This political report for the week of March 22–28, 2026, is compiled by theSocialist.lk based on coverage from the World Socialist Web Site (WSWS).
I. Imperialism and War: The Iran Catastrophe Deepens
The dominant political development of the week was the further catastrophic escalation of the US-Israeli war against Iran, now entering its fourth week. On Saturday, 22 March, President Trump posted an ultimatum on his social media platform demanding that Iran “fully open, without threat, the Strait of Hormuz within 48 hours,” threatening to “obliterate” Iran’s power infrastructure, beginning with its largest power plant. The WSWS characterised this as a threat of genocidal violence without precedent in the post-World War II era, comparable only to the Truman administration’s nuclear ultimatum to Japan in 1945.[1]
The scale of the threat was not rhetorical. The Damavand Combined Cycle Power Plant — Iran’s largest, located 35 kilometres from Tehran’s centre — supplies electricity to approximately ten million people. Any strike on the Bushehr Nuclear Power Plant, Iran’s sole operating commercial reactor, risks catastrophic radioactive release. The IAEA Director General has warned that even severing the facility’s power supply lines could trigger a reactor meltdown. Iran responded by declaring all US and Israeli energy infrastructure across the region as legitimate targets, with Gulf states whose populations depend on electricity-powered desalination plants facing a potential humanitarian catastrophe of their own.
By week’s end, the trajectory had moved unambiguously toward ground invasion. Trump, in an interview with the Financial Times, declared openly: “Maybe we take Kharg Island, maybe we don’t. We have a lot of options.” The Wall Street Journal reported that the Pentagon was preparing for “weeks of ground operations,” and approximately 1,000 soldiers from the 82nd Airborne Division were reported to be readying for deployment. The 82nd Airborne’s Immediate Response Force — a 3,000-strong rapid-deployment brigade — was identified by the New York Times as a candidate force for seizing Kharg Island, through which 90 percent of Iran’s oil exports pass.
Defence Secretary Pete Hegseth provided the clearest statement of the administration’s actual position: “We negotiate with bombs. You have a choice as we loiter over the top of Tehran.” This cynical formulation — coupling public talk of negotiations with accelerating military preparations — exposes the character of US imperialism: diplomacy as a screen for war, with mass violence as both means and end.
In Lebanon, Israeli Prime Minister Netanyahu ordered a further expansion of the “security zone” in the south. More than 1,238 people have been killed and 3,500 wounded since the Israeli ground assault began on 2 March. More than 1.2 million people have been displaced. Three journalists were killed in a targeted Israeli airstrike on a marked press vehicle in Jezzine. Human rights documentation through Day 25 of the Iran war recorded at least 6,530 killed, including 640 confirmed civilians.
The WSWS insists that these are not individual acts of militarist excess but the systematic expression of a capitalist imperialist order in deep crisis, using war to secure control of energy resources, chokepoints and global hegemony. The Newroz 2026 statement of the Sosyalist Eşitlik Partisi (Turkey/SEP) — issued on 22 March — placed the war in this broader framework, linking imperialist aggression against Iran, Lebanon and Gaza to the political interests of regional bourgeoisies and the strategic requirements of US world dominance. The statement called for the building of rank-and-file committees across factories, ports, mines, hospitals and schools, the withdrawal of all US forces from the Middle East, the closure of NATO bases including those in Türkiye, and the formation of a Socialist Federation of the Middle East.[2]
II. The Political Bankruptcy of Reformism
Spain provided the week’s starkest illustration of pseudo-left capitulation to imperialism. The PSOE-Sumar coalition — which weeks earlier had revived the “No to war” slogan associated with the 2003 anti-Iraq War mass movement — announced a €1 billion military aid package for Ukraine following a meeting between Prime Minister Sánchez and Volodymyr Zelenskyy, bringing Spain’s total commitment to approximately €4 billion. The frigate Cristóbal Colón was simultaneously dispatched to the eastern Mediterranean. A token €5 billion social subsidy package — temporary tax cuts and a symbolic rent freeze attempt — was offered as political cover.[3]
The manoeuvre was transparent. The PSOE-Sumar government made this announcement against the backdrop of an unprecedented wave of industrial action across Spain: a nationwide doctors’ strike involving more than 175,000 workers, a three-day national railway strike, airport ground handling stoppages threatening to paralyse Easter travel, regional education strikes — with Catalonia’s culminating in more than 100,000 people on the streets of Barcelona — and general strikes in the Basque Country on 17 March. The working class in struggle was answered with rearmament and tokenism.
