Economy
Unable to secure Red Sea shipping, Western powers face Hormuz quagmire
Western nations’ attempts to negotiate a way to protect the Strait of Hormuz for energy shipping face a difficult reality: a similar effort in the Red Sea that started years earlier cost billions of dollars and ultimately failed against Yemen’s Houthis.
The costly Red Sea experience – four ships sunk, more than $1 billion in weapons expended, and a route that the shipping industry still largely avoids – looms over the more complex Strait of Hormuz, the shipping artery used by roughly a fifth of global oil and liquefied natural gas (LNG) supply and now blocked by Iran, a more tougher adversary than the Houthis.
Iran’s threats to the strait and its attacks on energy infrastructure in nearby Gulf nations have sent oil prices soaring in the worst disruption to oil and gas supplies in history.
Without the strait’s reopening, shortages will become more acute, threatening higher costs for energy, food and numerous other products worldwide.
‘No substitute’ for Hormuz
“There is no substitute for the Strait of Hormuz,” Kuwait Petroleum CEO Sheikh Nawaf Saud Al Sabah said in a fiery video call streamed to the CERAWeek energy conference in Houston on Tuesday.
“It is the world’s strait, under international law and practical reality.”
U.N. Security Council members on Tuesday were negotiating resolutions for protecting the strait, with some nations, such as Bahrain, taking a forceful stance that would authorize the use of “all necessary means” to protect the strait, which could mean the use of force.
Reuters interviewed 19 security and maritime experts who described the myriad challenges facing the U.S. and its allies in protecting the strait.
Iran has far more advanced military forces than the Houthis, an arsenal of cheap drones, floating mines and missiles, and easy access from its steep mountainous coast to the narrow waterway.
“Defending convoy operations in the Strait of Hormuz is significantly more challenging than in the Red Sea,” said retired Rear Adm. Mark Montgomery, who in 1988 was involved in U.S. tanker escorts through the Strait of Hormuz during the Iran-Iraq war.
That’s a big concern for U.S. President Donald Trump as he seeks to justify the Iran war ahead of the November midterm elections to inflation-weary American voters now facing gasoline at nearly $4 a gallon. The spike in energy prices is not expected to fully reverse until the waterway opens, analysts said.
Trump has been noncommittal about U.S. involvement, first saying the U.S. Navy will escort ships when needed, then more recently saying other nations should lead the effort.
Iran has blocked most ships from the maritime chokepoint since joint U.S.-Israeli attacks on Iran began on Feb. 28.
Iran is considering a proposal to levy fees on vessels that want to use the strait, an Iranian lawmaker told state media last week.
The Hormuz quagmire
The U.S. mission to protect Red Sea shipping from the Houthis launched in December 2023, with European nations joining in with their own operation a few months later.
The allies shot down hundreds of drones and missiles, but the Houthis still sank four ships between 2024 and 2025. Shippers now largely avoid the passageway, once home to 12% of world trade, opting for a much longer voyage around the Horn of Africa.
“It was a tactical and operational victory and a strategic draw, if not a strategic defeat,” said Joshua Tallis, a naval analyst at research firm CNA.
The danger zone around the Strait of Hormuz is up to five times bigger than the Houthis’ attack area around the Bab el-Mandeb Strait that flows into the Red Sea. Unlike the Houthis, Iran’s Islamic Revolutionary Guard Corps (IRGC) is a professional military with its own weapons factories and access to funding.
Providing escorts for the strait would require as many as a dozen large warships such as destroyers, backed up by jets, drones and helicopters to account for the limitations created by the lack of space to maneuver, some military experts said.
Overhead air cover would be critical to protect against flying drones as well as explosive-laden manned or unmanned vessels that can easily blend into sea traffic.
“A destroyer can intercept missiles but cannot simultaneously sweep mines, counter drone-boat swarms from multiple bearings, and manage GPS disruption,” SSY analysts said.
Analysts believe Iran’s IRGC fighters have missile and drone stockpiles hidden in buildings and caves along the hundreds of miles of steep and mountainous coastline. In some places, the shore comes so close to ships that drones could swarm a vessel in as little as five to 10 minutes, experts said.
“There are ballistic missiles, drones, floating mines and even if you were able to destroy those three capacities, there are suicide operations,” said Adel Bakawan, director of the European Institute for Studies on the Middle East and North Africa.
Sea mines and heavily armed mini-submarines are a threat the U.S. did not encounter in the Red Sea, said Tom Sharpe, a retired Royal Navy commander. He said the stakes for meeting those threats are enormous.
