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The Iran war: what will peace look like?
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In this episode of Trade Links, Tim Phillips is joined again by Aastha Gupta and Scott Livingstone to explore an unprecedented scenario in global trade: what happens when both the Strait of Hormuz and the Red Sea are compromised at the same time? With escalating tensions in the Middle East and warnings from the Houthi movement, the team considers the far-reaching consequences for energy, food security and global supply chains.
They also talk about Donald Trump’s delayed China trip, and how energy security and supply chain resilience will likely overshadow traditional trade topics like tariffs and soybeans.
Lastly, they ask the dreaded question: What’s on the Trade Links radar?
Clue: fertiliser shortages impacting Brazil and India, potential pressure on Cuba from the US, and rising tensions between Pakistan and Afghanistan.
All details correct at time of recording.
For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html
Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html
This episode was recorded on 19 March 2026.
All details correct at time of recording.
For any terms used please refer to this glossary https://www.natwest.com/corporates/insights/markets/glossary.html
Please view our full disclaimer here: https://www.natwest.com/corporates/disclaimer.html
Welcome back to TradeLinks brought to you by NatWest. My name's Tim Phillips. And welcome back to our regular panel, Asta Gupta, European Economist, Economics and Market Strategy for NatWest Markets. Hello, Asta.
SPEAKER_03Hello, Tim.
SPEAKER_02And Scott Livingston, International Advisor, NatWest Group, and a very busy man at the moment. Hello, Scott. Good morning, Tim. I don't mean to imply that you are not busy, Asta. I think these are very, very busy times for all of us. And that's increasingly because on trade links, we are asking questions, well, that we never thought we would ask. So today we've got another hypothetical that it just isn't hypothetical anymore. What does it mean for trade when trade routes through the Straits of Hormuz and the Red Sea are both compromised at the same time?
SPEAKER_00Yemen's Houthi movement has warned it could block the Baab il-Mandib Strait if it decides to enter the conflict in support of Iran. The strategic waterway connects the Red Sea to the Gulf of Aden, forming a crucial gateway to the Suez Canal, one of the world's busiest trade corridors. Any blockade here could disrupt global shipping routes between Europe and Asia?
SPEAKER_02Our story, first of all, today is the double squeeze. So Asta, we've covered these two trade corridors before, and I've learned a lot about them from you. But remind us, why are they separately and jointly significant?
SPEAKER_03So Tim, individually these two corridors are absolutely central to how the global economy moves. The Strait of Hormos is the world's critical energy choke point because roughly about one-fifth of global oil exports and about a third of LNG pass through it. And there's simply no like-for-like alternative to that scale. And it's not just about fuels either. Nearly half of globally traded urea, which is the most widely used fertilizer, passes through the Gulf via Hermuz. And there are other fertilizers as well in the picture. So the world's farms, not just its power stations, are deeply exposed to any disruption here. The Red Sea, on the other hand, plays a different but equally vital role because 12% of global seaborne trade and its backbone, and it is the backbone of Asia-Europe container flows. That means everything from electronics to machinery to auto parts relies on that corridor running smoothly. But I think the real significance emerges when you look at both of them together. Because if both these routes are disrupted simultaneously, you're not just hitting one part of the global economy. You're squeezing energy, agriculture, and goods trade all at once. And that's why it's merely not really a supply chain challenge. It's a multi-sector shock. And that double squeeze is what makes the combined disruption so economically powerful.
SPEAKER_02So my geography, as you both know from previous episodes, is pretty poor, but surely there must be alternatives. If they're both blocked, there must be some other way to get this stuff where it's going.
