For most of the past half-century the sea lanes that carry the world's oil and goods were treated as a kind of neutral infrastructure, open almost by default even when the politics around them turned hostile. That assumption is now breaking down. The war between the United States and Iran has turned the two great maritime passages of the region, the Strait of Hormuz and the Bab al-Mandeb at the mouth of the Red Sea, into instruments of leverage, and in doing so it has exposed something larger than any single conflict. The arteries of the global economy have become targets, and the premise that trade and energy will keep moving whatever the state of geopolitical rivalry no longer holds.
The stakes for Britain have sharpened as this analysis was being finalised. On 20 October the government agreed to send RAF Typhoon jets to fly defensive missions over Saudi Arabia, shielding the kingdom's cities and oil infrastructure from Houthi drones and missiles while stopping short of striking the Houthis themselves. The deployment will do nothing to reopen the Red Sea, yet it shows how closely Britain now ties its own interests to the stability of a major energy supplier whose troubles pass straight through to prices at home and across Europe.
Geopolitics and the global economy have always been intertwined, and using one against the other is an old practice that runs from sanctions and embargoes to the blockades of earlier eras. What has changed is the degree of the entanglement and how easily it can now be exploited, with the two joined so tightly that a drone fired at a tanker near a Yemeni island registers within days in the price a British haulier pays at the pump. This piece sets out how that fusion is playing out across the Middle East and why cheap technology has made the choke points far easier to threaten than they were a generation ago. It then turns to what resilience looks like for a country as exposed as the United Kingdom. The short version is that the disruption is structural and the fragmentation of trade routes is likely to continue, which leaves an importer like Britain with one durable answer, the slow and costly work of building energy it can generate at home.
A war that has settled into attrition
The conflict that set all this in motion began on 28 February, when coordinated American and Israeli strikes killed Iran's Supreme Leader Ayatollah Ali Khamenei along with much of the country's senior leadership. Washington and Jerusalem presented the opening as decisive. Iran's response over the following weeks denied them the swift outcome they appear to have anticipated. Its missile and drone barrages struck at least sixteen American installations across the Gulf, among them the air operations centre at Al Udeid in Qatar, and the repeated penetration of regional air defences obliged US Central Command to disperse thousands of personnel away from its main bases. Seven months on, the two sides are locked war of attrition, with neither in a position to impose terms on the other.
The calm of recent weeks looks temporary. Reporting in the Wall Street Journal, relayed by Al Jazeera, indicates that President Trump has told aides he expects to resume bombing after the November midterm elections, and he has publicly rejected Tehran's latest ceasefire proposal. The political calendars reinforce the point. His approval rating has fallen to 32 per cent, a career low on the back of anger over the cost of living, which gives a president domestic as well as strategic reasons to seek a decisive result abroad. Israel holds a parliamentary election on 27 October in which Prime Minister Netanyahu, weakened by claims that he ignored warnings before the October 2023 attacks, has an evident interest in keeping security at the centre of the contest. Iran, for its part, is under severe economic strain and has reason to extract what it can from the leverage it holds while that leverage lasts. Every one of these pressures points towards more confrontation rather than less.
Two choke points, held at once
The most consequential shift of recent weeks happened away from the Gulf. In a rapid offensive through early September the Houthis captured the whole of Yemen's Red Sea coastline, taking the port city of Mokha and then Perim Island in the middle of the Bab al-Mandeb Strait. Saudi-backed government forces conceded a painful defeat and withdrew from positions they had held for years, which leaves the group astride the southern gateway to the Red Sea, a passage through which roughly 12 per cent of world trade normally moves. With Hormuz already contested at the northern end of the system, two of the world's principal energy passages are now under threat at the same time, each able to transmit a supply shock to Europe within days.
Britain has been drawn in directly. Travelling to the United Nations General Assembly on 21 September, Andy Burnham confirmed that he had approved a Saudi request for defensive air-to-air refuelling, with a Royal Air Force Voyager operating from Cyprus to support Saudi aircraft intercepting incoming drones and missiles. The United States has shown little appetite for military involvement this time, which has left European governments weighing how far to step into the gap.
