A third inflationary shock in less than a decade is coming: who will pay the price this time around? | Aditya Chakrabortty

Perhaps the most celebrated writer on oil markets is Daniel Yergin. His work has won a Pulitzer and his advice sought by every president from Bill Clinton to Donald Trump. Let’s start by looking at an example.
Fifteen years ago, before the US and Israel started their war on Iran, killing thousands of civilians in the process, before the strait of Hormuz became as infamous as the Bermuda Triangle, and before experts declared “the greatest global energy security threat in history”, Yergin published The Quest: Energy, Security and the Remaking of the Modern World. After hearing Trump announce a “very soon” end to the conflict for the second – or was it the third? – time, I dug out my copy. Just as I remembered, it devotes a chapter to the Persian Gulf.
As far back as 2011, Yergin was anxious about the strait of Hormuz, which he calls “the number one choke point for global oil supplies”. Both oil buyers and oil sellers know how swiftly Iran could shut this narrow thoroughfare. A general in Tehran warns: “Enemies know that we are easily able to block the strait for an unlimited period.” Even before the spread of drones, the Islamic Revolutionary Guard Corps had the firepower to reconfigure Gulf geography. A leader of an Arab Emirate calculates his country is only “46 seconds from Iran as measured by the flight time of a ballistic missile”.
I do not offer this passage as some great feat of prediction, but quite the opposite. Yergin was simply putting together what was threatened in public, known to diligent observers and produced in government war games: use military force on Tehran and it will respond by inflicting economic agony. That simple truth was glaringly obvious, yet still Trump ignored it. The past month can be summarised as a big orange man steps on a rake – and wonders how he got a black eye.
But now Washington’s supreme leader has provoked the chokehold of 20% of global oil supplies, the rest of the world will suffer the fallout. For a taste of what’s coming our way, look at Asia, which typically buys 80% of the oil transported through the strait of Hormuz. Countries across the region have been hit first and hit hard. Governments are fighting to save energy by imposing limits on driving and shortening the working week. Populations are struggling with dramatic hikes in food prices and shortages of petrol and diesel. In Bangladesh, the government reportedly believes it will run out of oil and gas within weeks. To conserve fuel, some temples in Thailand have stopped cremations. Barely a month since the start of this war, already the most populous continent has been plunged into chaos.
The energy-supply storm may well hit our shores just before next month’s elections. No wonder Keir Starmer is calling Cobra meetings, while Rachel Reeves summons business leaders into Downing Street. For now, this is all words and photos and performance, but the electoral repercussions ensure we’ll soon get deeds. Starmer was already facing a May wipeout, but he surely understands how rising prices will add to his losses. After all, he owes the 2024 landslide to an unholy combination of Vladimir Putin, for pushing up prices, and Liz Truss, for pushing up interest rates. The prime minister who promised that in 2026 the country would turn a corner now faces both prices and rates rising, followed by a slump.
So what should he do? Let me take a leaf out of Yergin’s book and state three truths that many MPs and analysts should already know but may be tempted to forget.
First, we’re not all in it together. A cost of living crisis doesn’t affect us all the same, because we don’t all go into it with the same income or wealth. This is shaping up to be the third national crisis in just over half a decade, and just as with Covid and the Ukraine shock, there will be invocations of pulling together and public spirit.
Yet for those with the right job and house, their experience of Covid was far more tolerable than that of a large family squeezed into a small flat and relying for a wage on driving an Uber or nursing sick people. For some, the pandemic meant banana bread and lots of Duolingo; for others, it meant facing the daily risk of contracting serious illness.
In the same way, the inflationary shock of 2022-23 affected British households in sharply different ways, as is illustrated by a new study from researchers in the Foundational Economy group. Between 2019 and 2023, the lowest-earning 20% of households had to spend an extra 96% for the bare necessities of food, housing, transport and energy. The highest-earning 20% actually spent 45% less: they got the benefit of Truss’s energy-price guarantee, traded down from Waitrose to Aldi and cut back on luxuries. This time round, food producers predict that prices will rocket nearly 10% this year. According to calculations done exclusively for this column by the Energy and Climate Intelligence Unit (ECIU), that will add £127 to the average household’s annual food bill. But the ECIU also notes that because the poorest spend proportionately more of their money on food, they will be hit far worse.
Of course, Nigel Farage and the right are demanding help on plane fares and petrol prices – because, whatever they say, they don’t care about people on low incomes. Going by the noises out of the Treasury, Reeves understands that inequality means some people need far more help than others. Good.
Second, our utility pricing is regressive. Why should a poor family pay the same price for energy, water or the basics as a rich family? We didn’t accept a poll tax for local government; we shouldn’t on utility bills. I have written before about the need for progressive charging for water. The same applies to energy. There also needs to be a move away from fossil fuels and from the current system of ownership. Recent pieces in the Guardian from Mathew Lawrence and Chaitanya Kumar cover this ground well.
Third, the days of relying on a growth miracle are over. Two years ago, Starmer won an election promising “the highest sustained growth in the G7”. A few days ago, the Organisation for Economic Co-operation and Development thinktank predicted that the UK would have the lowest growth in the G7, with the exception of Italy.
The first promise was always a piece of prize idiocy, as I and others wrote at the time. But it emerged from a philistine refusal to think about British economic performance and the link between GDP growth and household prosperity. Instead, Starmer and Reeves seemed to think that by acting more like managers, they would somehow better manage the economy and soon welcome in investors from around the world.
That didn’t happen before this oil shock – and it certainly won’t happen now. Whoever is in No 10 after May needs to change focus. He or she could do worse than listen to the new MP for Gorton and Denton. When Hannah Spencer won that byelection in February, she spoke about “people who work hard but can’t put food on the table. Can’t get their kids school uniforms. Can’t put their heating on.” That resonated, as did her conclusion: “I don’t think it’s extreme or radical to think working hard should get you a nice life. And I don’t think, if you’re not able to work, that you [shouldn’t] still have a nice life.”
She’s right: it’s not extreme or radical. It’s a simple truth – one that has been forgotten by many in Westminster.
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Aditya Chakrabortty is a Guardian columnist
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