“If (the Americans) lose a destroyer in this … that changes the calculus of everything. That’s 300 people,” Sharpe said, referring to potential deaths of U.S. sailors. There is no clear evidence that Iran mined the strait, U.S. Defense Secretary Pete Hegseth said earlier this month, after reports that Iran had deployed about a dozen mines in the waterway.
A combination of mine clearing, military escorts and air patrols should eventually get strait traffic moving again, said Bryan Clark, an autonomous warfare expert at the Hudson Institute.
“You might have to do that for months before you have finally eroded the IRGC threat,” Clark said.
The head of the World Trade Organization on Thursday called for a sweeping overhaul of global trade rules, warning that the old multilateral system has fundamentally changed amid rising U.S. tariffs and geopolitical tensions.
Ngozi Okonjo-Iweala set out a list of problems facing the World Trade Organization – including the paralysis of its dispute-settlement mechanism – at the start of a four-day meeting of the body in Cameroon.
“The world order and multilateral system we used to know has irrevocably changed. We will not get it back … We must look to the future,” the WTO Director-General said.
Ahead of the session, some diplomats and trade officials warned that without an agreement on reforms, countries could start abandoning the ideal of a rules-based global trade system, and set their own regulations.
The gathering in Yaounde comes amid soaring concerns over the impact of the U.S.-Israeli war on Iran,and follows years of stalled multilateral trade deals.
Okonjo-Iweala said the body’s problems over decision-making needed to be tackled. Its current consensus-based model has been regularly stalled by objections from some countries. Some delegates are pushing for the organisation to let groups of members form agreements.
She also said there was a lack of transparency over which countries were using subsidies.
“Lack of transparency leads to lack of trust, and that breeds suspicions of unfairness and anti-competitive behaviours,” Okonjo-Iweala told delegates.
This contributed to a “vicious cycle” of mistrust which was holding back members from agreeing new rules and reforms, she added.
The U.S. supports reforms but is resisting a detailed work plan, while the EU, Britain, and China back one, internal reform documents seen by Reuters show.
“If we don’t achieve anything concrete, the WTO will lose its attractiveness and relevancy,” Swiss Ambassador Erwin Bollinger said before the session.
U.K. trade minister Chris Bryant warned of potential fragmentation if no deal is reached.
“My anxiety is if we ministers don’t get this week right, you might see a disorderly collapse of the WTO and some people writing a new rulebook,” Bryant said.
At the meeting, India is set to oppose U.S. efforts to extend a global ban on cross-border e-commerce duties, which New Delhi says developing nations should be able to impose.
U.S. Trade Representative Jamieson Greer, in a draft statement seen in advance by Reuters, is expected to tell members the U.S. is “not interested” in a temporary extension to the ban, only a permanent extension.
European Union lawmakers on Thursday gave a green light to the bloc’s trade deal with U.S. President Donald Trump, but with safeguards as Europe hopes to salvage its relations with Washington while also racing to diversify its ties around the globe.
Brussels and Washington last summer clinched a deal setting tariffs at 15% for most EU goods.
But Trump’s 2025 tariff blitz, including hefty levies on steel, aluminum and car parts, jolted the 27-country bloc into cultivating trade ties around the world, and it has since signed deals from South America to Australia and continues to pursue others.
But that doesn’t mean the EU intends to walk away from its 1.6 trillion euro ($1.9 trillion) relationship with its largest trade partner, the U.S.
A large majority of EU lawmakers agreed to cut EU tariffs on some U.S. imports, as a first step toward implementing the 2025 deal, but with additional safeguards.
“Today’s vote is an important procedural step and a political signal that the EU stands by its word,” EU economy chief Valdis Dombrovskis said in a parliamentary debate Thursday before the vote.
Before the U.S. tariff deal is implemented by the bloc, it still needs to be negotiated with EU states, although Brussels hopes talks will go quickly.
EU Trade Commissioner Maros Sefcovic welcomed the move as a “crucial step” and said he would meet U.S. Trade Representative Jamieson Greer on the sidelines of a World Trade Organization (WTO) meeting in Cameroon on Friday.
Additional safeguards
The green light comes after months of delay as lawmakers resisted approving the accord due to transatlantic tensions over Greenland, and then put it on hold again following the U.S. Supreme Court’s ruling striking down many of Trump’s levies.
