The Gulf braces for new strikes against Iran

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1:03Good morning from the Financial Times. Today is Monday, November 2nd, and this is your FT News Briefing. The cost of living is dominating the U.S. midterms. Could a democratic win change anything? And diplomats in the Middle East are bracing for strikes against Iran. Plus, what the shutdown of a bank in Serbia says about the future of the country. I'm Josh Gabbard-Dwail, and here's the news you need to start your day.

1:36As of today, average U.S. petrol prices have been higher under President Donald Trump than, well, any other sitting president, ever. As Americans vote tomorrow in midterm elections, polling suggests they're very upset about the economy. But are they angry enough to vote Republicans out of Congress? And if they do, will Democrats be able to give voters relief? The FT's Claire Jones has been on Midterms Watch and she joins me now. Hi, Claire. Hi, Josh. So tell me about how the economic situation is impacting voters in the lead up to this election. So the U.S. is in the throes of a rather serious cost of living crisis that's been triggered by a few things.

2:20But the one that's really on people's minds now are the repercussions of the Iran war. A very visible sign of the conflict has been what's happening to US petrol prices. And that's really hitting Americans where it's hurting. This is a country that's very reliant on cars. People are looking at gas prices all of the time. We get the same sense now as we did before Trump was elected in 2024, which is that people really aren't happy with how expensive things are in the US. It'll be fascinating for me to see just how many people vote against the Republicans based on economic issues later this week.

2:58Okay, so war on Iran, price at the pump. This sounds like a referendum basically on Trump's presidency, right? What about the Democrats? What are they actually saying they'll do if they get into power? I think one of the things that they do definitely want to do is tackle rising costs for health care. This is another big sour point for a lot of US voters. And their hope is that they can keep a lot of the expanded Affordable Care Act subsidies. However, the big problem the Democrats are going to really face is that they may not have that much control on the big source of inflationary pressures right now, which is the Iran war, which is something that's really going to depend on the incumbent of the White House.

3:44And whatever happens this week, Trump is going to be there for another two years. Let's say the Democrats do win and try to spend more on social programs, on health care. Are there any suggestions that might actually end up driving up inflation as well? I think that's a really good question and one that's very difficult to answer. What I would say is definitely true is that the U.S. is in a precarious fiscal position right now. Now, the Congressional Budget Office, which is Congress's fiscal watchdog, estimates the U.S. deficit is going to remain at about 6 % of GDP. The sort of level that you want to see maximum is 3 % of GDP.

4:27So there's a sense in which the U.S. just doesn't have that much wiggle room to spend more, whether or not we see a good result for the Democrats or the Republicans this week. Okay, so, you know, there's obvious fiscal constraints here. Trump is also going to continue to be in the White House for two years. I mean, will the outcome of this election actually make a difference for people's bottom lines? The Democrats could make an impact on the margin. But really, it feels to me like the core issue when it comes to the cost of living crisis right now is the Iran war. If the Iran war continues, we're going to see not only high prices at the pump, but those pressures start to seep into other parts of the U.S.

5:11economy. the longer this goes on for, and the harder it will be to get price pressures down to the sort of levels that not only the US public, but the US Federal Reserve are comfortable with. At the moment, the Fed is having to raise interest rates. That's leading to rise in mortgage costs. The mortgage rate is now above 7%. Trump, when he was elected in 2024, promised a mortgage rate to 3%. So there's this sense in which the Iran war has meant that other parts of the economy have had to suffer because of what it's done to inflation. Well, it'll be really interesting to see once we start getting results back from these midterm races.

5:50Claire Jones is the FT's US economics editor. Thanks, Claire. Thanks, Josh.

5:59Top Middle East diplomats are increasingly worried that the US and Israel may launch major strikes against Iran after the midterm elections. They told the FT they expect the attacks would be even more damaging than previous rounds of fighting. It's expected that the strikes would target Iranian nuclear and missile facilities as well as power plants. Iran has warned for its part that it would hit back hard against American allies in the Gulf. Iranian officials spent the weekend in Doha for talks. Qatar has been working to mediate an interim peace deal. But governments in the Middle East have also been taking some precautionary measures.

6:34Saudi Arabia closed schools and mandated remote learning this week after a series of Iran-backed Houthi missile and drone attacks. The top United Arab Emirates diplomat said on Sunday that the region was, quote, braced for the worst.

