Perils of a Gulf explosion

ExTInCTIon Rebellion notwithstanding, the world has a long way to go before it weans itself off oil.

The missile strikes on Saudi Arabia’s facilities will be felt hardest in Asia, with India, China and Japan among the biggest importers.

That will have a material impact on growth, prosperity and the elimination of poverty. The Paris-based oECD reckons that a $10-a-barrel rise in the oil price will knock 0.2pc off growth in the advanced countries. This at a moment when global output already is under pressure in the face of Chinese slowdown and trade wars, Brexit and eurozone stagflation.

There was a time when a 50pc shortfall in Saudi production would have slammed the brakes on global output, send oil prices up beyond the double-digit reaction seen in Monday trading and threatened a resurgence of inflation.

All three outcomes are still possible if the current stand-off between Saudi Arabia and Iran’s proxies in Yemen were to herald a wider conflagration.

This may be the moment in the Arabian Gulf when Donald Trump’s tendency to warn of fire and brimstone, but reluctance to commit US forces, may prove its value. Among reasons why a loss of Saudi production can be absorbed is the US’s self-sufficiency in oil and gas and its healthy strategic reserve. Indeed, the fracking revolution led to some over-production and loss of profitability among the US’s second-tier explorers, which is why shares in these enterprises – including Chesapeake Energy, Denbury Resources and others – soared by up to 25pc in US trading.

Climbing oil prices always have a distorting effect. For big oil it pushes up the value of reserves and, because of leads and lags in the system, that means higher profits. But for the rest of corporate Britain it is a serious blow, with higher oil prices acting as an extra cost.

Consumers are used to the rocket and feather in energy markets – with prices slow to fall when global prices tank and quick to rise when there is strategic trouble. no one can be sure how long it will take the Saudis to restore production, but the current imbroglio, and risks of further conflict in the region, are certain to put a crimp in the Aramco initial public offering which had been scheduled to start sometime in 2020.

It is hard to find a silver lining in any of this. one possibility is that it will encourage Crown Prince Mohammed bin Salman, the country’s ruler and moderniser, to strengthen the nation’s military.

British defence and engineering group BAE Systems receives 12pc of its earnings from Saudi Arabia.

Hopes of selling and delivering a further 48 Eurofighter Typhoon jets, worth up to £5bn, has been hobbled as a result of the human rights outcry generated by the killing of journalist Jamal Khashoggi.

Unrest in the Gulf, and fear that surging oil prices could drive the West into recession, might allow Riyadh back in from the cold.

Pyrrhic victory

FIGHTInG a hostile bid is hard enough with so many fund managers preferring to take the money and improve returns now.

But when the board subsides at the first smell of cordite, as has happened at air refuelling pioneer Cobham, defence becomes impossible. The 93pc victory for Advent was overwhelming and all that can be hoped for is that, behind the screen of private equity, the new owners will invest and improve rather than defenestrate part of the UK’s defence infrastructure.

The most dispiriting aspect of this affair has been the supine approach of the Government. At the very least, Business Secretary Andrea Leadsom should have required the new owners to commit to R&D, and not sell chunks of UK aerospace for at least five years, as predecessor Greg Clark did when Melrose bought GKn.

Selling Britain short, at a moment when the pound is down, should not be an option.

Cryan foul

REPLACEMEnT of former BT boss Lord Livingston by John Cryan as chairman at quoted hedge fund Man Group once again shows the bankruptcy of Britain’s boardroom politics.

Last time Cryan was hauled in to solve a problem, at investment bankers Deutsche, he crashed and burned and was given the boot. The idea that he is the best person to solve Man’s problems of asset outflows and a tumbling share price shows a lack of imagination.

Investors need to challenge the cosy-cartel of the boardroom magic roundabout.