Strait talk

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1:42BBC Sounds. Music, radio, podcasts. Wake Up to Money from BBC Five Live. Hello, morning. Welcome to Wake Up to Money. A new week, same sticking point. We're back talking about the Strait of Hormuz after negotiations between the US and Iran collapsed, leading to President Trump saying he'll start blockading the shipping lane. The price of oil has risen above$100 a barrel again this morning. As a result, we will have all the very latest. Also on the programme today, it's almost a year since the government stepped in and took operational control of British Steel's Scunthorpe plant. But uncertainty over its future remains.

2:17We will hear from the boss of UK Steel on the programme. and gambling company sponsorships on Premier League football club shirts could soon become a thing of the past. Well, how might it affect them financially, though? Wake Up To Money with Will Bain. Morning. Welcome to Wake Up To Money on Monday the 13th of April. Just gone five o 'clock in the morning. Will with you this morning. Yes, I'm afraid the Straight of Hormuz is going to dominate much of the programme again today because those talks that we were teeing up here on the programme on Friday between the US and Iran seem to get nowhere.

2:49And as a result, President Trump has announced that he will introduce his own blockade using the US Navy that's due to come into force about 3 p.m. our time this afternoon, blocking the Strait of Hormuz to try and, it seems, we'll dive into it with some analysis in a moment, to force Iran back to the negotiating table. if those countries that had been being allowed, China and others, to receive Iranian oil through the strait now might not be able to do so because of this second blockade in there as well. We'll try and explain all of it and work out what it means, not just internationally and for the price of oil, as we were saying in the headlines, that's going up, but of course for us here at home and what it might be doing to prices already.

3:30But also in the programme, as I say, plenty beyond Iran and the US too, we'll be chatting about what's going on with British steel and those gambling sponsorships, really interesting change, isn't it? Become ubiquitous across club shirts right through the football league. So what would it mean for clubs if they can't rely on that source of income? 85058 is the text number if you want to join the conversation this morning. We'd love to know what you're seeing out there, particularly in terms of price changes at the moment, not just petrol, but are you seeing the price of other goods, perhaps inputs in your business going up already?

4:0408085909693 is the WhatsApp. Should you wish to join the conversation that way? We're going to dominate the first half of the programme, as I say, on this issue. So let's introduce you to the panel and we'll get right into it. Mike Tompkins is back with us. Mike's the chairman of M &M, one of the largest online discount sports and fashion wear brands in Europe. Companies HQ is in Hereford. Mike, morning. Great to have you back on the programme.

4:28And alongside Mike for the next half hour, we've got Anna McDonald, investment manager at Aubrey, back with us as well. Anna, morning. Great to have you back on the programme too. Hi, good morning, Will. Why don't you tee us up with where we are then this morning? Because we were hearing in the news headlines that$102 a barrel, is it? Is that where we are this morning? And that's a pretty steep rise. Yes, it is a steep rise. So we're really back to where we were probably about a week ago, because we had that big fall in the oil price when the talks were announced. We had the stock markets rallying.

5:02We had all that kind of thing. So that was all looking very positive. And we've basically just retraced some of that movement back. And so the markets, the stock markets are down in Asia, not tremendously so, and the oil price is back up. The sense then is that, I mean, so early, isn't it, to try and read anything into it, but is that in part that people think this could be, this isn't going to be over soon, that this could be longer than even President Trump perhaps have been trying to tell financial markets over the last few weeks? Well, in a way, I mean, if you think about this, this is the spot price.

5:39This is what you pay for for something to be delivered right now. If I look forward, I'm looking at the the the forward features prices for for oil prices. Yes, they have moved up a bit, but they are you know, if you were to look out to look at maybe to February next year, they're at seventy five dollars. So that is well down from that hundred and two hundred and four that we're looking at today. So the market does expect an eventual resolution. Also, the cure for higher prices, they always say, is higher prices because it tends to lead to more production elsewhere. And it takes a while for that all to start happening.

6:21But that does tend to happen. And so actually, at the end of supply shocks, you actually have usually an oversupply once the market does return. Mike, how much of an impact is it having on business so far, everything that's gone on? um the immediate effect for us is that we send all of our packet you know all of our orders out by couriers around the country and the couriers in every contract with every online player will have the right to surcharge extra for if fuel costs go up so that's hitting us immediately and um it's it's very expensive i think the first week was uh tens of thousands of pounds so um And yeah, we're not in great shape as far as that's concerned.

7:10And so hearing what you've heard through the weekend, does it force you to have to do something? Are there things that you can do? Yeah, we can ultimately put up the prices of both goods, which we're not going to do in the short term, but we can put up the freight prices. but we're trying to keep them as they are because we know the consumer is really hurting at the minute it's just dreadful for everything's going up so we're you know we are a value retailer and we want to try and stay in the value zone but there will be cases I think if this carries on for months which it could easily do we will have to start putting some prices up.

