Energy Under Fire

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1:24The world's biggest facility producing liquefied natural gas in Qatar has been hit by Iranian strikes. In retaliation, they say, for an Israeli attack on the largest Iranian gas field. As we speak, the price of oil is above$112 a barrel. We'll look at the latest there. The government launches its strategy for the UK steel industry today. One producer in Cardiff is going to tell us how it looks from their perspective. And have you ever heard of ube? It's a root vegetable, apparently, and it's meant to be so much better than a matcha. Now, could this purple potato be the biggest viral food craze since matcha, what, a few weeks ago?

2:03Wake Up To Money with Sean Farrington. Good morning to you. Wake Up To Money on BBC 5 Live. Lots to talk about on the show today. 85058, of course. Very much like your thoughts on all we are discussing. You might work in the steel industry, in the supply chain that relies upon it. Is it going to be possible for us to be able to ramp up the amount of steel that we make in the UK and also order in the UK? British steel that we ordered in the UK as well. We'll be talking about that. Prospects for interest rates seem to be changing one way or another. All the time we've had big decisions over in the United States about that.

2:43We've got one coming up here in the UK a little bit later today as well. But first, let's refer to the latest from the Middle East this morning. Donald Trump saying that the United States knew nothing about Israel's attack yesterday on this South Pass gas field in Iran. It's one that's shared with Qatar. Qatar's called the attack dangerous and irresponsible. Now, in response to that attack on that gas field, Iran launched strikes against several Gulf nations, including Qatar, Saudi Arabia and the United Arab Emirates and the strikes on energy infrastructure across the Gulf have ended up pushing the price of Brent crude to more than$112 overnight.

3:32And so we're talking about a spike in oil prices that we haven't seen in recent days. There was a period a couple of weeks ago when we saw energy infrastructure being threatened where we saw that oil price get up towards$120 a day in the middle of a day, around the 9th of March. But then that came back down. And in recent days, regular listeners, you're hearing every news headline at the minute, the oil price has settled around$100 a barrel. It's been going up a little bit on top of that in recent days, but not drastic moves. We were hearing yesterday on Wake Up To Money how it felt investors around the world, Those watching the consequences of this war were feeling like something needed to change one way or another, whether an escalation or a de-escalation for prices to particularly move in any direction.

4:24And it certainly feels like we're waking up this morning to an escalation. And we know these prices can move very quickly and a big change in what might happen next. Megan Sutcliffe is Middle East and Africa analyst for Sibiline Strategic Risk Advisory Group, has been joining us on many occasions since this war began in Iran. And Megan, grateful for your time again this morning. Could you just explain, Megan, this South Pars gas field in Iran first and foremost? Because we'll be hearing lots about these parts of energy infrastructure and why they're so crucial. Why is this one in particular such an important part of infrastructure, both for Iran and the wider Gulf and the wider world?

5:10Good morning, Sean. Absolutely. So the South Paz gas field is by far the world's largest natural gas field. It's one that is located in the Persian Gulf and is shared between Iran and Qatar. But although Iran and Qatar share this gas field, they serve very different purposes for them. So for Iran, South Paz is essentially the backbone of its domestic energy infrastructure. South Paz is responsible for around 70 to 75 percent of Iran's domestic gas supply. And that gas is used for everything from electricity generation down to industrial production. Iran heavily relies on gas instead of, say, coal for this type of energy generation.

5:57And it also is important for other activity within Iran, like the production of fertilizer components, for example. Contrastingly, though, for Qatar, the North Dome field, which is essentially the same one, but the way that the Qataris refer to it, is absolutely central to its export of liquefied natural gas, which has become the backbone of Qatar's sort of rise as a middle power. Essentially, Qatar manufactures the overwhelming majority of the gas that it pulls out of North Dome South Paz, and then will export it as well as other components that come from that processing facility. So essentially things like helium, and again, fertilizer components.