SPEAKER_03So then the key point to understand here is that not all choke points are created equal. So during the Red Sea crisis, ships still had an alternative, which was a workaround, the Cape of Good Hope. They could still, you know, go around the longer route. It wasn't cost-free, yes, which because it added about 10 to 14 days to a voyage depending on a vessel speed. And that was essentially a time tax. But global trade didn't really stop. It just took a detour. But the Strait of Hormuz is completely different because it's a cul de sac. If tankers are inside the Gulf, they can't simply reroute by taking a longer path. They're essentially stuck. That means you don't just get delays, you get an image scarcity effect. Yes, people keep mentioning about these pipelines that are there in the region, but even a theoretical full capacity, they can only replace about a third of the supply. And that often is the case that they rarely operate at full capacity. And that's why the economic consequences for both of them blocking are different. The Red Sea situation was mostly a container shipping disruption. And the hormost disruption hits oil and LNG supply. And if crude cannot really get out, the world has to rely on inventories or has to push through already constrained pipelines. And there's always a second-order risk here. If energy markets tighten and fertilizer production is squeezed, you start to see pressure on global food scarcity. So the economic impact is not just about rerouting costs, it is the knockout effects, longer lead times, higher working capital requirements, delays to production schedules, and of course inflationary pressures, which are particularly accelerated for Asia because it is most exposed to these trade flows.
SPEAKER_01Well, Tim, remarkably, both were politically settled relative to their very conflictive neighborhoods that they're in for long periods of time. However, both sea routes have experienced profound periods of instability and crisis in recent times. For example, in the Red Sea in the Suez Canal, we had long periods of obstruction after the Suez Crisis in 1956, after the Six-Day War in 1967. Then we had a spell of piracy around the Babyl Mandeb choke point in the early 2000s. But the most memorable and most relevant obstruction to the Red Sea route was the problems caused by the Houthi forces in 2023 through 24, where, you know, dozens of ships were targeted by drones, by small boats, by missiles from the Houthi forces. And the point here, I think, Tim, that's relevant to where we are now in the Hormuz Strait, is that those efforts to suppress the Houthi forces lasted for some 15 months and really only concluded with a deal when there was a ceasefire in Gaza and there was a deal with the Houthi forces. So I think the takeaway is that those insurgent, those asymmetric forces were able to close the Red Sea effectively, and they were very difficult to suppress with kinetic strikes. The Strait of Homoes has been disrupted in the past. The most famous example was the Tanker War during the Iran-Iraq conflict in the mid-1980s, where both sides were attacking oil export facilities and shipping in order to wage their war. It wasn't a blockade, but it was a campaign of attrition. Some 400 ships were damaged during that war, the Iran-Iraq war, and it led to the Americans and allies intervening to protect shipping. So mount the convoys. We've heard Donald Trump talk about convoys. It happened during the Iran-Iraq war. And it happened successfully, although not without problems. There were accidents. An American ship was hit by a mine or hit a mine, provoking the Americans to engage with the Iranian forces. And we had a dreadful accident when the American forces accidentally fired on an Iranian airliner, a civilian airliner, causing a number of casualties. So we have seen through history, despite a relative political calm in this neighborhood, both of those sea passages have been disrupted by warfare.
SPEAKER_02I think all of that history that you've given us has shown us that there really is no point in us trying to work out what's going to happen in two weeks, maybe a month. But if we look further ahead then, to the medium or or the long term, and sooner or later, peace will have to be declared. Whatever that piece is, and whoever claims to be the winner. So what are the scenarios here? What are the scenarios for geopolitics? What are the scenarios for trade when this is all over Asta?
SPEAKER_03I think the war risk insurance piece is where the economics of trade can shift almost overnight. Because this is the moment where the invisible hand of the market starts to feel more like a fist. Before the latest escalation, war risk premiums were running at around 0.25% of the vessel's hull value. Now we're seeing quotes in the range of 2.5% to 5% range, and for just a seven-day transit. So that's a tenfold jump in cost. If I have to put that into dollar terms, for a super tanker which is worth about$100 million, the insurance for one single trip through the Gulf has gone from$250,000 to something closer to$2.5 million.
SPEAKER_01Gosh.