7:57We'll return to the impact on all of us, households and consumers, as Mike was mentioning in just a moment, because James Smith, the chief economist at the Resolution Foundation, is going to join us in the first half hour of the programme as well. The think tank has a pretty grim report out this morning and the headline of it, UK households living standards to fall after energy price shock. But let's try and work out a little bit more of the politics of it, of what's driving all of this, where we are this morning, because Megan Sutcliffe is with us as well, Megan, Middle East analyst back with us on the programme.

8:30Morning to you, Megan. Good morning, Will. So talk us through this blockade of a blockade, the rationale from your perspective and from what President Trump has said so far on his various true social posts. Well, it's certainly a very confusing situation. So far, what we've seen from Iran is the declaration and the maintenance of a de facto ceasefire and a de facto blockade of the Strait of Hormuz. That's been the case since pretty much the beginning of the conflict. And the way that Iran has enforced that is essentially by threatening vessels, as opposed to kinetically enforcing a formal blockade of the Strait of Hormuz, which of course is a relatively narrow waterway and does bring vessels very, very close to Iran's southern coastline.

9:17The US, of course, has now announced that they are instituting a blockade from later on today onwards. and that any vessel that is calling at an Iranian port, either in the Persian Gulf or in the Gulf of Amman, will be subject to interdiction. Now, US Centcom has said that it will be enforcing this blockade impartially. But it's very clear that essentially this aims to critically disrupt Iran's exports of crude and other goods to trade partners, particularly entities like China. Essentially, what we're looking at here is Trump attempting to choke off the remaining economic lifelines that Tehran has in order to gain more leverage and potentially seek a permanent ceasefire with concessions on its nuclear programme.

10:04Interdiction, by the way, just stopping or is it stopping and taking the goods? That is a very good question. It is not entirely clear what exactly the Trump administration and US CENTCOM has meant by interdiction, by establishing this blockade. Many have speculated that essentially the attempt here is to preemptively stop the movement of vessels through the Strait of Hormuz, much like how Iran's threat to attack vessels has broadly stalled shipping, that this in turn will broadly stall Iranian exports of crude via associated vessels. It's also possible, though, that what this actually refers to is essentially physical interdiction, physically stopping vessels by moving through, either by boarding those vessels, or in a worst-case scenario, by firing upon those vessels if they refuse to stop.

10:53That's extremely concerning when we're talking about what is usually one of the world's busiest waterways. If we were to see firing upon an oil tanker, for example, and a major oil spill developing in the Strait of Hormuz, that would delay any resumption of shipping thereafter because essentially you can't move a vessel through that type of water. So it's extremely confusing. Although the CENTCOM did say that vessel operators would be receiving more information later on, obviously we're getting very close to the time at which this blockade will be implemented and no vessel operators are publicly announcing that they have received those guidelines.

11:30So it remains very unclear. And I know this is a speculative question, But I hope you'll see why. Speculative and Anna, I'd love to get your take on this as well. But because it kind of leads us to how or when this might end, a kind of question that Mike's already posed, Megan, too. So your sense is to choke off the remaining kind of lifelines economically for Iran itself. Is it also to draw in some of those players who've not been drawn into trying to negotiate, who perhaps have Iran's ear? And I'm thinking you've mentioned them already. China, China, a huge buyer of this energy. Is it an attempt to draw them into this to make them have an interest to sort of, I don't know, have a word in Iran's ear when it comes to a future round of talks, for example?

12:15It is certainly possible that that is some of the logic that is underpinning this action. We know that in the past, for example, China has been an extremely powerful player when it comes to influencing Iran's approach to international engagement. But given just how mercurial Trump can be as a president and as a decision maker, it would appear that the primary motivation at the moment is this economic aspect. because in his initial Truth Social post, he noted that the blockade would also primarily target any vessel, not only that had docked an Iranian port, but that had paid the toll to Tehran to traverse the waterway.

12:56Now, it's not entirely clear how Tehran is operating this toll system. Industry reporting would indicate vessels are paying up to$2 million per vessel to secure safe passage. But generally speaking, Trump's emphasis on that would point to the idea that this is more of an economic pressure point as opposed to a political pressure point. Anna, what's your sense as to the rationales? I know a speculative question, but as I say, it's got a point to the speculation, hasn't it? Because it sort of gives us some roots to where or how this might end. Well, by stopping the approximately 4 million barrels a day that Iran exports, it does lead to basically a global rise in the oil price.