The WSWS is unequivocal: PSOE-Sumar’s anti-war posture was never anything other than a political calculation to contain domestic opposition. Its rapid re-integration into NATO war logistics — complementing Spain’s earlier facilitation of US strikes on Iran — exposes the class interests that animate such formations. Sumar, positioned as the “left” partner of the coalition, is identified as a direct instrument of imperialism, channelling dissent into manageable parliamentary terrain while voting through military budgets and suppressing class struggle.
Sri Lanka’s Frontline Socialist Party (FSP) received analogous treatment. Its call for “global people’s power” against the Iran war — superficially radical in rhetoric — was subjected to sharp political critique as pseudo-left opportunism. The FSP’s initiative, the WSWS argued, reflects a nationalist parliamentary logic that accommodates bourgeois parties and dissipates class power through appeals that refuse to break with the capitalist state. The SEP insists that genuine anti-war struggle must be grounded in proletarian internationalism and independent socialist organisation.[4]
III. Authoritarian Consolidation and Democratic Rights
The Trump administration continued its domestic militarisation offensive during the week. ICE deployments to airports in force — framed publicly as immigration enforcement — were characterised by the WSWS as a deliberate erosion of democratic norms and a rehearsal for the normalisation of federal paramilitary presence in civilian public life. The SEP connects this directly to the war drive: the same oligarchic project that prosecutes imperialist war abroad constructs the police state apparatus at home.
Australia’s Labor government provided a parallel illustration of bourgeois democracy’s hollowing out. Having lost a High Court ruling on offshore detention, the Albanese government circumvented the decision by transporting former asylum seekers to Nauru. The SEP described this as demonstrating the capitalist state’s readiness to flout its own legal constraints in order to uphold racist border regimes — which serve both capitalist labour market requirements and imperialist geopolitical alliances.
Cuba’s humanitarian crisis deepened further as a nationwide blackout struck the island amid US restrictions blocking incoming Russian fuel shipments. This is imperialist economic warfare targeting working people directly, using energy denial as a weapon of coercion.
The German city of Duisburg maintained its entry ban against Mohamedou Ould Slahi — the Mauritanian — a Guantánamo survivor and author, in a measure that exemplifies the integration of state repression, anti-democratic precedent and the ongoing brutalisation of those processed through imperialist detention machinery.
IV. Class Struggle and Bureaucratic Betrayal
Class struggle intensified across multiple fronts, with the trade union bureaucracy consistently functioning as the principal obstacle to the conversion of industrial militancy into political power.
In London, more than 300 Unite members at Stagecoach’s Bow garage struck for four days (19–22 March) against punishing rosters, inadequate rest breaks and dangerous fatigue — conditions forcing drivers to fall asleep at the wheel. Stagecoach mounted a systematic strikebreaking operation, importing replacement drivers from other cities and billeting them in hotels. Unite responded by sabotaging the action: officials called off a coordinated strike at Lea Interchange Bus Company — a Stagecoach subsidiary a few miles away — and declared a “win” based on a three-year deal pegging future increases to CPI rather than the previously demanded RPI, while leaving victimisation of union reps unaddressed. The Rail, Maritime and Transport union simultaneously suspended rolling stoppages by 1,800 London Underground drivers for closed-door talks.[5]
The WSWS analysis is direct: the union apparatus acts not as an instrument of working-class power but as a managerial layer whose function is to contain, fragment and ultimately defeat industrial resistance. The strategic response is the formation of rank-and-file committees that link garages and sectors, set non-negotiable safety demands, coordinate unified action, and raise the demand for democratic workers’ control of public transport.
In Australia, Tasmanian teachers conducted rolling statewide strikes over real-wage cuts and deteriorating conditions — the third round of action since September 2025 — while the AEU bureaucracy deliberately staggered the action by region (northwest on Tuesday, north on Wednesday, south on Thursday) to minimise its impact and prevent coordination with the simultaneous Victorian teachers’ strike. The tactic is well-established: token industrial action that creates the appearance of struggle while preserving the bureaucracy’s role as negotiating intermediary and absorber of militancy.[6]
Spain’s strike wave — the full breadth of which crossed healthcare, transport, rail, education and the public sector — demonstrated the objective depth of class anger. The Catalan education strike, supported by 90 percent of educators and culminating in 100,000 on the streets of Barcelona, is among the most significant educational mobilisations in recent Spanish history. That this emerged simultaneously with the PSOE-Sumar government’s announcement of a billion-euro military package for Ukraine underscores the central political contradiction: the same government which presides over real wage cuts and social austerity now channels resources to militarism while deploying union bureaucracies and its pseudo-left partners to contain the resistance.