The technology that changed the maths
The Houthi gains along the coast were won on the ground, through a conventional offensive against Saudi-backed forces rather than any feat of new technology. What turns a stretch of Yemeni shoreline into a threat to world trade is the arsenal that can be fired from it once it is held. A force with no navy worth the name can now put tankers and warships at risk using cheap anti-ship missiles and one-way attack drones, backed by explosive sea craft and mines, and the economics of that exchange run entirely against the defender. A weapon costing a few thousand pounds can threaten a vessel worth tens of millions, or frighten an entire trade into the long diversion around southern Africa, so the cost a small movement imposes bears no relation to the cost of the means it uses to impose it. The war in Ukraine has shown how far the underlying economics have travelled, with drone production there running at something in the order of 200,000 a month, and the same mass-produced precision is now within reach of actors that a serious navy would once have dismissed.
Artificial intelligence sharpens the edge further, improving the guidance and coordination of these systems while their cost keeps falling. The practical consequence is that the ability to impose real cost on nation states, and through them on the global economy, no longer belongs to the handful of powers that once held it alone. A capability that used to require a state navy now sits with any group willing to assemble a modest arsenal, which is why the disruption to the sea lanes should be read as a durable shift in the strategic landscape rather than a passing emergency. The weaponisation of the choke points is, at its root, the weaponisation of this asymmetry.
When the economy and the conflict became one system
The deeper point for businesses is that a restraint which largely held for decades is weakening. None of this is wholly new. Governments have long used the economy as a weapon through sanctions and embargoes, and the arteries themselves have been contested before, most clearly in the Tanker War of the 1980s, when Iran and Iraq attacked shipping in the Gulf. What is different now is the scale and the ease of it. The capability to threaten a passage has spread well beyond the great powers that once held it, and with two of the world's main energy routes contested at once, a global economy built on just-in-time delivery feels the shock faster and harder than the less integrated world of the 1980s did. The market long treated the great choke points as close to immune, on the reasoning that no actor would dare to close them and that the major powers would keep them open. That assumption is now being repriced, and a single incident in a distant waterway can move interest-rate expectations and household budgets thousands of miles away.
This has consequences well beyond the Middle East. The logic of weaponising a choke point is portable, and the same playbook could be applied to other narrow passages or to the undersea cables and pipelines that carry data and energy. The likely trajectory is continued fragmentation, as states and firms respond by shortening supply chains, duplicating routes where they can and accepting higher costs in exchange for security of supply. The era of treating the lowest-cost global route as automatically the right one is drawing to a close, and the premium on reliability is rising in its place.
The burden of all this falls unevenly. The United States, a net exporter of oil and gas, is comparatively insulated from the shock, and the President has spoken of reopening Hormuz in transactional terms, by emphasizing the United States’ limited dependence on the waterway compared to Europe. Indeed, Europe sits at the opposite end, having already cut itself off from Russian supply over the war in Ukraine and now absorbing a second energy squeeze with far less room to manage it, which is much of why the work of keeping the sea lanes open is falling onto European shoulders.
The bill arrives in Britain
For the United Kingdom the channel through which all of this travels is energy, and the effect is already in the data. Inflation rose to 3.5 per cent in the year to September driven by motor fuel costs that were nearly a quarter higher than a year earlier. The pressure has intensified since. On 28 September the average price of diesel reached an all-time high of 199.18p a litre, passing the previous record set in 2022 and taking the cost of filling a family car to around £110, some £31 more than at the start of the conflict. The RAC noted that such prices are a reminder of how exposed Britain is to events far from its shores, and the exposure is structural. The country imports 55 per cent of its diesel, roughly a third of that from the United States, and holds no state-owned strategic reserve of petrol or diesel to fall back on.
The more lasting damage runs through the cost base of British business and the labour market, which is the terrain we have followed most closely at Arcara Strat. Energy-driven inflation lifts the overheads that firms carry at a moment when demand is already soft, and the latest figures show the jobs market losing momentum, with slower wage growth and rising unemployment. Higher input costs compress margins, which discourages hiring and investment, which then weakens the household spending that firms depend on to grow. That feedback loop, set out in our earlier work on the jobs market, becomes harder to break each time a fresh energy shock lands on top of it. The autumn Budget will have to reckon with the same bind, since any support for households or businesses has to be funded from fiscal headroom the war itself has been eroding, a set of trade-offs we examined at length in our previous analysis.