SPEAKER_03And that's just not the level. It's the differentiation. We are seeing a clear, close, like you know, clear tiering in the market where ships with uh UK or US links are being quoted two to three times the rates of other vessels. And in effect, the Western affiliated shippings is being priced out of the region altogether. That changes routing decisions, availability of tonnage, and ultimately the cost and reliability of supplies. So even after a ceasefire or a formal declaration of peace, I think the question is how quickly do insurers believe that? Because war risk pricing tends to fall a lot more slowly than it rises. Because even if the perceived threat lingers, the economics of using those corridors may still stay fundamentally altered for months, if not years, after the shooting really stops.
SPEAKER_01Scott, the range of scenarios are still the same as the range we had at the beginning. Either we see some form of new regime emerge from the wreckage, or we see the remnants of the old one still be in place, albeit with infrastructure-diminished capability, or we see chaos and we see some you know factional fighting where it's very difficult. I think the point I would say, again, picking up on your your well-observed point that we can't really predict in the short term, but in the long term, I think in the long term we're looking at unstable Iran. Any of those options are unstable, unpredictable. There will be an impact on the cost of shipping in any of the scenarios for the future. There will also be an impact on rebuilding of infrastructure, particularly in the Gulf, anything that's been damaged. And there may well be, depending on which of those scenarios, and at the moment, the scenario that's hoving into view is the idea that the remnants of the regime survive, there may well be a cost in terms of dealing with that regime. I think we're likely to see the militarization of the Gulf states. There will be lessons being learned about defending their vital national and economic interests, and I think part of that will be hardening their facilities, increasing their defensive capabilities. So I think that's what something we'll see. I think we may also see an idea of finding alternative routes that don't involve this trait of harmoose. Which means I think if you're in the oil pipeline-laying business, there'll be something in the future, I think, there. And finally, I think this uncertainty, this instability in Iran come what may many surrounding states, and including into Europe, will be keeping an eye on the possibility of a spike of refugees. Tim, if you look at this through the superpower lens, then clearly there's a scenario where American power credibility is either diminished or enhanced by the outcome of this situation. And from a Chinese point of view, I think it's really interesting to consider a scenario where in the future we see China playing a bigger role as a stabilizing superpower, a stabilizing partner in the region. I was struck that at a recent defence affair in Riyadh before this conflict, the biggest stand, the biggest area of vendors selling their goods were Chinese.
SPEAKER_02There are a lot of hot take journalists at the moment. You're laughing at me. You think I'm one of them, who say that this conflict has changed the region forever. From what you're saying, that doesn't sound like too big a stretch. Is that true?
SPEAKER_01Uh no, I don't think it is too big a stretch. I think this is a profound geopolitical event that we're in the middle of now. At the time of recording, this really is live. And the full extent of the impacts are difficult to see. But has it changed geopolitical understanding both regionally and globally? I think it probably has already. I think there is definitely a geopolitical reassessment of the dependencies on the commodities that Asta has spoken about. I think countries will be reassessing where they get the supplies from. Are there alternatives? Should there be another surge into renewables, for example? As I said, the Gulf states will be reassessing the foundations of their strategic sort of assessments, their deterrence calculations. I think that will go through a check. And as I say, I think China may well see an opportunity here to take forward the narrative that they're already pushing, that they are a force for stability, a force for sort of peaceful resolution of geopolitics. And I think there is a chance that they will take forward that agenda in this region after the war.
SPEAKER_02As I always say at this point, we will return to this later in a series. So our second story: Donald Trump is going to China. When's this gonna happen?