6:39Essentially, as the world's largest natural gas field, the importance of South Park's North Dome cannot be overstated. It is one of the central aspects of domestic energy mix in Iran and external energy exports in Qatar. So when Donald Trump posts, as he does on a regular basis on his social media platform, and as part of that, he talks about the sort of tone of it. It was a very, very long post. But he said he didn't want to authorise, and this is the quote, this level of violence and destruction because of the long term implications for Iran. He said, but if Qatar's LNG is attacked again, I will not hesitate to do so.

7:24Well, as you see it now, clearly we don't know the full extent of the damage just hours after this attack. But what would those long-term implications be for Iran? Well, it would be relatively dire. Essentially, South Paz and the infrastructure that we know was impacted by the airstrikes that took place yesterday, so namely the processing plants in Bushir and Azuelu, essentially, if there were to be major damage to those locations, it would fundamentally undermine Iran's capacity to produce the liquefied natural gas that is central to its domestic energy mix. That would increase dependence on things like oil being used in generators, and it would increase the likelihood of things like rolling blackouts and a pre-approved load shedding in major cities.

8:16Essentially, it would mark a major blow to Iran, and it would be something that they would take extremely seriously. The fact that we saw the Islamic Revolutionary Guard Corps almost immediately issuing threats to target multiple locations in the Gulf after these airstrikes took place points to just how central this location is for Iran and the implications of it potentially being hit again should things escalate further. So if people are trying to picture on that map of the Middle East that we've talked about very regularly, it's one way I sort of try to approach this stuff when I'm looking this morning.

8:52The South Pars gas field is on the Iranian side of that Persian Gulf. It's opposite Qatar. And that was where this attack took place. Donald Trump is saying Israel carried out this attack and America wasn't aware of that. So that was that. And then in response, Iran has attacked Qatar's Ras La Fan site. Could you explain, Megan, the importance of that site, please? Absolutely. So Ras La Fan is Qatar's primary liquefied natural gas processing facility. Essentially, it is the location where Qatar turns this natural gas that it pulls out of the North Dome self-pass field and then makes it suitable for export.

9:40Now, this is a facility that has been targeted beforehand. We saw a drone attack impacting this site in the early days of the war. And so its operationality has been decreased since then. And preceding the attacks that took place yesterday, we saw evacuations being ordered for individuals working within Ras La Fan almost immediately. But essentially, Ras La Fan is the central part of Qatar's liquefied natural gas industry. It's the most important refinery and processing facility for its liquefied natural gas exports. And so targeting of it is extremely concerning when it comes to Qatar's capacity to continue exporting LNG.

10:24Now, as I see just almost in the last half an hour or so, Qatar's interior ministry says that all fires at that Ras La Fan energy facility have now been brought under control without any reported injuries. They put a fresh statement on X saying the ministry said cooling and security of the site was ongoing, hazardous materials being handled by specialised unit. And so that is the latest there. Megan, thank you for laying out exactly what those two sites are. People will be hearing lots about that and why they're so important and why Donald Trump has been referring to them the way he has. Do you see this as an escalation from what we've been discussing in recent days?

11:11It's absolutely an escalation. Iran has been very clear in the narrative it's attempting to thread in the course of this conflict. Essentially, it is treating it as something that it is responding to in kind. So when we have seen Israel and the United States engaging in airstrikes targeting locations associated with energy infrastructure, Iran has explicitly threatened to target energy infrastructure in response. The same has been true for financial institutions. An airstrike that impacted an Iranian bank triggered a series of threats against American banks that operate in the region. When we see airstrikes impacting the most significant LNG facility within Iran, that means that Iran is almost guaranteed to continue responding by engaging in attacks targeting LNG and oil facilities throughout the region.

12:05Now, we have seen attacks targeting these areas throughout the conflict. I don't want to understate that at all. It has been extremely volatile. And that's why we've seen so much price increases on international energy markets. But the fact that we're seeing a shift towards explicit targeting, intensified targeting from Iran, that is extremely concerning. Because what that will do is increase the risk of production backlogs within critical energy infrastructure. Right now, the primary concern for energy markets has been the block of the Strait of Hormuz. Essentially, it's supply chain disruption.