The ball started rolling again after the European Commission, in charge of EU trade policy, said it would stick to the pact despite the U.S. ruling and called on lawmakers to do the same, having received reassurances from Washington.
Trump, however, retaliated after the ruling with a new tariff regime, pushing EU lawmakers to tighten the existing agreement with numerous safeguards.
Lawmakers added several provisions in response, such as making the EU’s tariff reductions automatically lapse in March 2028, and tying tariff cuts on steel and aluminum goods to similar reductions by the U.S. side.
“Let’s not be naive. More Trump coercion and chaos will come, and that is exactly why we say today no free pass, no blank cheque,” EU lawmaker Kathleen Van Brempt said during Thursday’s debate.
‘Trump factor’
It is the EU’s vulnerability to the consequences of wars and other shocks that has pushed Commission chief Ursula von der Leyen to make diversifying trading partners a priority, to cut overdependence on the U.S. and China.
The frenzy began with a long-awaited accord signed with the South American Mercosur bloc in January. Weeks later, Brussels struck another pact with India and just this week clinched a stalled deal with Australia.
“The Trump factor sped up their conclusion, for us as well as for our partners,” economist Andre Sapir said.
Spurred by Trump, Sapir says the EU is pushing to create the world’s largest network of free trade areas, a strategy with a “defensive dimension” allowing it to resist trade “coercion.”
“This free trade network carries weight in our discussions with the two giants, the United States and China,” he said.
“These agreements are part of our arsenal,” Sapir, of the Bruegel think tank, added. “Our strategic weapons in the international order.”
The Middle East conflict is “testing the resilience of the global economy,” the Organisation for Economic Co-operation and Development (OECD) said in a report released on Thursday, warning that rising energy prices and uncertainty now weigh on the outlook despite keeping the growth projection for this year unchanged.
Global growth is forecast to be at 2.9% this year, the Paris-based organization said, while it slightly shed the growth expectation for the next year from 3.1% to 3.0%.
The unpredictable trajectory of the Middle East conflict was driving up costs and dampening demand, offsetting the positive impetus from investment in new technologies and the momentum carried over from the previous year, it said.
“There’s a high level of uncertainty around the duration and the magnitude of the current conflict in the Middle East and that means that this outlook is subject to significant downside risks that could result in lower growth and higher inflation,” OECD chief Mathias Cormann told journalists.
The blockade of the Strait of Hormuz and damage to energy infrastructure had caused a sharp rise in energy prices and disrupted supplies of other key materials such as fertilizer, according to the OECD.
The scale and duration of the conflict were highly uncertain, but a prolonged period of higher energy prices would significantly increase costs for businesses and consumer prices, with negative consequences for growth, the OECD said.
Interim projections
The projections in the OECD’s interim Economic Outlook are conditional on a technical assumption that energy market disruption moderates over time, with oil, gas and fertilizer prices declining gradually from mid-2026 onward.
The 2026 projection is unchanged from the OECD’s December forecast, but preliminary indications since then had suggested global gross domestic product (GDP) growth could have been upwardly revised by around 0.3 percentage points in 2026 had the conflict not escalated, a revision that has been entirely erased by the impact of the fighting.
With energy prices now soaring, G-20 inflation is projected to be 1.2 percentage points higher than previously expected in 2026 at 4.0%, before easing to 2.7% in 2027.
In an adverse scenario where energy prices peak higher and stay elevated longer, global growth would be 0.5 percentage points lower by the second year of the shock, and inflation would be 0.9 percentage points higher, the OECD said.
U.S. outlook
The war is compounding an already complex picture of trade.
U.S. bilateral tariff rates have declined following the U.S. Supreme Court ruling against tariffs imposed under the International Emergency Economic Powers Act, with particularly large reductions for several emerging market economies, including Brazil, China and India.
Nonetheless, the overall U.S. effective tariff rate remains well above that prevailing before 2025.
On individual economies, annual GDP growth in the U.S. is projected to moderate from 2.0% in 2026 to 1.7% in 2027, as strong AI-related investment is gradually offset by a slowdown in real income growth and consumer spending. The OECD had pencilled in a forecast of 1.7% this year and 1.9% for 2027 in December, before the Supreme Court ruling.
U.S. headline inflation is now forecast to hit 4.2% in 2026, up 1.2 percentage points from the previous projection.
Diverging paths
In China, growth is projected to ease to 4.4% in 2026 and 4.3% in 2027, both in line with the OECD’s previous forecasts.