V. Economic Warfare and Global Instability
The week’s economic developments were inseparable from the war drive. The Iran conflict’s threat to the Strait of Hormuz — through which roughly one-fifth of global oil passes — continued to generate financial turbulence across Asian markets. The imperialist war is simultaneously a political project and an act of structural economic destabilisation that strikes workers internationally through energy price inflation, supply chain disruption and currency volatility.
Cuba’s energy crisis — intensified by US restrictions on Russian fuel shipments — illustrates how imperialist economic coercion operates as a form of warfare targeting entire populations. The IMF, which had previously lauded Sri Lanka as an austerity “success story,” continued to provide ideological cover for the social devastation its programmes produce. These are not disconnected crises but expressions of the same capitalist order in its period of accelerating decay.
VI. The Revolutionary Tasks
The week’s events collectively underscore the axis of ICFI/SEP political analysis: war, dictatorship, austerity and bureaucratic betrayal are not separate phenomena but interlinked expressions of the capitalist system’s terminal crisis. Trump’s 48-hour ultimatum is not an aberration but the language of a ruling class prepared to obliterate the infrastructure of a nation of 90 million people to secure strategic and economic objectives. The pseudo-left formations — PSOE-Sumar, the FSP, the trade union bureaucracies — function consistently to contain and divert the social opposition that these conditions generate.
The correct working-class response — as the WSWS insists — is the building of rank-and-file committees in workplaces and communities, international coordination through the International Workers Alliance of Rank-and-File Committees, political independence from all bourgeois parties, and the construction of sections of the Fourth International to provide the revolutionary socialist leadership that the objective situation demands.
[20] World Socialist Web Site, ‘Podemos enters Spanish government: (8 January 2020) “On Tuesday, the Spanish Socialist Party (PSOE) of Prime Minister Pedro Sanchez officially formed a coalition government with the pseudo-left Podemos party, the Spanish ally of Greece’s pro-austerity Syriza (“Coalition of the Radical Left”).” <https://www.wsws.org/en/articles/2020/01/08/pode-j08.html>
This political report for the week of March 15-21, 2026, is compiled by thesocialist.lk based on coverage from the World Socialist Web Site (WSWS).
I. Imperialism and War: The Escalating Offensive Against Iran and the Middle East
The dominant political fact of the week was the accelerating US-Israeli war against Iran and the wider Middle East, now crossing into qualitatively new and more dangerous territory. The Trump administration formally requested over $200 billion in supplemental war funding from Congress — a figure that exceeds the peak annual cost of the Iraq war and dwarfs the entire US expenditure on arming Ukraine over three years. Defence Secretary Hegseth confirmed the figure could “move” upward. This astronomical request, on top of the existing $839 billion defence budget, is not a contingency measure but a preparation: the administration is actively deliberating ground-invasion scenarios, including the seizure of Kharg Island — the hub for 90 percent of Iran’s oil exports — and the securing of Iran’s enriched uranium stockpiles.[1]
Fire and plumes of smoke rises after a drone struck a fuel tank forcing the temporary suspension of flights. near Dubai International Airport, in United Arab Emirates, early Monday, March 16, 2026. [AP Photo/AP Photo]
The USS Tripoli, carrying approximately 2,200 Marines of the 31st Marine Expeditionary Unit, was confirmed steaming through the Strait of Malacca toward the Persian Gulf. Republican senators and congressmen openly called for the seizure of Kharg Island, with Senator Lindsey Graham posting: “He who controls Kharg Island, controls the destiny of this war.” US intelligence official Joe Kent resigned his post at the National Counterterrorism Center, declaring he could not “in good conscience support the ongoing war in Iran” and stating that Iran had posed no imminent threat — a rare fissure within the ruling apparatus that nonetheless does not alter imperialism’s strategic drive.[2]
The war has already produced mass civilian casualties and cultural devastation in Iran. US-Israeli air strikes struck museums, historical sites and cultural infrastructure alongside residential areas, with Iran’s Red Crescent reporting at least 47,000 residential units destroyed. The bombing of Iran’s cultural heritage is not incidental but structural: a deliberate strategy to break social cohesion and erase national memory in order to facilitate imperial domination.