12:41And that's something that, should the conflict end, could resume relatively quickly. Essentially, we could see exports moving out again quite quickly. But if there's damage to production facilities and we're not able to see that operationality resuming immediately because of hazardous waste and deaths of people who are engaged in these operations or damage to facilities, that's a long term concern. That's a long term backlog. And so the risk of these price surges continuing to impact us throughout the summer, that's one of the concerns that's going to be coming up as this conflict protracts. Got William Lee on the line as well, who's Chief Economist at Global Economic Advisers, joins us from the west coast of the United States.

13:22William, thank you for your time. And I know we planned to talk about interest rates and no doubt there are consequences of all this on that. And we'll get to that a little later. But William, just first, as you see the latest this morning, what is your reaction about where this might go next? Well, Macon did a terrific job in explaining the importance of these two facilities. And I want to emphasize some of the economic impacts here. The most dramatic pressure that Israel can put on Iran is to pressure the economy in a way that causes unrest and discontent among the populace. And what better way than to get rid of your basic source energy supply, natural gas?

14:09And in return, Iran knows that it will never be able to win a military victory. But what it can do is move the knife much closer to the jugular of the Western world. And as Megan made it very clear, Qatar is the place where Asia and much of Europe gets their natural gas exports. But one other element is helium. Helium is absolutely vital in the production of advanced semiconductors. And so by cutting off a big chunk of helium supply, that will start to eat into the West's ability to produce these advanced semiconductors on which so much of the AI revolution is being based. So Iran has been very strategic in its reply to the bombing that has occurred there.

15:05But I think right now they're showing signs of desperation by moving that knife so much closer to the jugular, which is Qatar's natural gas facilities and helium supply. And William, what has been the reaction across the United States to this, whether it's this latest escalation or just recent days? Headlines here in the United Kingdom, you know, the biggest ones will have come from the resignation, for example, of the counterterrorism official that we saw who disagreed with Donald Trump's approach, even though he's been a supporter of Donald Trump. But just more broadly, what is occurring here and how America's reacting?

15:47Well, here in the States, first of all, if we just focus on what's happening in financial markets, markets have been incredibly calm considering the amount of military action that's taking place in Iran right now. And what's surprising about it is that, you know, the markets, the equity markets have dropped by maybe three to five percent off of their all time highs, which is not a big deal considering they were at their all time highs. And the commodity markets, the oil markets certainly have gone up. But here in the United States, it's well aware that we are net exporters of energy. And so the kind of oil shock that hurt the United States in the 70s is no longer hurting the United States to the same extent.

16:33But but I think the the the industrial elements, which, as I said earlier, the helium and and the ability to to push up costs in a way that makes voters discontent and make the affordability crisis, which is not only the United States, but worldwide, even more of a political pressure on Donald Trump when the midterm elections, which are just around the corner. So from a political point of view, Donald Trump is very aware that he's got maybe weeks and not months to bring an end to all this. And so I think the pressure is on. And you see more and more of the administration talking about taking actions to bring these actions, at least to stabilize these actions within a matter of weeks.

17:18And I think that's the real headline that is grabbing most American people because Donald Trump was elected on the promise of not getting involved in these endless wars and regime change. And much of this has a look and feel that he's going back on his promises. Emma Wall also with us this morning, Chief Investment Strategist at Hargreaves, Lansdowne here in the UK. Emma, good morning. Is it a different story for the British economy in terms of... our reliance and the impact of moving oil price the way we see it has on businesses here and the cost of living here? What's really interesting is if you compare the oil shock of today versus the oil shock of 1979, the global dynamics are very different.

18:08The US at that time was a net importer of oil, now they're a net exporter. There's more energy independence that exists through renewable energy. But ultimately, we are all pegged to the same oil price. And we saw in the Russia-Ukraine war actually how dependent the UK and indeed Europe was on imported oil. You know, there's been much done in terms of trying to decouple that dependency. But ultimately, the oil price does drive so much of consumption and indeed inflation for consumers, for corporates. And so, you know, we've got the Bank of England decision later today where we very much expect the banks to just hold rates because of this uncertainty.

