Analysis: Uncertainty in Gulf returns as Burnham takes over

A significant source of uncertainty has returned with the escalating military exchanges between the US and Iran. 

 

Fragile talks on a settlement following the signing of a ‘memorandum of understanding’ between the US and Iran in mid-June were declared “over” by President Trump last week – although they appear likely to continue at least through intermediaries.

 

The oil price was rising once more this week after Iran declared the Strait of Hormuz, through which so much of the world’s oil and refined products pass, once again closed and the US and Iran engaged in nightly exchanges of fire.

 

The extent to which renewed missile and drone strikes will impact on oil and jet fuel costs is unclear. But there has been little time to rebuild stocks and by Wednesday (July 15) oil traders were already warning of an imminent shortfall in supplies. Fresh pressure on prices appears unavoidable down the line

 

The renewed fighting and resulting uncertainty seem likely to stall improvement in consumer sentiment.

 

A return to normality in transit via the Gulf must likewise be on hold along with a substantial return of tourism to the UAE given Qatar and Oman – either side of the Emirates of Dubai and Abu Dhabi – are once again subject to Iranian missile and drone strikes, as are Jordan, Bahrain and Kuwait.

 

Tellingly, one of the major Gulf carriers postponed plans this week to reveal the extent of travel’s return to the region and its proposals to simulate recovery.

 

Lebanese journalist Kim Ghattas outlined a likely scenario for the region as missile exchanges resumed, noting in the Financial Times: “Few in Washington, Tehran or the Arab world want a return to full-blown war.

 

“But the region seems set for a long hot summer of calibrated escalation, a slippery slope to conflagration, until Israeli elections in October and the American mid-terms [elections] in November.”

 

That would put a winter season return to normality in jeopardy.

 

By contrast, we have as much clarity on the immediate political situation in the UK as we are ever likely to have, with Andy Burnham’s unchallenged procession to Number 10 to be confirmed on Friday and the new Prime Minister in office from Monday July 20. 

 

A new Chancellor should be confirmed next week along with a mostly new cabinet and team of ministers. 

 

Burnham’s choice of Chancellor could say much about the direction of his government, with reports that current Home Secretary Shabana Mahmood is the likely choice – marking an attempt to settle nerves in the bond markets.

 

Jet2 chief executive and Abta board member Steve Heapy noted the industry’s asks of government would not change with the change of prime minister last week when reporting Jet2’s full-year results.

 

He stressed the need to stimulate sustainable aviation fuel (SAF) production in the UK, to get on with airspace modernisation and not “treat the holiday industry as a cash cow”.

 

To that we may surely add relief on business rates for small businesses.

 

However, Abta’s ask for a UK-EU youth mobility scheme – which it identifies as “an immediate priority” – remains stalled with EU diplomats reportedly labelling UK proposals for a cap on numbers a “non-starter”.

 

Burnham will enter office with a bounce, but any sense of a ‘honeymoon’ may prove short-lived. None of the problems his predecessor faced have gone away.