13:39Oil prices priced globally, even though we're not taking Iranian oil, even though the US isn't, other countries are absorbing that demand. So by taking those 4 million barrels off the market every day, the oil price everywhere will increase, which will actually pressure all of us. I should think this, I mean, it's so hard, as Megan has said, to try and judge what Trump's feelings and actions and decisions will be. But I should imagine this is pressure. The Iranians said after the negotiations that the demands the US were making were too steep, but that they didn't expect to be able to resolve something in the first initial round of negotiations anyway.

14:21So I think the door is open. I think the Gulf states also will be exerting huge pressure on Trump to try and get back to the table. And that's what I've heard, I've read overnight. So because this is severely affecting them, too, and any kind of escalation in the Straits of Hormuz that results in any kind of firing on tangos would, as Megan say, be absolutely, that would be really not good for markets. It's not good for the Gulf states. it risks not only the passage of further ships, but the desalination plants there, which would not be able to function if there were oil spills. And that would be, I mean, for a country like Saudi Arabia, that's a sort of existential event for some of the cities there.

15:10And in terms of, we've talked about the kind of commodities coming through there, Megan touched on it as well, Anna, about what, you know, It's so murky what the shipping industry is having to do at the moment. But of the big stock market listed kind of shipping firms or shipping firms that certainly talk to the financial media, getting insurance seems to be the other massive issue here. And that all of those kind of things that will delay anything starting up quickly again seem to be being made more difficult by another added layer of don't knows, as you've said. Yes. Insurance is an issue. The safety of your staff on these boats.

15:49That all is a factor. At the moment, you know, the big listed oil companies are doing well from the increase in the oil price. Selectively, some of them are more exposed to the Middle East than not. I'm thinking about Total Energy or Shell versus BP. So they each have slightly different exposures. But generally, at the moment, they will be doing well from the oil price rises. And Megan, we said it right at the top, but 3pm, right, we think our time that this US blockade comes into force. And President Trump has basically said it'll be there until he decides otherwise, right? No timeline on it.

16:29Exactly. They haven't put an end date or an end time on the blockade that they're hoping to implement. That generally reflects what we've also seen from Iran, which is this declaration of essentially an indefinite right to regulate the movement of vessels through the Strait of Hormuz. And so generally speaking, I think it's worth assessing that the United States plans on implementing this for as long as it sees fit, and particularly until Iranian concessions on its nuclear program and support for proxies is forthcoming. Well, Megan, thanks for your time. Go ahead, Anna. Go ahead. Megan, a question.

17:05I was going to ask, I mean, in terms of the Straits of Hormuz, as I understand, is it's they're not international waters. Is that right? It is either Omani or Irani. And so therefore, what is the sort of position for the U.S. to actually, you know, I don't know, maybe it doesn't matter what the legal position is to Trump. But I was just wondering about how other countries might respond as well. That is certainly a very good question and that's been a question at the centre of international legal debates for many, many years over whether or not the Strait of Hormuz counts as international waters.

17:39Of course, Iran over the past few weeks has been particularly clear that it views it as being part of Iranian territorial waters. It's also worth noting that while there are parts of the waterway that do count as Omani territorial waters, there are also parts of it that count as Emirati waters. And that's partially why it's always essentially been treated as a sort of de facto free maritime zone, why no one has imposed tolls on the movement of vessels. And that sort of that characterization is also central to why we've seen so much resistance from US allies regarding this so-called right to regulate the movement of vessels.

18:20Essentially, there are major concerns that it would set a dangerous precedent for the regulation and imposition of tolls over other key waterways. So, for example, the Bab al-Mandeb in the Red Sea, but also other areas like, for example, the Straits of Gibraltar. There's a major concern that this sets a precedent that would choke off international shipping in a variety of ways. And that's why we're seeing so much focus from the United States on attempting to restore freedom of navigation without conditions to the Strait of Hormuz. Thank you. And then it would, of course, if it did, you know, areas like the Red Sea starts to affect things beyond energy as well as perhaps we'll talk about in a moment.

19:00Thanks for that explanation, Megan, and great to have you on the programme as always. Thanks so much for your time. Thank you. Megan Sutcliffe, Middle East analyst there. Mike, TS, back up again then in terms of what you're seeing in terms of price pressures at the moment, because we've got, as I was mentioning, James Smith, chief economist at the Resolution Foundation joining us as well now. He's going to do the sweep. But what are you seeing on the ground at the moment? Well, we're seeing the surcharges, the immediate price pressure. But don't forget, businesses had major increases in prices through the national insurance and minimum wage levies anyway.

19:40So I think the country was in a fairly precarious position before the war started. What we will then see in terms of commodities, products coming from Asia, is that all the prices from our suppliers will go up. And that will inevitably cause more hardship for hardworking families and inflation. So it's not good. And, you know, until the government starts doing something, we're really going to struggle. I mean, you've seen some countries have started reducing the tax on things like petrol just to help the economy keep moving. But this is getting really tough, I think. Well, let's talk about some of those measures, because, as I say, James Smith and the team at the Resolution Foundation have been looking at not just what's going on and the pressure that's going on, James, but also some of those potential remedies as well.

