Please see this week’s Markets in a Minute update below from Brewin Dolphin, received yesterday afternoon – 17/03/2026.
Economic impacts intensify amid conflict
We analyse how the Iran conflict is reshaping energy markets and putting anticipated interest rate cuts at risk.
Key highlights
- Economic impacts of Iran conflict intensify: As the conflict enters an asymmetric phase, reduced tanker traffic in the Strait of Hormuz has seen oil prices cross the $100 threshold.
- Consumer energy prices set to rise: The knock-on effects of oil price rises are already being felt in the energy sector, with consumers set to see increases in the coming months.
- Interest rate cuts could go into reverse: Wider markets are starting to feel the impact of the conflict and interest rates, which were expected to fall, may well now rise.
Iran conflict: Asymmetric phase begins
With the conflict entering its third week, the nature of the fighting appears to be shifting along the lines we had expected. While initial U.S. and Israeli strikes successfully degraded Iran’s conventional missile and launcher stockpiles, the country’s Islamic Revolutionary Guard Corps (IRGC) has transitioned to an asymmetric campaign designed to inflict maximum economic pain rather than achieve conventional military objectives. In extremis, this can take the form of the threatened ‘decentralised mosaic defence strategy’ – a response to invasion where resistance wouldn’t require central organisation.
The current asymmetric phase involves the deployment of low-cost drones in large swarms; GPS-spoofing of tankers; small, fast boats packed with explosives; and – most critically – the reported laying of mines in the Strait of Hormuz. U.S. intelligence reports confirmed that at least some mines have been deployed; a significant escalation given that mine clearance operations can take weeks or even months. The White House also confirmed the destruction of small boats suspected of belligerence.
The economics of this asymmetric approach are striking. Iran’s Shahed drones cost less than $30,000, yet it can require multimillion-dollar interceptors to repel them. Stocks of U.S. and Israeli interceptors are starting to run low, and there is limited capacity to replenish those stocks due to what we understand to be a two-year production lead time. So, the risk is that U.S. and Israeli resilience to counter measures could eventually be degraded.
Tanker traffic effectively grinds to a halt
Tanker traffic through the Strait of Hormuz has halted, except for a limited number of vessels identified as part of Iran’s shadow fleet or those spoofing Chinese ownership. The Financial Times reported previously that some vessels are falsifying Chinese crew or ownership documentation to achieve safe passage. The market briefly swung on a false report that the U.S. navy had escorted a tanker through the Strait, although the feasibility of such a plan is believed to be very limited.
Source: Bloomberg
According to RBC Capital Markets’ Washington contacts, the White House had expected a shorter and more decisive conflict with less economic fallout. As such, U.S. and Israeli objectives remain fluid, with the possibility of ground forces apparently under consideration to recover Iran’s enriched-uranium stocks.
Israel again expressed its hope that the Iranian people would use this opportunity to rise up against the unpopular regime and that the succession of Mojtaba Khamenei as Supreme Leader – a dynastic transition widely loathed even among regime sympathisers – might increase factional opposition within Iran. However, the imposition of martial law is containing domestic unrest for now.
Will consumer energy prices rise?
Most oil coming from the Gulf would typically head to Asia, but crude oil is a global market, and prices have risen fairly uniformly. However, consumer prices of oil-based products such as petrol have very different rates of taxation, with European prices routinely far higher than in the U.S. So, while the response to the jump in crude prices will be similar, it will feel proportionally larger for U.S. consumers.
Source: IEA
While the crude price impact is unwelcome, the more worrying impact has been felt most forcefully in gas prices. Domestic gas prices in the U.S. have been barely affected but Asia and Europe are highly reliant upon liquefied natural gas where prices are more global, and these prices have risen sharply.
Consumer gas and electricity prices will reflect these moves but often with a lag. So, the UK, for example, won’t reset the utility bill price cap to incorporate current gas costs until July. And while the jump in gas prices is dramatic it still falls considerably short of the increases suffered during 2022. Should prices continue to rise, however, then governments may, as they did then, consider subsidising utility consumption. If so, that would put greater pressure on already stretched public finances.
Continued impact on bond markets and interest rates
This has been one of two factors putting pressure on bond prices, the second being interest rate expectations. Before the conflict, the UK was expected to cut interest rates twice more this year. That expectation has now morphed into an expected rate increase and, critically, mortgage rates have begun to adjust in anticipation.
This is frustrating, because data released last Friday suggests the UK economy didn’t grow during January, despite the helpful tailwinds of lower (and slowing) inflation and recent cuts to interest rates. Weakness was quite broad, but it will be the stagnation of the large service sector that causes the most angst. Ordinarily, this wouldn’t be too concerning, given the data can be revised and other indicators suggest that UK economy has been robust. However, in the context of a more challenging global environment, due to conflict in Iran and the wider Middle East, this evidence of a weak start to the year will add to concerns about the UK’s outlook for 2026.
The prevailing beneficial decline in inflation is at risk from the sharp rise in energy prices. The UK is vulnerable to rising gas prices, although it will take until July for the direct impact to reach households. Higher energy prices are likely to drain household incomes that could otherwise be used for discretionary spending. The two anticipated interest rate cuts have evaporated, and some of the impact of that is already being felt with higher swap rates, which are translating into elevated mortgage rates and providing a second dampener on domestic demand.
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Charlotte Clarke
18/03/2026