Israel’s ground invasion of Lebanon opened a new and bloody front in this expanding war. Israel moved from intensive air and artillery strikes to a large-scale ground operation across southern Lebanon, with plans — confirmed by Axios — to seize the entire area south of the Litani River. Senior Israeli officials stated openly: “We are going to do what we did in Gaza.” In Lebanon, over 960 people had been killed and at least 2,400 wounded since Israel launched its assault on 2 March, including at least 110 children. The invasion is not a “border security” action but a planned occupation modelled on the genocidal campaign in Gaza, conducted under the full military and political umbrella of Washington.[3]
European powers moved to deepen their complicity. EU governments circulated conditions for participation in operations tied to the Iran war, including “freedom of navigation” missions in the Strait of Hormuz. Iran formally warned the UK that allowing US bombers to use RAF Fairford and other British bases constituted direct participation in aggression. Germany and Canada’s prime ministers attended a massive NATO Arctic exercise explicitly preparing for confrontation with Russia, demonstrating that the drive toward generalised war is not confined to the Middle East.
India’s alignment with the imperialist aggression was also exposed: New Delhi co-sponsored UN language condemning Iran’s defensive responses while refusing to condemn US-Israeli aggression, tightening military and economic ties that reflect India’s own geostrategic ambitions within the imperialist world order.
The WSWS placed the war in its broadest context: military spending on this scale will be paid for through the destruction of social programmes. Within 24 hours of the $200 billion request being confirmed, the Postmaster General warned Congress that the USPS would run out of cash within a year. Trump’s “One Big Beautiful Bill” had already imposed $1 trillion in cuts to Medicaid over a decade, $536 billion to Medicare, and $186 billion to food assistance — the largest cut to food aid in US history. War and social devastation are two arms of a single class offensive.[4]
II. The Rising Class Struggle and the Treachery of the Union Bureaucracy
The week was marked by a powerful upsurge of working-class resistance in the United States and internationally — and by the systematic efforts of trade-union bureaucracies to contain, isolate, and betray these struggles.
The JBS meatpacking strike at Greeley, Colorado entered its third day and remained the focal point of the WSWS’s class-struggle coverage. Approximately 3,800 workers — the overwhelming majority immigrants, speaking over 50 languages — struck the largest beef plant in the US in the largest meatpacking stoppage since the Hormel strike of 1985–86. Workers walked out over poverty wages (starting at $23 an hour), murderous line speeds, dangerous chemical exposures, inadequate PPE, abusive supervision, and housing abuses affecting Haitian workers lured to the plant through TikTok advertisements. As one worker stated: “We cannot continue to be worked like slaves.”[5]
The WSWS documented the central contradiction in the strike: the enormous militant energy of the rank and file, constrained and threatened by the UFCW bureaucracy. UFCW Local 7 had already signalled it would limit the strike to two weeks; the national UFCW had deliberately kept Greeley outside the 2025 national JBS contract to isolate these workers. The company moved immediately to divert cattle to its Cactus, Texas plant, with UFCW Local 540 in Cactus offering no solidarity. The IWA-RFC issued a perspective calling on workers to form independent rank-and-file strike committees, appeal to workers at every JBS facility, and build international solidarity against this Brazilian-owned multinational whose ultimate masters are BlackRock, Vanguard, and the global financial oligarchy.[6]
BP locked out approximately 900 workers at its Whiting, Indiana refinery after workers voted 98.3 percent against the company’s “last, best and final” offer. The proposed contract would have cut hourly wages by $8–$10, eliminated 100 union positions, introduced AI with no job protections, and closed the environmental department. BP moved to operate the refinery with temporary and contract workers — a dangerous provocation in a facility surrounded by residential neighbourhoods on the shore of the world’s largest freshwater body. The WSWS called for national and international solidarity and warned that the USW apparatus would seek to impose concessions.