20:39So morning. And why don't you talk us through, first of all, the pressure that you're seeing across the board? Good morning. Yes. Well, people waking up to this will be seeing, as we've just been hearing about, that oil going back over$100. So people will be worried about this. And as you say, what we've been doing at the Resolution Foundation is really trying to think through what this energy shock looks like for people's incomes. So we've been looking at the inflationary effects of higher petrol prices, roughly$100 or$100 equivalent oil and energy bills. So energy bills rising consistent with the market pricing we had last week.

21:18We don't have new prices this morning, but that could be a bit optimistic. And even based on those numbers, not including the rises this morning, what you're essentially seeing is another round of cost of living hit. So if you're at the bottom of the income distribution, actually, it was supposed to be quite a decent year for living standards this year. And what we're seeing is typical growth in the bottom fifth falling from nearly 3 % to more like 1 % in terms of what families might be experiencing at this point. And if you're higher up, then income growth was expected to be weaker because there was this boost from some higher benefits that were helping at the bottom.

22:05You're looking at falls in income this year. And obviously, as we've just been hearing about, all this is coming after a period in which we've had very weak incomes, very high cost of essentials. We've not even started talking about the effect on food prices, what's happening with fertilizer, what's going on in terms of transport costs there. That's another leg that will make things difficult for lower income families. So what we need to hear from the government is basically how it's how it plans to deal with all that. Yeah, let's come to that in just one moment as well. But just in terms of those, those pressures then, as well.

22:44So you're saying actually, more people that we're kind of less resilient than previous shocks that all of our kind of personal finances, our listeners, personal finances, businesses, finances, for example, are in a worse place to deal with this than before. And that that's important this time around, too. Yes, the legacy of Russia's invasion of Ukraine is this very high cost of essentials, which basically means we're already seeing high food bank use. We're seeing high arrears and debts to energy companies. So there's already signs that households are struggling and this is coming on top of that.

23:21So, you know, obviously this is unwelcome, but, you know, people listening to this should know that the government have a lot of levers they can pull here to ease the impact. And that's what they should really be thinking about. Well, talk us through those. Well, so what we saw after the invasion of Ukraine was a very broad based scheme from this trust was incredibly expensive. The energy price guarantee that provided blanket support pretty much to all households. And that cost over 40 billion is incredibly expensive. The reality is we're not in that position fiscally to be able to wheel out that kind of broad based support.

24:02So what we've been calling for is targeted support. So implementing a social tariff, essentially discounts for those on lower incomes that really target the people who are suffering from past cost of living shocks, but also people who have high energy needs for whatever reason. And, you know, this is a big group, drafty houses, disabilities, all that kind of thing. That means that some families just can't avoid consuming more energy than others. Mike, your take on some of those levers, as James puts them. Yeah, I just think they need to do something. And so far, we haven't really seen anything apart from various speeches from ministers.

24:52and I just feel that we're going into something that is a little bit into the unknown and wars always do end but we don't know when they will end and this thing could go on for months and months and months and it's really sort of the message keep calm and carry on but it's quite frustrating to keep calm as a business owner when there's more and more pressures. And of course, there will be many more pressures on every family and certainly with food and everything else going up in the next few months. So it's difficult, I think. Difficult. Anna, you've made the point on the programme before about how important you think targeted, that word targeted in terms of the support is.

25:44Yes, we can't, as has been made very clear, and actually Rachel Reeves talked about this yesterday in the Sunday Times, we can't do, we can't just do blanket support like we did last time. We were coming then from the legacy of COVID and then the Ukraine invasion. So households and businesses have had to face up to an awful lot of challenge, I would say, over the last few years, that's for sure. This is not just something in the UK though. And remember that Trump doesn't really, you know, he doesn't want to lose the midterm elections. Things are not looking particularly rosy in that respect, but he doesn't want to lose them for many reasons.

26:30It takes away as much power as he would normally have in the second half of this term. Also, it does leave him open to maybe what would be a third impeachment if Democrats won the House. So he also does want to not have a tremendous cost of living crisis in the US as well. And affordability is the big watchword there. And that's what the Democrats are really going to push on leading up to these elections. So ahead of the big summer driving season in the US, people are noticing that their petrol prices are going up there and he will want a resolution to this war that's the one thing i think that the markets are kind of clinging to is that that that he you know this is just hopefully another step in what will lead to a hopefully swift resolution um he may have he may have bitten off slightly more than he can chew at this that for this in these events but but i think he is going to be focused on trying to bring it to an end yeah james that important point well taken about the US kind of political backdrop and perhaps the will from that side there.