18:51Oil is only one component, but we are starting to see the impact of that oil price hike. And, you know, it does endanger the kind of positive momentum in terms of downward inflation and upward kind of economic growth here in the UK. Gary Hodgson with us, Director of Venture Seafoods in Bridlington as well, our boss on the show this morning. So they supply fresh and frozen shellfish to the UK, Europe and Asia. Gary, good morning. I'd often be chatting right at the top of the show. What's going on in the fish world? But with big breaking news like this, and we've just had it all laid out here, what is it like running a business in this environment at the moment?

19:30It's difficult, Sean. I think everybody's affected by this, aren't they? All consumers, energy prices rising, all production costs rising, and then everything we buy really is oil-deriven or gas-deriven, isn't it? So everybody's affected by this. And then obviously you feel for everybody, all the civilians are caught up in the conflict. Have you noticed any of that yourself, Gary, yet? Yes, we've seen some change with some Asian orders. They've been put on hold for the time being mainly due to shipping costs and then currency fluctuations. But I think for a lot, you see the initial cost with the increase in their fuel prices, don't you?

20:10But I think for us looking at previous instances like this, it's generally two, three, four, five months down the line, isn't it, when you see the real, the true economic effect of it. And given we had the energy price shock four years ago when Russia began its full-scale invasion into Ukraine, are you now, given that you experienced that, are you now sort of viewing 2026 in a bit of a different way making plans for potential price rises that that perhaps might have surprised you four years ago um yes and no sean because obviously we've had throughout our 29 years in business we've had every year there seems to be a major crisis now and last year we saw significant increases in production costs and operating costs and they generally were energy driven.

21:05They were more governmental decisions. So for us, we've got very little movement in prices because every time we try and increase the price, we see a decrease in orders. It is a luxury item. It's not a necessity. It's in shellfish in your life. So we've got to be very careful because it's that trade-off, isn't it, between trying to increase your margin and then a decrease in orders. So we're a volume-driven business and that's what we survive on. So when you see those shipping costs go up as much as you have and customers around Asia holding back, do you expect that to return any time soon, even if it is at a higher price?

21:44Well, yeah, fingers crossed. I hope it does. Yeah, I think it will. Looking at, again, past history with things, events like this, it will return. It's just a knock-on effect, isn't it? Most businesses, most small businesses in the UK, I believe, are operating on very small margins and are just managing to survive. So any increase going forward now in any operating or production costs, I think this year we could potentially see, and I think the numbers are showing that already from last year when you look at employment data. And obviously December was record tax take for the government, but I think we'll see the sliding scale now going forward throughout 2026.

22:24But obviously we've got ESA coming up. Easter's early this year for the UK economy and Europe if we have a period of good weather that's probably when we'll see really where it is for things like seafood and more look you know more spending you know when people have got spare money to spend. That will test the confidence levels will it? Yeah I think so yeah last year Easter was we had a good period of good weather and then everyone goes out it's really the first holiday isn't it in the UK and Europe and that's when I think we'll see what people are really feeling. But we already know the costs of living and we can already see certain sectors really suffering in this.

23:03So as I said, for me, it's always a worry when you see any increase in production or operating costs. William, is that the same story in the United States? Well, the transport costs have become a dramatic issue that contributes to this political affordability issue. at gasoline prices here in California, are well over five, almost$6 per gallon. And for us, that's a very high price. How would that compare to maybe where it would have been throughout last year? It was easily a dollar less. So I think a 20 % increase is something that people will notice. And already people who are working paycheck to paycheck, which is about 60, 70 % of the population, because most people don't own a lot of equities.

