Chancellor of the Exchequer Rachel Reeves has publicly acknowledged that the ongoing Middle East conflict is "certainly not good for the British economy," citing significant trade disruptions as a primary concern. During an appearance before Parliament's Treasury Committee on Wednesday, Ms Reeves indicated that the government stands ready to intervene on energy costs should the situation deteriorate further.
Economic Impact and Government Preparedness
The Chancellor emphasised that it would be "unwise to speculate" about the precise effects of the Iran war on key economic indicators such as UK inflation, growth, or interest rates. However, she confirmed that the Treasury is actively "looking at a number of scenarios" to assess potential outcomes. Ms Reeves stressed that the best course of action for the government is to seek de-escalation of the conflict, stating, "the quicker we can de-escalate, the better it will be for all of those different economic variables."
Shipping Disruptions and Security Concerns
The conflict has severely restricted shipping through the Strait of Hormuz, a critical global route for oil and gas supplies. According to the UK Maritime Trade Operations Centre, three commercial ships were struck by "unknown projectiles" in separate incidents on Wednesday morning, with one attack off the Oman coast setting a vessel ablaze. In a related development, US Central Command reported that American forces had "eliminated multiple Iranian naval vessels," including "16 minelayers," near the Strait of Hormuz overnight.
Ms Reeves told MPs, "It's certainly not good for the British economy to have trade disrupted, and especially when so much oil and gas comes from that part of the world." She added that the UK is collaborating closely with allies in the Gulf and the G7, as well as with the insurance industry, to facilitate the safe passage of vessels through the strait once again.
Strategic Reserves and Consumer Protection
G7 countries, whose finance and energy ministers have convened in recent days, are considering the release of strategic oil reserves to stabilise markets. Ms Reeves affirmed, "I've been very clear that the UK is willing to play its part in using those reserves to put downward pressure on oil prices and ensure that supply remains strong."
When questioned about the government's capacity to intervene, similar to actions taken during the Ukraine crisis, the Chancellor assured MPs, "We will always make sure that we do everything we can to protect consumers, but also to ensure our national security as an economy." She highlighted that the UK is in a "stronger position" to respond to such shocks compared to when she first became Chancellor and noted improvements since Russia's invasion of Ukraine.
Inflation is currently lower than during the Ukraine invasion period and is projected to decline further. Additionally, the UK has reduced its reliance on gas since the 2022 Russian invasion, which previously triggered a sharp price increase and necessitated a multibillion-pound state subsidy for energy bills.