Euro area GDP growth is anticipated to slip to 0.8% in 2026, as higher energy prices weigh on activity, before increasing to 1.2% in 2027, helped by stronger defense spending. That marked a sizeable downgrade from December when the OECD had forecast 1.2% growth in 2026 and 1.4% in 2027.
In Japan, growth is projected at 0.9% in both 2026 and 2027, both unchanged, as the rising cost of energy imports offsets robust business investment.
The OECD urged central banks to remain vigilant and called on governments to ensure any support measures for households were well-targeted and time-limited.
For Türkiye, it forecasted the growth rate of 3.3% this year and 3.8% in 2027, respectively.
The European Bank for Reconstruction and Development (EBRD) warned on Thursday that tensions in the Middle East are likely to weigh on growth across the regions it operates in, due to higher energy and fertilizer prices, disruptions to trade and tourism flows, and tighter financing conditions.
Growth forecasts for certain developing markets are likely to be revised down by as much as 0.4 percentage points in the next regional economic outlook in June if energy prices remain elevated, according to the development bank.
Oil prices have surged since the U.S. and Israel launched strikes on Iran, which retaliated by effectively closing the key Strait of Hormuz.
Last month, the bank said it expected 3.6% growth this year and 3.7% in 2027 in the roughly 40 countries it covers.
The bank now said that the economic impact will depend on the duration of the war in the Middle East and the extent of energy infrastructure damage.
“The direct negative effects on GDP (gross domestic product) growth via energy costs, the price of fertilizers and food staples, disruptions to supply chains, tourism and remittances from the GCC (Gulf Cooperation Council) will be compounded by higher inflation, greater pressures on government budgets and tighter financing conditions in response to rising inflation,” it added.
The analysis said that if oil prices stay above $100 per barrel for an extended period and supply chain disruptions in chemicals and metals continue, global economic growth could decline by at least 0.4 percentage points, while inflation could rise by more than 1.5 percentage points.
Impact on supply chains, food prices
The impact of the tensions is also being felt across agricultural inputs and industrial supply chains.
A significant share of global trade in fertilizer feedstocks passes through the Strait of Hormuz, heightening the risk of rising food prices. Disruptions along Gulf trade routes could also affect critical inputs such as aluminum, sulfur, helium, petrochemicals and plastics, adding to global inflationary pressures.
While trade with the Gulf Cooperation Council is important for many economies in the EBRD regions, direct trade with Iran remains limited.
Economies such as Iraq, which rely on exports via the Strait of Hormuz, could face particular challenges. However, existing stocks of essential commodities such as wheat provide some buffer in such countries.
Meanwhile, the bank said tourism-dependent economies in the Middle East are expected to see a decline in visitor numbers, while the tensions are also tightening financial conditions across countries in the region. Capital outflows from some economies have so far remained manageable, but they could accelerate if global financial conditions deteriorate further.
The bank also suggested that remittances from GCC countries, which present an important source of income for economies including Lebanon, Jordan and Egypt, may come under pressure.
According to the EBRD, the extent to which economies can absorb shocks to their terms of trade will depend on the strength of their fiscal and external buffers.
Among the more than 40 countries where the EBRD operates are Türkiye, Egypt, Iraq, Kenya, Lebanon, Jordan, Moldova, Mongolia, Senegal, Tunisia, Ukraine, Azerbaijan, Greece and Nigeria.
In Azerbaijan, Iraq, Kazakhstan, Mongolia and Nigeria, oil and gas trade surpluses range from 11% to 39% of GDP, but the bank noted that production has been reduced or halted at Iraq’s largest oil fields.
Meanwhile, for every $10 per barrel increase in the oil price, Russia gets a “windfall in revenue” from oil, gas and fertilizer sales equivalent to 1.5 percentage points of 2025 GDP, the EBRD estimated.
Oil prices could reach $180 per barrel if Gulf oil supplies remain restricted due to short-term inelastic demand, the bank also said.
Commenting on the report, EBRD Chief Economist Beata Javorcik said the tensions in the Middle East show how quickly geopolitical shocks can spread through energy markets, supply chains, and financial conditions.
Inflation expectations among sectors for the 12-month-ahead consumer prices ticked up slightly across the board in March, according to the survey released by the Turkish central bank on Wednesday.
In March 2026, 12-month-ahead annual inflation expectations, compared to the previous month, increased by 0.07 points to 22.17% for market participants, by 0.90 points to 32.90% for the real sector, and by 1.08 points to 49.89% among households, the Central Bank of the Republic of Türkiye (CBRT) said.
