The White House launched airstrikes on Iranian assets last night. The Pentagon claims it was a response to recent drone attacks on US forces. Tehran is vowing retaliation. Global oil prices spiked immediately. Brent crude jumped 4% in early Asian trading. A barrel now sits at $92. That's a six-month high.
Downing Street is nervous. The Foreign Office issued a statement at 7am. 'We urge all parties to de-escalate,' it read. That's code. Translation: we fear a full-blown regional war. The Strait of Hormuz is a chokepoint. 20% of the world's oil passes through it. Iran has threatened to close it before.
The backchannel whispers are frantic. I'm told the UK's ambassador to Washington has been on the phone since 2am. The mood in the Cabinet Office is grim. One senior official described it as 'the worst possible timing.' Inflation is still stubborn. Energy bills are a political landmine. This could reignite the cost-of-living crisis.
Westminster is already calculating the electoral damage. Tory backbenchers are divided. The pro-Israel lobby wants full support for the US. The realists worry about petrol prices hitting £2 a litre again. Labour is treading carefully. Starmer will back 'restraint' but avoid criticising Biden directly.
The key player is the Saudi Crown Prince. MBS is playing a double game. He needs US security guarantees. But he also wants to normalise ties with Iran. The UK is scrambling to shore up relations. A phone call between Sunak and MBS is scheduled for later today.
Meanwhile, the Treasury is modelling scenarios. A sustained oil spike could add 0.5% to inflation. That would delay interest rate cuts. The markets are already pricing in a higher peak for rates. Mortgage holders will feel the pain.
This is a test of Sunak's foreign policy credentials. He has no room for error. The Tory party is fractious. The polls are dire. Any misstep could trigger a leadership challenge. Watch the 1922 Committee meeting tonight. The knives may already be out.
For now, the focus is on the next 48 hours. Will Iran retaliate directly or through proxies? The Houthis in Yemen are already on alert. The risk of a wider conflagration is real. Britain is playing the role of the worried uncle. But in this family, everyone has a gun.
I'll have more as the situation develops. For now, buckle up. The oil price is just the beginning.
