The clock is ticking on President Trump’s ultimatum to Tehran, and the City is pricing in a premium for chaos. Iran’s refusal to bow to American pressure has sent crude futures into a tailspin, with Brent crude surging above $85 a barrel this morning. For British investors, this is not merely a geopolitical sideshow; it is a direct hit to the bottom line.
The FTSE 100 opened lower, dragged down by heavyweight oil stocks, though BP and Shell are ironically the only ones smiling. But the real story is in the bond market. The yield on the 10-year gilt has jumped 12 basis points to 4.
78%, as traders flee to cash and short-dated Treasuries. This is capital flight from the pound, pure and simple. The Bank of England is now in a bind: inflation expectations are creeping higher, yet a rate hike would crush the housing market.
Meanwhile, the Treasury is eyeing the fiscal cost of a potential energy crisis. If the Strait of Hormuz is disrupted, the UK’s already strained energy bill will explode. The market is essentially demanding a risk premium on sterling assets, and the government’s borrowing costs are rising.
This is what happens when you mix a volatile US president with a defiant Iran and a central bank that has lost credibility. The only certainty is volatility.
