The past two and a bit years have shown that it is naive to expect Donald Trump’s strategic and economic policies to demonstrate coherence. Even so, the lack of joined-up thinking in the decision to end the waiver against sanctions from nations that buy oil from Iran takes some beating.
For a start, there’s the impact of threatening to prevent Iranian oil from reaching the global market. That led to the cost of crude trading just shy of $75 a barrel on the world’s commodities markets – its highest this year.
Dearer fuel prices raise business costs and eat into consumer spending power, and that will mean weaker growth – damaging Trump’s 2020 re-election chances – unless another producer makes up the Iranian shortfall. The White House is banking on Saudi Arabia increasing its output, but there is no guarantee that it will, without hard evidence that supply from Iran has actually been hit. The oil price is likely to head towards $80 a barrel in the coming weeks.
Even then, it assumes Trump is right to think Iran will cave in to the pressure – and that seems highly questionable. It is just as likely that tightening the screw on the Iranian economy will entrench support for the hardliners and make the region even more unstable than it already is.
Tehran has responded to the US action by pledging to close the Strait of Hormuz, through which oil is shipped from all the major Middle Eastern suppliers, including Saudi Arabia, Kuwait, Iraq and the United Arab Emirates. Were that to happen, the oil price would quickly shoot above $100 a barrel.
Then there’s the fact that Trump is in effect telling China – the biggest importer of Iranian oil – that it can only do business with certain countries with the prior approval of Washington DC. That has more than a hint of imperialistic hubris about it and would be asking for trouble at the best of times. It is plain daft to be laying down the law to Beijing when the two countries are trying to avert a full-scale trade war.
The financial cost of terror attacks
The economic impact of the bombings in Sri Lanka have featured little in the aftermath of the terrorist attacks, and rightly so. When more than 300 people have died, attention has focused on human tragedy and security lapses.
But by appearing to target tourists, those responsible for the attack also dealt a heavy blow to a Sri Lankan economy that is highly vulnerable to a collapse in the number of overseas visitors.
Since the end of the civil war a decade ago, the number of people attracted by Sri Lanka’s mix of beaches, culture and wildlife has increased sixfold. Tourism accounts for a hefty 11% of national output.
The number of visitors will now inevitably dwindle. As Gareth Leather of Capital Economics has noted, those willing to risk a trip to Bali fell by 40% after the 2002 bombings and it took two years to return to pre-attack levels. Egypt suffered an even bigger decline after the bombing of a Russian plane in the Sinai peninsula in 2015. Tourist numbers dropped by 50% and took three years to recover.
On the basis that Sri Lanka suffers a similar-sized fall in tourism, Leather estimates a hit to the economy that will cut growth from 3.2% to 1% this year. The government will need to provide rapid reassurance to overseas visitors because the scope to ease fiscal policy to compensate for the loss of tourist revenues is limited by a commitment to cut the budget deficit under the terms of an IMF agreement, and high levels of foreign currency debt mean the central bank is likely to respond to downward pressure on the rupee by raising interest rates.
Shareholder power at Barclays
It’s amazing how a bit of shareholder activism can concentrate minds. Barclays is cracking down on pay at its investment arm, insisting that bonuses should be more closely tied to performance.
In any other walk of life bar the City, that would be par for the course. But it amounts to a change of heart for Barclays which, under previous management in 2014 said it had to increase bonuses, despite falling profits, or face a “death spiral”.
But back then Barclays was not faced with an investor like Edward Bramson, who has built up a 5.5% stake in the bank and is trying to force his way onto the board. Now, apparently, a death spiral is worth the risk.