23:50equities are owned by about the top 20 % of the U.S. population. So that means 80 % of the population really depends upon their paycheck in order to make their ends meet. And right now, the inflation tax and as well as the oil price spike tax are really felt very seriously among households and are becoming a political force in the elections coming up. So I think the only way that Donald Trump can get out of this is to emphasize investments that increase productivity, which will naturally increase people's wages. But unfortunately, that takes a long time to kick in. But right now, the real issue is I cannot make ends meet and I need to have lower prices.

24:32And one of those things that many people, if they have a mortgage on their house, they have debt that we'll be looking at is the level of interest rates. Businesses as well, who maybe were seeing a period of lower interest rates as we went into this year as being an opportunity for them to finally kick on, as Gary describes, year after year of crisis after crisis. So, William, what happened with the United States, the Federal Reserve, so the central bank you've got in the US, equivalent to our Bank of England? Big decision to make yesterday. And also, people pay a lot of attention to the words here as well.

25:05Oh, absolutely. The key message that came from Chair Powell's press conference was that he told everybody, we will make sure inflation comes back to our 2 % target, regardless of what goes on. I mean, he really, in the United States, unlike other central banks, like the ECB, which has the primary mandate of price stability, in the U.S., we have the mandate of full, not full employment, but maximum employment and price stability. And that really is key. And Chair Powell has told everyone, we're going to push aside the maximum employment mandate, unless the labor market falls apart and we have a five handle on the unemployment rate and we're going to get that 2 % target.

25:46So I think they're very clear that as long as he's in charge, which sounds like it's going to be for quite a while because getting Walsh confirmed as the new chair is being delayed by the Senate. So he will be there for a while and he's going to make sure that rates will not go down until he sees inflation coming closer to 2 % from where it is now, which is closer to 3%. Emma, we've got a decision from our own Bank of England today on this. What are you expecting them to do now? A very similar story. So we're expecting rates to be held. I mean, we have to say our house view is while this war continues, rates in the US, the UK and the Europe are likely to be held just because there's too much uncertainty.

26:30Similar to what happened in the US yesterday, what will be really key is not so much the vote itself because markets are so much pressing it in, but actually what's said in the press conference by the Bank of England, Governor Andrew Bailey, afterwards, and indeed that vote split. So you saw in the US all but one of the voting members vote to hold rates, one voted to cut rates. And similarly here, I think the expectation is we have a pretty unanimous vote to hold rates. If you see any dissent on either way, that could move markets if one of the voting members decides actually I think now's an opportunity to raise rates or it's a more split vote to cut rates, that would be quite interesting.

27:09But people who went into this year, Emma, with a view, households and businesses around the country had maybe had a general feeling of what was going to happen to interest rates this year. That seems to have changed quite a bit and might change how households and businesses behave. Yes, if you look at the markets, which I have to say, I think have swung too much. It's been a very fear and momentum driven market in terms of rate expectations. We went into this year that in the UK we'd see was two interest rate cuts. Then just a couple of weeks ago, because of what has been happening in the Middle East, that actually swung to one hike through the year.

27:47Now it's settled back down to one cut later this year. We still think you're going to see 25 to 50 basis points, so a quarter to a half percent cut on Bank of England base rate through 2026. We just think it's kicked out into the second half because of the uncertainty. associated with oil prices. But even if oil price does push inflation up, it's likely to be a transitory bump. It is going to be tough for consumers, and I completely agree in terms of, you know, how robust corporates have also had to be in the UK. It's been, you know, it's been the pandemic, the Ukraine war, it's been increased, increases on kind of employer next contributions, increase in national minimum wage, increase in kind of energy costs.

28:30There's been a lot of pressure on UK business, and this will be another pressure, but we do think the inflation bump is transitory. And so actually long term, the trajectory for interest rates continues, albeit today is not going to be a day we're going to see a cut. Gary, does it make much difference to you running a shellfish seafood business as you do if interest rates don't quite come down as quickly as people thought going into the year? Well, slightly, because obviously a large part of the population are carrying mortgages. We're also carrying commercial debt. and so many of our customers are the business-to-business trade that we do.