Chancellor Jeremy Reeves warned of escalating trade friction with the United States and cautioned that a military escalation in Iran could send oil prices above $120 per barrel and trigger a sharp rise in volatility. Markets reacted with immediate shifts in energy and defense sectors.
- UK may impose retaliatory tariffs on U.S. agricultural exports following 25% steel tariffs
- Oil prices rose to $118 per barrel (CL=F), with potential to exceed $120 if conflict escalates
- VIX index surged to 29.4, indicating heightened market volatility
- UKX fell 2.1% amid risk aversion and supply chain concerns
- Defense stocks rose 6.5% on anticipated demand from geopolitical tensions
- UK GDP growth could decline by up to 0.7 percentage points if trade disputes persist
Chancellor Jeremy Reeves delivered a stark assessment of global economic risks during a parliamentary address, highlighting growing trade tensions with the United States over steel and semiconductor tariffs. The UK government has signaled it may retaliate with targeted levies on American agricultural exports, following the U.S. imposition of 25% tariffs on UK steel imports in February. Reeves emphasized that such friction threatens supply chain stability and could reduce UK GDP growth by up to 0.7 percentage points in 2026 if unresolved. The chancellor also raised alarm over the potential for military conflict in Iran, citing increased missile activity in the Strait of Hormuz and Iranian-backed proxy movements in the Red Sea. He stated that a full-scale war could disrupt 18% of global oil exports, directly impacting energy markets. Oil prices surged to $118 per barrel on the London ICE Futures Exchange, with CL=F futures rising 5.3% in a single session. The S&P 500 Energy Index jumped 7.1%, reflecting investor concerns over supply shocks. Volatility indicators spiked as well: the CBOE VIX index climbed to 29.4, its highest level since late 2023. The UK’s FTSE 100, tracked by the UKX index, dropped 2.1% as investors reassessed risk in multinational firms exposed to Middle East logistics. Defense stocks, particularly those with exposure to European and U.S. military contracts, gained 6.5% on anticipated demand increases. Reeves concluded by urging multilateral coordination to de-escalate tensions, stressing that economic resilience hinges on stable global trade and energy flows. The upcoming G7 finance meeting will include a dedicated session on energy security and Iran-related risks.