The bottom line
The central argument is straightforward. The weaponisation of the world's choke points will outlast this particular war, as the means of threatening a sea lane grow cheaper and reach more hands, and the old confidence that the arteries of trade would stay open through any crisis has gone with it. War and the global economy now move as one system, and Britain enters this period more exposed than most, carrying heavy import dependence alongside the highest industrial energy costs in the developed world. The task for the years ahead is to plan around that reality instead of waiting for a return to conditions that are unlikely to come back.
Four practical implications follow, and they hold across very different kinds of business.
The first is for any business operating in the UK, where the squeeze has become a structural condition rather than a cyclical one. The practical response is to stop absorbing volatility and start passing it through and hedging it out. On energy, that means moving off floating tariffs where the forward curve allows and fixing or capping supply, and writing index-linked cost clauses into customer and supplier contracts so that a fuel or power spike is shared along the chain rather than swallowed whole at one point in it. On financing, the uncertainty runs both ways, so a firm with debt maturing in the next two years has to weigh the cost of terming it out now against the risk that rates stay higher for longer. On labour, the concrete lever is the jobs guarantee, which pays an employer incentive of around £3,000 for taking on someone long-term unemployed, a subsidy worth designing into any 2027 hiring plan. The autumn Budget may add targeted relief for the most exposed sectors, though it would be unwise to budget for help that has not yet been promised.
The second runs across financial services, where the repricing of geopolitical risk has become the central discipline. Lenders should fold a standing energy-and-freight shock into their credit models rather than treating the past year as an aberration, reviewing covenant headroom for the borrowers most exposed to it, among them hauliers, food processors, chemicals producers and other energy-intensive manufacturers whose margins are thinnest, while pricing a geopolitical premium into new facilities and watching the refinancing walls that now fall due in a higher-for-longer rate environment. Insurers are already seeing marine war-risk and cargo premiums reprice for Red Sea and Gulf transits, and the task there is to reassess accumulation risk across a book in which a single incident can trigger correlated claims, and to test the contingent business-interruption cover held by clients whose suppliers route through the two passages. Asset managers should treat a higher and more volatile energy price, and a fatter term premium on gilts, as the base case rather than a tail risk, favouring real assets and energy infrastructure alongside the defence and shipping names that a world of longer routes and rearmament tends to reward, while watching sterling for its unusual sensitivity to a story that is at once about imported energy and the state of the public finances.
The third is for logistics operators and any business that moves physical goods, where supply chains now have to be managed for resilience as much as for landed cost. The starting point is a map of choke-point dependency that reaches past the first tier of suppliers, with a value at risk attached to each lane so that the exposure is quantified rather than merely acknowledged. From there the sensible moves are to pre-negotiate contingency capacity on alternative routings before they are needed, since diverting Suez and Bab al-Mandeb traffic around the Cape of Good Hope adds roughly ten to fourteen days of sailing and a heavy bunker and charter cost, and to shift a defined set of critical inputs from just-in-time towards just-in-case, holding the larger buffer only where a stockout would halt production or breach a contract. Expansion decisions deserve the same discipline, so that a firm weighing a move into a new market, an African one for instance, models not simply whether its routes cross a contested passage but the war-risk surcharge and the reroute cost that would attach to them, and tests whether sourcing within the target region removes the choke point from the equation before any capital is committed.
The fourth is for energy-intensive firms and anyone allocating long-term capital, who stand to gain most from needing imported fuel less. The strongest instrument is a long-dated corporate power purchase agreement, a ten to fifteen year contract with a renewable or nuclear generator that fixes the cost of electricity and breaks the link to a wholesale price still set at the margin by imported gas. Eligible manufacturers should press their claim under the British Industrial Competitiveness Scheme, which from 2027 is intended to cut industrial electricity costs for thousands of firms, and those able to fund it should pair on-site generation with battery storage to blunt their exposure to peak prices and grid volatility. For a business choosing where to build, energy security is becoming a siting criterion in its own right, which argues for locating new capacity near the grid headroom and clean-power clusters where firm, affordable electricity is most likely to be available.
The thread running through all four is the same. The firms that come through this period best will be those that have learned to treat open sea lanes and affordable energy as risks to be managed rather than facts to be assumed. The cost of making that shift is real, and it is smaller than the cost of being caught out again.