6:52A bank known for doing a lot of business with Russians in Serbia was abruptly shut down by the country's regulator on Saturday. The revoking of Alta Bank's operating license is just one sign that the Balkan state has entered a new political era. Longtime leader Aleksandar Vucic lost a parliamentary election to a group known as Student List just over a week ago. The leaderless movement, made up of doctors, writers, and other professionals, had protested against Vucic's alleged corruption. Here to help us understand what's next for Serbia is Martin Dunai, who's been reporting on AltaBank. Hi, Martin.

7:26Hello. How are you doing? Good. Martin, just tell me, how significant is AltaBank to Serbia? It's a mix. AltaBank is not a very large bank. It has something like 65 ,000 clients. But Alta has been very close to the regime of Aleksandar Vucic, cooperating with a number of business people who are very close to the former president. and it has eyed regional expansion in neighboring countries and even wanted to take over ADECO Bank, which is a Vienna-based bank in the Eurozone. And that's when the European Central Bank also began to investigate Alta Bank for suspected money laundering. Now, the student list didn't initiate the case, but it works perfectly for them to illustrate just what was wrong with the Vucic regime.

8:14So why is the bank being shut down now, though? The central bank said it's because its financial condition had significantly deteriorated and that there was a chance for further worsening of its finances, including its liquidity. And that has to do with a lot of international transfers, many of its clients withdrawing large amounts of money from the bank. The fact that the National Bank of Serbia decided to move on Alta now is viewed in Belgrade quite universally as taking the opportunity to do what it should have done a long time ago. But it's not only the central bank that is moving against Alta.

8:54Prosecutors are also asking the government to step up. So there's all sorts of investigations directed at that bank now. So student list gets voted in. Less than a week later, we have this shutdown of Alta Bank. Although they didn't actually call for the investigation, what else do we know about student lists' priorities and their politics? The student list began two years ago as a sort of protest movement after a train station collapsed in northern Serbia and killed 16 people. Students and a growing number of other kinds of people across Serbia blamed that accident, that tragedy on government corruption and mismanagement.

9:33That movement gradually grew into the groundswell that we saw sweep away Vucic last week. They are not a homogenous group, ideologically speaking. They come from right and left and conservative and liberal and green and you name it. The one thing that they have in common is the wish to end government corruption. But despite Alta Bank's extensive connections to Russians, that is something that the student list did not complain about. And that's for a good reason, student list never said that it would dramatically change Serbia's geopolitical orientation. It will want to keep an open line with Russia, and it will not unconditionally turn toward the West.

10:18Okay, so definitely a complicated set of politics here. What else are you going to be watching out for in Serbia in the coming weeks and months, Martin? We'll be watching the Alta story for further developments, but we'll be watching other similar cases, such as the former Yugoslav army headquarters case where Jared Kushner wanted to build a Trump hotel. That case is very interesting because although Kushner pulled out, there's a string of government officials that have been indicted for illegally aiding the investment process, again, pointing to nefarious international connections of the Vucic regime.

10:55So there's going to be a lot of such cases as the authorities take the opportunity to go after cases they couldn't under the authoritarian leadership of Vucic. So I expect there's going to be a lot to write about. Martin Dunai is the FT's Southeast Europe correspondent. Thanks, Martin. Thank you.

11:17Binance has started letting customers withdraw funds after it experienced what's being referred to as the largest heist in history. The world's biggest crypto exchange suffered a$6.3 billion theft last week. The FBI later said a North Korea-linked group was behind the attack. The scale and the speed of that hack has shaken the crypto industry. Binance suspended withdrawals as it tried to fix its platform. And then when it opened withdrawals back up yesterday, users quickly pulled out a net total of$3.6 billion within a few hours. That's about 2 % of the value of assets held on the exchange the day before the hack.

11:55The company's initial investigation found an engineer's laptop had been compromised, but it later added that further, quote, points of breach had been discovered. You can read more on all of these stories 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 news from the Financial Times.

12:25The new episode of the Next 5 podcast is all about sovereignty, data and control. Charlie Giancarlo at Everpure joins me. You always get a very embarrassed response if you ask them if they know where all their data is. As does Professor Sana Karaghani. There isn't any modern AI system that's entirely sovereign. And Claire Schramm-Fergus at Lloyds Banking Group. We really need to design for safety rather than bolting it on at the end. Listen to The Next Five wherever you get your podcasts. Enjoy.

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