. I think everyone is bracing to see what happens on May the 8th, the day when the results come in, and over that weekend. Whether any member of the cabinet or wider party goes over the parapet and leads a challenge against Keir Starmer. The Mandelson debacle has certainly been the focus in Westminster in recent weeks, and it has shone a spotlight on Keir Starmer's judgment.

8:59However, polling suggests it's the traditional issues of the economy and the cost of living, health care in the state of the NHS and migration that are the real flashpoint issues. Obviously, the Iran inflation shock and what that's done to push up the price of fuel, food, energy bills, that has been a really difficult pinch point. One of the most interesting parts of this election is that we could see sizable gains for these third parties. Why is that? Well, it's a really good question why and how the UK's traditional two-party system is being broken apart. And we're seeing this multi-party system.

9:37I think on the right, reform have really seized the issue of migration. And while Labour has managed to bring down overall net migration when it comes to legal migration, I think there's a sense from some voters that the established options have been tried and failed. And then on the left, many more progressive voters in the UK feel very unhappy at Labour's approach on Gaza and to Israel. They wanted to see much firmer condemnation of Israel and standing up for Gaza, which the Greens are doing. So it's populist policy solutions and very effective communicators leading these parties that I think is making the big difference here.

10:19This is really fascinating stuff. And Lucy, you have much more analysis on the latest episode of Political Fix. We'll be sure to drop a link to that in our show notes today. Lucy Fisher, thank you so much for your time. Thanks for having me.

10:37Before we go, earlier we told you about commodity price hikes from the Iran War, but that's not happening with everything. Butter prices are actually at five-year lows, and much of the world is drowning in milk. That is because a long period of high dairy prices pushed farmers to put their cows on nutrient-rich diets, and now they are literally milking the rewards. But the snag is that demand isn't growing as fast as supply. And it's not like you can do much on that supply end because you can't leave the milk in the cow until markets improve. So though you might be seeing your airline tickets and petrol prices go up, at least you will still have milk.

11:17You can read more on the dairy dilemma and all of the stories in today's podcast for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. And for all of our Star Wars fans out there, may the 4th be with you.

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