SPEAKER_01Well, it was supposed to be happening at the beginning of April. The dates were pretty firm. People had it in the calendar. And about two and a half weeks into the campaign in Iran, Trump announced that he was going to delay because he had to remain in Washington for this intense period of the conflict in Iran. And so the date's now been spoken about. It'll be a delay of about five weeks. That puts it to the beginning of May. I suspect it might go into six weeks because the beginning of May is traditionally a Labor Day holiday in China. And I doubt very much if Xi and the party will want to host Trump during that holiday. So I'm expecting second week, maybe the third week of May. But it will still happen. We've been confidently reassured. And both America and China, and I think this is noteworthy, both America and China are downplaying the significance of the delay. They are going out of the way to point out that this is a diary thing, not a content thing. So I think that's worth noting. So I'm still of the view that this meeting will take place, and I'm still of the view, I said this before, that this will be the biggest planned set piece event of the geopolitical year. Now, we're in the middle of the biggest unplanned geopolitical event of the year, but certainly in terms of the global significance, just because the media has sort of taken its eye off the G and Trump, I still believe that this is crucial meeting for global geopolitics.
SPEAKER_03Uh for both sides is pretty transactional. Because uh Washington has been signaling a tougher line on tech transfer, outbound investment screening, and even tying tariff relief to specific conditions. Beijing's priorities are different. It basically wants stability in supply chains and markets, especially while domestic demand is still soft and confidence remains fragile. But with the latest geopolitical developments, this submit feels less like a trade dialogue and more like a pressure cooker because the agenda has shifted away from the old playbook of tariffs and soybeans towards energy security, resilience, and who ultimately bears the risk. I think from Trump's perspective, it is fundamentally about leverage. And uh he basically likes to press hard for concessions, especially in areas like where the US believes China is strategically vulnerable. And from China's perspective, I think it will probably take a more patient, calibrated approach. Because I think it might just offer some economic gestures, maybe buy more US energy, but it would avoid making the like stronger or deeper any arrangements there. So it's no longer a debate about bilateral trade balance. It's about which side ends up holding the geopolitical and supply chain risk and how that really shapes the next phase of economic relationship between the two countries.
SPEAKER_02Scott, if tariffs and soybeans are yesterday's news, like Astor says, what does each side want to get out of this?
SPEAKER_01I think they may well be have uh bumped down the priority given what's happening in the Middle East and geopolitics, but they'll still be on the agenda. So Trump will still want to declare uh some form of success regarding fentanyl, for example, soybean purchases, and something to do with the flow of rare earth minerals and refined goods. So that the agenda points that we've known for a couple of months will still be there. I think that you're right, though, Asa, I think the geopolitical tilt could play into this and we could see more positioning for, as you say, supply and of vital supply chains. And I think that will be on the agenda. I think Trump will still be concerned that Xi might put Taiwan on the agenda. There was a phone call a couple of weeks ago where the account of the phone call was slightly different. The US version made no mention of Taiwan, the Chinese version had Taiwan as one of the talking points. And my view is given what's happened in the Middle East, given Trump's foreign policy statements of the recent months, I think the chances are greater that it will be on the agenda. That doesn't mean that we will see a dramatic step forward. The other thing to bear in mind here, Tim, is this is meeting one of two meetings this year. So the follow-up meeting currently scheduled for September in Washington. So a chunk of this agenda will be about setting the scene for the next meeting. So although it's extremely important, we must see this as a two-hander, and the agenda will continue into September.
SPEAKER_02When we think about what China has in its favor at the moment, its supplies of oil have now been compromised. So does that mean it's more exposed than it would have expected when this meeting was set up last year?
SPEAKER_03Aaron Ross Powell, I think for China the real economic risk isn't that it suddenly runs out of oil. It's the cost of keeping the lights on has essentially turned into a massive tax on its manufacturing base. Their independent teapot refineries are already stalling because they can't secure crude oil at a decent prices. The gas-dependent sectors from chemicals to heavy industry are seeing input costs surge. And that strategic petroleum reserve of roughly 90 to 100 days, it's starting to feel less like a buffer and more like a very loud ticking clock. Do they prioritize keeping factories running or do they preserve capacity for military and strategic operations? And I think in 2026, they may not be able to do comfortably both.