The UAW bureaucracy’s role as “management’s enforcer” at Columbia University was exposed when Region 9A officials threatened the student workers’ local with “receivership” if it did not narrow its demands, particularly those tied to campus democratic rights. UAW presidential candidate Will Lehman condemned the apparatus’s conduct directly, calling it subordination of worker militancy to managerial and state imperatives.
The betrayal of the Kaiser Permanente strike was confirmed and deepened. The UNAC/UHCP bureaucracy had abruptly ended the 31,000-worker walkout in California and Hawaii without a contract, without a tentative agreement, and without a membership vote. A partial “settlement” cut workers’ wage demands from nearly 30 percent to 21.5 percent over four years — barely keeping pace with inflation — and secured no retroactive pay. Workers at Kaiser subsequently staged a 25,000-strong one-day sympathy strike in defence of mental healthcare. The WSWS called for a decisive “No” vote on the sellout and the formation of rank-and-file committees at every Kaiser facility.[7]
The UAW–University of California tentative agreement was similarly denounced: weak raises, preserved no-strike clauses, and a deal rushed through without adequate membership review for 48,000 UC academic workers. The WSWS called for a “No” vote and independent rank-and-file committees.
In Los Angeles, UTLA and SEIU announced a possible April 14 LAUSD strike, with thousands of educators rallying against layoffs, understaffing, and the war on Iran. The WSWS drew the sharpest lessons from the San Francisco teachers’ betrayal, where the union bureaucracy, acting hand in glove with the Democratic Party, shut down a powerful four-day strike on the district’s terms — and within days, preliminary layoff notices were issued.[8]
Other labour flashpoints included: 6,000 DHL Express Teamsters voting overwhelmingly to authorise strike action; the RMT bureaucracy calling off planned driver strikes on the London Underground without a settlement; American Axle workers speaking out against UAW betrayals ahead of contract talks; a Ford worker, Gregory Knopf, killed at the Sharonville Transmission Plant when a press machine activated during maintenance; and Australian educators at the University of Newcastle striking over real pay cuts, with a pivotal Victorian educator strike set for 24 March.
The overall pattern confirms the WSWS analysis: the trade-union bureaucracies function not as instruments of workers’ struggle but as institutional stabilisers of capitalist rule, working systematically to isolate strikes, suppress rank-and-file initiative, and subordinate workers to management and the state.
III. Austerity, Social Catastrophe and the Crisis of Capitalism
The war has not interrupted but intensified the social catastrophe capitalism imposes on the working class. The US Federal Reserve, gripped by uncertainty as the war drives oil prices upward and disrupts supply chains, admitted that its forecasts were unreliable. Fed officials were simultaneously discussing rate cuts and potential hikes — a paralysis that reveals capitalism’s inability to reconcile competing imperatives. The social costs will, as always, be borne by workers through inflation, unemployment, and austerity.[9]
Los Angeles registered six homeless deaths per day — a direct structural product of the commodification of housing and healthcare. Michigan was struck by the worst tornadoes since 1980, killing four, exposing how decades of austerity have hollowed out public infrastructure and emergency preparedness. A meningitis outbreak in the UK, linked to chronic underfunding of public health services, claimed multiple fatalities. In Australia, the central bank raised interest rates again amid recession warnings, punishing workers for inflation. Portugal’s celebrated 2025 economic “miracle” was exposed as a bourgeois construction: corporate profits rose while wages stagnated and public services deteriorated.
These are not isolated incidents but expressions of a single, systemic reality: capitalism generates wealth for the few by imposing social catastrophe on the many.
IV. Authoritarian Consolidation and Democratic Rights
The assault on democratic rights accelerated in multiple forms during the week. In North Texas, activists were convicted under sweeping “material support for terrorism” statutes for political solidarity activities — a landmark case criminalising dissent. Amazon workers were locked out of a warehouse during a tornado warning, footage showing managers denying shelter; the company prioritised property over lives.
In Australia, Queensland police arrested two protesters for displaying the slogan “from the river to the sea” under new LNP “hate speech” legislation. In Germany, cultural censorship intensified: municipal authorities moved to exclude left-wing bookshops from fairs, and the culture minister cancelled presentation of the Booksellers’ Prize at the Leipzig Book Fair under political pressure.