Like this, the highest increase was observed in the households category, where rigidity in expectations was generally higher in the past, too.
Sectoral Inflation Expectations are obtained by compiling the 12-month-ahead annual consumer inflation expectations of financial and real sector experts, manufacturing industry firms and households, based on the Survey of Market Participants, the Business Tendency Survey and the Household Expectations Survey conducted in cooperation with the Turkish Statistical Institute (TurkStat).
The annual inflation rate in the country rose slightly on an annual basis to 31.5% in February, compared to 30.7% in January and marked the first uptick in the annual rate in months, according to official data.
In response, and amid the escalation of the conflict in the Middle East, the CBRT has opted to keep rates on hold at 37% at its last policy meeting.
The product/service groups that households assessed as having increased the most in price over the past year and expected to increase the most in the next 12 months were “food” and “fuel and energy,” the CBRT survey revealed.
The expectation for the rise in house prices at the end of the next 12 months, meanwhile, decreased slightly by 0.36 percentage points compared to the previous month, standing at 35.05%.
British consumer price inflation remained steady at 3.0% in February, unchanged from January’s rate, official data showed on Wednesday, ahead of a likely upward lurch as war in the Middle East pushes up prices of ordinary goods, including fuel, worldwide.
Lower petrol prices in February helped offset a rise in clothing costs, the Office for National Statistics (ONS) said, but that relief looks set to prove short-lived, with oil prices now around 50% higher than a month ago.
“Today’s inflation report is little more than a relic of the world before the Iran conflict,” Luke Bartholomew, deputy chief economist at fund managers Aberdeen, said.
Before the U.S.-Israeli attack on Iran at the end of February, the Bank of England (BoE) had forecast that inflation would fall to close to its 2% target in April, when changes to regulated household energy bills and other prices take effect.
But last week the BoE sharply increased its inflation forecast, predicting it would rise towards 3.5% by the middle of the year.
Inflation expectations jump
A survey published on Tuesday by U.S. bank Citi showed inflation expectations among the British public for the coming year have surged to 5.4% from 3.3%, their biggest monthly increase in more than 20 years, adding to the BoE’s challenge.
While most households’ energy tariffs are currently capped, new prices are due to take effect in July and manufacturers have already reported the sharpest jump in costs since 1992, which may soon be passed on to consumers.
Financial markets on Wednesday were betting on two or three quarter-point interest rate rises by the BoE this year, though many economists think the central bank will keep rates on hold due to the headwinds to growth from higher energy costs.
BoE Governor Andrew Bailey last week advised people against making any firm bets that the BoE would raise rates.
Services inflation eases
Wednesday’s data showed services price inflation, which the BoE watches closely as a gauge of longer-term inflation pressures, fell to 4.2% in February from 4.4% in January, its lowest since March 2022 and just below economists’ expected reading of 4.3%.
The decline reflected reduced inflation for restaurants, cafes and tickets for concerts and other cultural events.
However, core inflation, which excludes more volatile food, energy, alcohol and tobacco prices, rose slightly to 3.2% from 3.1%, where it had been expected to hold.
“The upside surprise in core inflation today will be of concern for the Bank, given it shows we are still contending with sticky price pressures even before accounting for the recent spike in energy prices,” Zara Nokes, global market analyst at J.P. Morgan Asset Management, said.
British inflation is the highest among major advanced economies, and the country’s reliance on natural gas for electricity generation and heating makes it vulnerable to price shocks.
Prime Minister Keir Starmer’s government has introduced measures to limit rises in the cost of living, although Treasury chief Rachel Reeves said on Tuesday any household energy subsidies this year would be more narrowly targeted than during the last gas price surge in 2022.
After the data, Reeves highlighted government measures taking effect next month, which would reduce some fixed costs in household energy bills, and said the government would be “acting to protect people from unfair price rises if they occur.”
British inflation rose to its highest since 1981 in October 2022 at 11.1%, and over the past five years has rarely been near its 2% target.
Statement from the Ministry of Foreign Affairs regarding the attack on the Turkish ship in the Black Sea
WTO chief warns global trade order has shifted, urges urgent reform
Turkish official urges unity against ‘brute force’ at Three Seas summit
Statement from the Ministry of Foreign Affairs regarding the attack on the Turkish ship in the Black Sea
WTO chief warns global trade order has shifted, urges urgent reform
Turkish official urges unity against ‘brute force’ at Three Seas summit
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