Transcription
Hi, welcome back to the channel. In today's episode, I want to talk about the economic fallout from the war in Iran because every time I think we're getting close to the peak of the impact, something else comes out that reminds me that we are nowhere done. So, in today's episode, I want to do a proper update because we're now getting to the first full round of quarterly earnings calls from major global corporations. And the numbers coming out of those calls are genuinely staggering. These aren't analysts speculating about what might happen. These are CEOs on the record speaking to shareholders, publishing legal filings, and putting hard numbers on exactly how much this war is already costing their businesses. And the really important point is this. Almost every single one of them is saying the same thing. These costs are going to customers, which means this isn't just about an oil story anymore. This is now an airline ticket story, a supermarket story, a holiday story, an inflation story, and ultimately a global slowdown story. We'll talk about the latest developments involving Donald Trump and Iran, what's happening with oil prices, what the world's biggest shipping companies are now warning about, why airlines are panicking, and why some CEOs now believe the market still hasn't priced in the full scale of what's coming. But before we get into all of those details, could I ask anybody that hasn't subscribed yet to please hit that subscriber button? Really does help me with the algorithm and also of course puts a smile on my face.
Okay, so just to set the scene for where we are right now. As of today, Brent crude is sitting at around $16 per barrel, which has jumped sharply after the latest developments surrounding the ceasefire negotiations. And the diplomatic backdrop now looks incredibly fragile. Iran has formally responded to the latest US-backed peace proposal. However, Donald Trump reacted extremely negatively to the response and has posted on Truth Social that the ceasefire was effectively now on life support. Trump has said that the proposal is completely unacceptable and indicated the chances of reaching an agreement were now extremely low. At the same time, we've continued to see clashes, drone interceptions, naval incidents, and exchanges of fire around the straight of Hermuz. Now, this is hugely important because around 20% of the world's seaborn oil is meant to pass through that straight every single day. And although a small number of tankers from countries such as Saudi Arabia, Qatar, and the United Arab Emirates have attempted limited movements through the straight, flows remain massively below normal levels. At its peak, analysts estimated that around 10 million barrels per day of production had effectively been disrupted across the Gulf region. That's an astonishing number. And Saudi Aramco CEO warned this week that the market is currently losing around 100 million barrels of supply every single week. Now, if you think about that for a moment, 100 million barrels every week. He's also warned that if the disruption continues, proper market normalization may not be able to happen until 2027. So, not later this year, not in a few months time, next year. And I think that's one of the most important comments we've heard so far because it tells you this is no longer being viewed as a short-term shock. This is now starting to look structural. And analysts at City Bank summed the situation up recently when they said Iran retains significant control over the timing and terms of any potential agreement. In other words, until there's a real deal, this doesn't end.
So with that backdrop, let's now look at what companies around the world are actually saying. Let's start with airlines because this is probably where consumers feel the pain more directly. Jet fuel prices have more than doubled since the war began. And fuel is the single biggest cost for an airline. Bigger than staffing, bigger than maintenance, bigger than aircraft financing. And Delta Airlines CEO Ed Bastion summed up the shock perfectly when he said, "We woke up this morning with a very different set of fuel assumptions than we had when we went to bed." That's not corporate spin. That's a CEO basically saying the ground has shifted underneath them overnight. Delta now expects to incur more than $2 billion of additional fuel costs through to June alone, just because of the war in Iran. That's not for the year. That's just in the period until June. The airline has slashed its earnings outlook and is now cutting routes that make no longer economic sense. United Airlines CEO Scott Kirby has warned that ticket prices may need to rise by around 20% simply to offset fuel costs. And United, Delta, and JetBlue have already started increasing baggage fees and fairs that as they try to pass those costs onto passengers. And analysts are now warning that if oil prices remain at the current levels, airline industry profits for 2026 will be effectively wiped out. Now, this is where the multiplier effect starts becoming really important because higher airline costs don't just impact on holidays. They impact on tourism, hotels, restaurants, business travel, conferences, consumer confidence, and eventually employment.
And then you move into shipping. And actually think this sector may turn out to be even more important than aviation because virtually every product you buy travels by containership at some point. food, electronics, clothes, furniture, raw materials, everything basically. And companies moving those products are now openly saying that they cannot absorb these additional costs. MK CEO Vincent Clerk told CNBC that oil prices around $100 per barrel currently or costing the company $500 million of additional costs every single month. Half a billion dollars per month. And he then said something really interesting. He admitted that whilst the company would try to cut costs where possible, a huge amount of those additional costs will ultimately need to be passed on to customers, which means price rises throughout the economy. And MK also warned that the war in Iran had created an additional layer of uncertainty for global trade and that risks remain firmly on the downside. Meanwhile, Vitall, which is the world's largest oil trading company, warned that the conflict has already destroyed between 600 and 700 million barrels of oil production with total losses potentially heading towards 1 billion barrels before this crisis ends. And this is why inventories are now becoming such a huge concern because once inventories start running down globally, you lose your buffer. And once that happens, markets become much more vulnerable to shortages and price spikes.