Italy’s Meloni government advanced judicial “reforms” — the Nordio Reform — to separate the careers of judges and prosecutors and weaken checks on executive power. The WSWS identified this not as a “technical” adjustment but as a political preparation for state suppression of mass opposition to war and austerity. Trump’s CDL Final Rule stripped approximately 200,000 immigrant truck drivers of commercial licences — a direct attack on immigrant labour designed to discipline and destabilise worker organisation.
ICE expanded its terror: hundreds of immigrants were illegally detained in Michigan; a Haitian asylum seeker died in Pittsburgh following ICE detention; ICE raids in Vermont and Kansas continued with expanded detention infrastructure.
These measures are not aberrations but the logical expression of a capitalist ruling class preparing to crush the mass opposition it knows is coming.
V. The Political Bankruptcy of Reformism and the Defence of Trotskyism
The WSWS devoted significant coverage to exposing the political role of pseudo-left and reformist formations in disorienting the working class at a moment of acute historical crisis.
Kshama Sawant was profiled and critiqued: bold socialist rhetoric combined with repeated accommodation to municipal politics and reformist outcomes that leave capitalist power structures intact. The Australian Greens’ posturing against the Iran war was exposed as performing contained dissent within parliamentary channels, providing no genuine opposition to imperialist aggression. Canada’s NDP and affiliated unions similarly offered rhetorical opposition while remaining subordinated to the framework of the capitalist state. Spanish trade unions watered down anti-war positions to avoid antagonising the PSOE government.
The Morenoite rebrand as the Permanent Revolution Current was dissected as a revisionist manoeuvre: new branding masking continuity with nationalist and opportunist politics that dilute genuine Trotskyism and derail working-class revolutionary leadership.
The London meeting of the SEP (UK)— marking the 40th anniversary of the struggle that led to the expulsion of the Workers Revolutionary Party from the ICFI — was a centrepiece of the week’s political coverage. Addressed by David North, Chris Marsden, and Peter Schwarz, the meeting reaffirmed that the 1985–86 split was a decisive defence of Trotskyism against the petty-bourgeois, nationalist, and opportunist degeneration embodied by the Healy-Slaughter-Banda leadership. The speakers drew the direct connection between the historical struggle against revisionism and the present tasks: as the ICFI argued then and reiterated in London, the survival of revolutionary leadership requires uncompromising defence of the theory of Permanent Revolution, proletarian internationalism, and programmatic clarity. David North warned that the imperialist drive toward war — in the Middle East and beyond — aims to abolish the political gains of the 20th century and can only be answered by the international, politically independent working class.[10]
The week’s events confirm the ICFI’s perspective: the objective crisis of capitalism is driving the working class toward mass resistance. The decisive question is the construction of revolutionary leadership — the building of rank-and-file committees independent of the union apparatus, their international coordination, and the development of mass socialist parties capable of transforming class struggle into a conscious political offensive for workers’ power.
This article was originally published on the World Socialist Web Site on 24 March 2024.
As the US war on Iran nears the completion of its first month and deepens by the day, its effects on the global economy are intensifying.
In the recent period central banks and governments have sought to overcome major economic storms by throwing money at the problems, amounting to trillions of dollars. This has led to an unprecedented growth of debt while at the same time lifting the wealth of the financial oligarchs to unprecedented heights.
But in the growing crisis set off by the war, that “solution” is not possible. As is being increasingly pointed out, central banks may be able to print money, but they cannot print molecules. Printing money will not miraculously end the lack of oil.
The rapidly worsening situation was underscored yesterday by the director of the International Energy Agency, Fatih Birol, in remarks to a conference in Canberra, Australia.
He said the impact of the crisis was worse than the combined effects of two oil shocks of the 1970s—that which flowed from the quadrupling of prices in 1973–74 and the turbulence which followed the Iranian revolution in 1979. Even if military action halted immediately, the market would not recover quickly, he said.
That assessment has also been made by energy analysts at Goldman Sachs who have significantly increased their forecasts of higher prices, warning they could even reach the record set in 2008 of $147 per barrel.
The shutdown of the Strait of Hormuz has also sent the price of liquified natural gas (LNG) soaring as supplies are increasingly constricted.
The Financial Times (FT) reported at the weekend that countries around the world are “facing a cliff edge” as the flow of LNG from the regions comes to an end when a “handful of tankers from the region reach their destinations.”
After that there will be nothing from the Gulf state of Qatar, the supplier of a fifth of the world’s LNG, which stopped exports shortly after the war began.