SPEAKER_01It is. It's exposed like all of the Southeast Asian and East Asian customers of Gulf hydrocarbons. It is exposed. It does have significant reserves, but they're not limitless. I do think that by the time Trump visits Beijing, I don't think Xi will be displaying signs of pressure, not on the hydrocarbon side. The answer is yes, but not yet, I'm guessing. I don't think Beijing will be in a necessarily in a rush to see the war in Iran brought to an end. I think there are some hardliners in Beijing that see anything that depletes US military capability as a good thing. And the standing to the sidelines and watching the US consume incredible quantities of military hardware, something like a billion dollars a day, the campaign is costing. Anything that distracts from Taiwan, in particular, a major arms supply deal that's in the pipeline and already was controversial. It will almost certainly, if Taiwan is mentioned, it was probably going to be the nub of Xi's talking points at the meeting about American arms supplies to Taiwan. That's being distracted as well because of the war in the Middle East. And as I say, the war in the Middle East, I think, Tim, there'll be some in Beijing who would see the aftermath as laying open opportunities for Chinese soft power in the region and Chinese sort of trade and particularly defence and security trade. I think they will be viewing opportunities.
SPEAKER_02Let's do a hot take. A lot of these summits, they're really about the photo opportunity and a prepared statement. What might come out of this that could materially affect anyone that's listening to this?
SPEAKER_01I think the optics really do matter, but mostly to Trump, but also to G. It's not, you know, G has domestic issues to deal with. I think he needs stability moving into the 21st Congress next year when he'll be looking for it to be um reappointed. But Trump in particular, I think, needs the optics to be just right, particularly given the context of what is at the moment is seeing as a very difficult conflict that he has. Initiated in the Middle East. So the optics really do matter. In terms of what would materially impact on people listening to us, I think if we see the agenda spinning away from tech and trade and firmly into territory, then we'll start sounding some very small alarm bells about where the future this is going. But I'm not of the view that's going to happen. I don't think that's what G is lining this meeting up for. I'd be very surprised if that were to happen, but we should monitor the talks.
SPEAKER_03I think I completely agree with Scott. The optics matter more than the substance here. For me, the positive outcome would be even a modest maritime security arrangement that somewhat helps stabilize this trade and bring the shipping costs down because both the sides would benefit from this. A negative outcome would be Trump using the crisis to justify more onshoring and more protectionism, which would further fragment global trade and raise costs in the end.
SPEAKER_02Asta, what's on your agenda?
SPEAKER_03One thing that I think is going under the radar, which I mentioned earlier as well, is the fertilizer story. With the streets still closed and the shipments getting held up, countries like Brazil and India are exposed. It's not really dramatic enough right now to grab headlines, but it still quietly can chip away at their current account positions and food security.
SPEAKER_01And Scott. Oh, I always ask for two here, don't I? Because of my radars are spinning. I am tracking the situation with Cuba. I've been off the view that this year we will see pressure on Cuba, the Cuban regime from America. I had anticipated that to spike after the midterms because of the downside risk should it go wrong. But we're seeing actions now actually. We're seeing some movement now in that space, some pressure put on Cuba. And then the other one to keep an eye on is the conflict between Pakistan and Afghanistan. For a long time, we've seen Pakistan suffer from terrorist attacks mounted from Afghanistan. And recently Pakistan forces have decided to take offensive, preemptive action in Afghanistan. Because of the state of the Afghan forces, it doesn't have the escalation potential that we'd see between Pakistan and India, for example, but it could still destabilize the region. The interconnectedness between different conflicts in the region has been evidenced before. So I think it is still worth paying attention to.
SPEAKER_02Slow burners, exactly the sort of thing that we tend to miss at times like this when things are happening every hour, it seems. And thank you, Scott. Thank you very much to and thank you to all of you for continuing to listen. Please let us know if there is anything that you want us to cover, and we will cover it on TradeLinks. Meanwhile, remember to follow us, leave us a review. If you like what you're hearing, please tell anyone else about us. But that's it for today, so we'll see you soon on TradeLinks.