Europe Explained

Think of the Strait of Hormuz as the only narrow door out of a huge warehouse. Before the war, nearly a fifth of the world’s oil passed through this waterway between Iran and its southern neighbours. The war began in late February when the US and Israel attacked Iran, and shipping there has been disrupted ever since.

On Friday 16 October, Brent crude, the benchmark price for oil, briefly topped $110 a barrel, its highest since May, and closed at $109.86. The price rose 4.9% over the week. UKMTO, which tracks ship incidents, recorded 12 vessel attacks in the past week, 10 of them in the Strait of Hormuz. US crude, called WTI, rose 3.5% to close at $101.41.

The shock spread to share markets. Technology companies lost more than $1 trillion in value on Friday. One reason given is that higher fuel prices push up inflation, which makes higher interest rates more likely. Iran’s army chief says the strait remains closed; US Central Command says 400 commercial vessels passed through in the past week.

Two other forces are at work. A report says Ukrainian attacks have shut down much of Russia’s refining capacity, which also tightens supply. And on 14 October the container ship GFS Pride sank in the Hormuz area after being hit. Oman warned ships to avoid floating containers near Musandam.

Oil companies gained as tech shares fell. Exxon and Chevron each rose about 2.5% on Friday. Their costs are mostly fixed, so higher oil prices flow largely to profit. For technology firms, higher interest rates make future profits worth less today, which is one reason their shares fell.

Prices like these matter because the war and the strait are still unresolved. Iran’s army chief says the strait is closed, while US Central Command says traffic is moving, so the picture changes with each ship that is hit or passes safely.

Devolution means a national government passing some of its powers to a smaller region. Prime Minister Andy Burnham, who took office in July, has made it central to his agenda. On Friday 16 October he visited Lanarkshire in Scotland and offered to work with the Scottish Government on moving decisions to Scotland’s regions.

He called it an offer: “This is me making an offer to the Scottish Government.” The plan would use the No10 North initiative and the Scotland Office. The Scottish Government had already proposed replacing Scotland’s 32 councils with six to ten regional authorities and 120 to 160 community authorities.

Scottish Secretary Douglas Alexander said power should not stop at the Scottish Parliament’s doors. Deputy First Minister Jenny Gilruth welcomed the visit. It came as the SNP held its national conference in Aberdeen, its first since winning the most seats at the May Holyrood election.

EU leaders met in Brussels on 15 and 16 October. Ukraine’s president, Volodymyr Zelenskyy, said the war will cost Ukraine 155 billion euros next year and asked for 70 billion euros more. The EU has already agreed a 90 billion euro loan for 2026 and 2027. The Commission was asked to propose how to close the gap, and leaders kept sanctions on Russia.

The summit also failed to settle the EU’s long-term budget for 2028 to 2034. The Commission proposed nearly 2 trillion euros. The Irish presidency’s compromise would cut about 141 billion euros, but Euronews reports that proposal is now dead. Six fiscally conservative countries led by Germany want a smaller budget. Seventeen “Friends of Cohesion”, including Italy and Spain, want to protect farm and regional funds.

European Council President António Costa is expected to present a compromise before a special summit on 26 November. Leaders also asked the Commission for a toolbox of trade defences against China. The EU’s trade deficit with China is about 360 billion euros, and Chinese exports to the EU rose 25% over the past year.