Countries throughout the Asian region are the most heavily impacted so far because of their reliance on oil and LNG which comes through the Strait. Only one LNG cargo ship from the Gulf is still expected to arrive in Asia.
Thailand has to import 90 percent of its crude, half of which comes via the Strait. Some 30 percent of its LNG comes from the Middle East.
The situation in Pakistan is even more severe. Some 99 percent of its LNG imports came from Qatar last year. It has not received any supplies since the third day of the war.
India, which at present is considered the world’s fastest growing major economy and the world’s fifth largest after Japan, is also being hit on both the supply and financial fronts. Half of its energy imports come from the Gulf states. There are already widespread shortages of gas used for cooking.
The Gulf region is not only the country’s largest trading partner. India’s international financial position is being impacted because of remittances sent home by workers amounting to more than $50 billion a year.
According to Priyanka Kishore of the research consultancy Asia Decoded, whose remarks were cited in the FT, the Indian currency, the rupee, “is among the most exposed EM [emerging market] currencies to the Iran war.”
“Also at risk is the sizable flow of remittances from the Middle East, which plays an important role in containing the current account deficit in the face of a widening trade gap.”
From the beginning of the war, the Indian central bank has been using its foreign exchange reserves to try to prevent a fall in the value of the rupee which has dropped against the US dollar and has been hitting record lows. The fear is that a collapse in the currency’s value will push up interest rates and hit the financial system.
In the words of analysts at one Mumbai-based financial services firm, an extended war will likely “trigger stress across all financial markets in India.” Before the war the governor of the Reserve Bank of India, Sanjay Malhotra, described the Indian economy as being in a “sweet spot,” with strong growth and low inflation. It now threatened to rapidly turn sour.
The war is not only causing disruption to oil and gas supplies, but a range of other commodities is also being hit. These include the supply of urea, a source of nitrogen-based fertilisers vital for agriculture around the world and sulphur also vital for the production of fertilisers.
There have been warnings that if the disruption caused by the war continues the situation will be much worse than 2022 in the wake of the Russian invasion of Ukraine.
Helium, a by-product of natural gas processing, for which Qatar provides around a third of the global supply, is also being impacted. It is a vital raw material in the production of computer chips.
In a comment this week FT columnist Tej Parikh pointed to the potential effect of the war on the artificial intelligence (AI) boom which for the past three years “has propped up global trade and investment and pushed stock markets from the US to Asia to record highs.”
“Investors have committed trillions of dollars to the technology, one of the most power-hungry inventions ever, on the assumption of ample energy supplies and a slick chip production line that can cross more than 70 borders before reaching the final consumer. But the Iran war is exposing the fragilities in the AI supply chain.”
Both South Korea and Taiwan, which are centres of global chip production, rely heavily on oil to supply energy, most of which comes through the Strait of Hormuz.
Parikh laid out a scenario in which apart from the effect of higher petrol and diesel prices, which are already raising all transport costs, the continuation of the war had the potential to hit the AI boom and set off financial turbulence in the US.
“If the conflict lingers,” he wrote, “chip prices will steepen as manufacturers ration and compete for tighter supplies. Eventually, production would seize up. In the US, elevated energy costs would make present and future data centres less viable. High tech valuations will unwind, and debt borrowed against AI assets would be at risk.”
No one can predict the exact course of economic and financial events arising from the war and its continuation but after more than three weeks the direction is clear.
As the well-known economic and financial analyst Mohamed El-Erian noted in an X post: “Consensus is shifting, and rightly so. This third week of the war has fuelled a shift from a short-term energy disruption to long-term structural damage. With that, the broader fallout… poses an increasing threat to global economic wellbeing and financial stability.”
Signs of the latter are emerging most sharply in the UK where there was what has been described as a “rout” in the market for 10-year governments, or gilts as they are known, has developed over the past several days.
The yield or interest rate on the 10-year gilt rose yesterday by 0.11 percentage points—a significant move where “normal” movements are fraction of that—to 5.1 percent, the highest level since 2008. One of the main reasons for the rise is that the previous expectation the Bank of England would cut interest rates has been shattered and replaced by the belief that, with inflation on the rise, the central bank will lift them, possibly four times this year.
This shift has the potential for significant financial turbulence as investors and speculators who have made massive bets, with large amounts of borrowed money, are caught out and are forced to exit their positions by selling financial assets.