Now, the energy sector itself is actually becoming a fascinating split between winners and losers. On one side, you've got companies like Shell making enormous profits from volatility in crude oil, natural gas, and refining markets. Shell posted quarterly profits of almost $7 billion this week, massively beating expectations. And there were actually protests outside Shell's London headquarters with activists accusing the company of making war windfall profits. And then on the other side of the energy industry, you've got CEOs issuing some really stark warnings. Exon Mobile CEO Darren Woods said the market still hasn't fully absorbed the scale of the disruption taking place. And I think this may actually be the single most important quote from all of these earnings calls. He said the market hasn't seen the full impact of that yet. There's more to come if the straight remains closed. The CEO of one of the world's biggest oil companies is basically saying markets still don't understand how bad this has become. Exxon also warned that its Middle East production could decline by around 750,000 barrels per day compared with last year if the disruption continues. And Darren Woods specifically warned that some of the emergency supply measures currently cushioning the market will eventually become exhausted if this war drags on. Baker Hughes CEO Lorenzo Simelli went even further and said the war is now driving fundamental structural change across the energy landscape. In other words, governments around the world are now being forced to completely rethink energy security. And I think that's absolutely true because this conflict has exposed just how fragile the global energy system really is.
Now when you move into manufacturing and consumer goods, this is where the story starts becoming very real for ordinary households. Whirlpool, which makes washing machines, fridges, and ovens, reported what its CEO called recession level industry decline in the United States as consumer confidence collapsed. The company posted a net loss for the quarter and announced its biggest price increase in a decade. So, if you're buying household appliances, you're already paying for this war. DMC Global warned that the conflict had negatively impacted every single one of its business divisions due to supply chain disruption, higher aluminium prices, and delayed shipments. Nov Inc. reported that the conflict had already reduced revenues and profits significantly because of logistical disruption and soaring freight costs. And then there was one particularly interesting comic from Acme United, which manufactures medical and industrial supplies. The company said it had proactively purchased an additional $10 million of inventory because management fears shortages and major cost increases later this year. Now, that's important because companies like that often have very good visibility over what's happening in supply chains. And if they are panic buying inventory ahead of time, that tells you something. Meanwhile, chemical and steel manufacturers across the UK and Europe have already started imposing energy search charges of up to 30% because electricity and feed stock costs have surged. and economists are now openly discussing the possibility of permanent industrial damage in some sectors if energy prices remain elevated for too long.
Now, for viewers here in the UK, there are a couple of really important points worth mentioning specifically. The Food and Drink Federation has revised its UK food inflation forecast massively higher. At the start of the year, it was expecting food inflation of around 3%. It's now forecasting that by the end of 2026, it will be 9%. And importantly, it warned that because many manufacturers operate with long-term supply contracts, the full impact can take many months to feed through into supermarket prices. So, what we're seeing in the shops today may not be the worst of it. The European Central Bank has also delayed planned interest rate cuts because of inflation risks. Growth forecasts have been downgraded and both Germany and Italy are now increasingly being viewed as economies at risk of recession later this year. Meanwhile, the IMF has downgraded global growth forecasts and warned that in a prolonged war scenario, global growth could slow to 2.5%. And developing economies are expected to be hit hardest because they're the least able to absorb higher food and energy costs.
So in terms of the important takeaway from all of these calls, every single company we've talked about today, Delta, MK, Exxon, Whirlpool, Nov, Acme United, these aren't economists making forecasts. These are executives describing damage that has already happened. And almost all of them are saying the same thing. We cannot absorb these costs. they are going to be passed on to customers, which means higher prices, which means higher inflation, weaker consumer spending, lower growth, and potentially much bigger economic problems later this year if this conflict continues. And I think the Exxon Mobile warning is the one that really stuck with me. Markets still haven't priced in the full impact. Because if that's true, then despite everything we've already seen, we may still only be somewhere near the middle of this story rather than at the end. Oil is currently sitting above $100 per barrel. The ceasefire looks increasingly fragile, and Saudi Aramco's CEO is now warning that market normalization will not happen until 2027 at the earliest. That's the reality of where we are right now. So, I'll keep you posted on any further news and developments as and when they occur. But hopefully you found today's video useful, informative, and most importantly, thought-provoking. If you've liked what I've said, or maybe you didn't like it, but you thought it was interesting, then please give me a thumbs up. Please subscribe to the channel if you haven't done so already. There is now only a limited amount of time left to get involved in my competition to win my property or a cash alternative prize. I'm offering some really amazing deals, the best deals I've ever offered right now. If you'd like to get involved, then scan the QR code on the screen now with your phone or click the link in the description below. It will take you straight through and you'll be able to have a look at what those deals are. Thank you also to everyone that supported me in other ways. If you bought me a coffee, sent me a YouTube super thanks or signed up as a patron or a member. Thank you for that support. Really does help to keep me going. Just want to remind you that I've recently launched Joe Blogs Russia. If you're interested in my Russian videos and you don't want all of the variety that you're getting on Joe Blogs the main channel anymore, then head over there. Please subscribe, watch some of those videos, build up some watch time for me. There's a link at the end of today's video. It'll take you straight through. The Joe and Naz channel is also live. This will put a smile on your face. We're bringing fun, food, banter, pubs, travel, anything we can think of that we think is interesting and exciting to YouTube. So, please go and check that out. We need your help. We're a small channel. We've only just started. We've got a small amount of subscribers. We need you to subscribe. Hopefully, you can watch some of those videos as well. It will definitely put a smile on your face. And here's something else that will do exactly that.