We do not live in a bubble here in Malta!

Today, I hadn’t planned to write about the Middle East conflict, but the situation is growing increasingly desperate. The Strait of Hormuz is a crucial global economic passage, and developments there are now affecting all aspects of global stability.

I have seen some numbers and plots that, in truth, are a little worrying from a global economic perspective. Everything was revised downwards, due to this conflict, not least global economic growth. This week, President Trump lost his patience with the Iranians, to the point of asking them to open the ahem, Strait. However, the Iranians seem to be defiant, and they are totally ignoring the USA. To make matters worse, Iranians are telling EU countries that the passage is open to them, but not to the USA. Those allies aiding the USA will be targeted by Iran, and many merchant vessels passing through will be targeted. Under UNCLOS and the Law of the Sea, the passage cannot be blocked. However, no insurance company will cover the trade and the stock carried on those vessels. And this is making the situation even worse. So, besides the oil price spikes, the problem is also one of supply. By the time this article was written, the US and Iran had agreed to a ceasefire brokered by Pakistan. This, though, does not include Lebanon, and Israel seems to be forging ahead with their military interventions.

The EU has already signalled a move to ration fuel by encouraging carpooling and public transport, reducing air travel, and lowering the speed limit on highways to reduce fuel consumption, especially diesel. All this shows that the economic strain is now inseparable from the political and military escalation. Now that a two-week ceasefire has been agreed, there is a possibility that oil, LNG and other related energy commodities will pass through the Strait as it will be open. However, as I reiterated, it does not guarantee insurance of commodities, and the risk premia may be quite high. This week, the US, or better the President of the United States, resorted to Truth Social, going further in saying that if Iran is not ready to make a deal by the time of the deadline, an entire civilisation will die and will not come back. That threat is an ugly one. As the understanding is one that would go to lengths we haven’t seen since the Second World War. God forbid that something so ugly occurs.

Certainly, if Iran’s nuclear infrastructure has been decimated by the US, the regime is arguing that sanctions imposed on it might as well be lifted. There is no threat anymore. Meanwhile, Israel kept bombing Lebanon, pursuing Hezbollah members. And the entire region is in chaos. And naturally, this chaos is feeding directly into the global economic outlook. The global economic figures are not looking good. The IMF revised the economic growth downward. And if we carry on like this, next month will be crucial for feeling the pressure of the price spike. Inflation will pick up, wreaking havoc on many EU and Western economies. As many want this conflict to end as soon as possible, it doesn’t seem to be the case, even though a ceasefire has been agreed upon.

Even if the war stops, stability will take longer to restore. What I am intrigued to see is the EU at the negotiations and mediation table. The EU is looking conspicuous. By the EU, I do not mean the European Parliament. The latter lacks competence in foreign affairs and defence. They can only issue political statements that, in truth, only fuel further problems, misunderstandings and chaos. Some of the EU parliamentarians do not even know the history of Iran. When they speak, they look idiotic by the verses they write for themselves and the citations they cite from uninformed history books. And while the EU struggles diplomatically, it is also struggling economically.

What will surely hit us here is the increase in oil prices, although after the temporary ceasefire, prices eased. We must make sure to cushion this impact. The EU economy cannot handle such a shock. And the EU must intervene with its budget to look after its citizens. We cannot have a situation where money is spent on defence while people do not have food on their table. It’s becoming even more difficult for the EU to understand the economies. They are just trying to stay within the rules, which were designed years before any conflict or shock and do not make sense in today’s context. When meeting with economic operators in the industry, they tell you that costs are exorbitant, including compliance, green, and sustainability costs. The EU was not ready to issue legislation on reporting requirements amid a pandemic, a war in Europe, and ongoing conflicts. And the latest revisions were neither proportional to the original text nor a travesty of green initiatives. And this brings us to the reality we must face: many companies have incurred costs and uncertainties.

What we must deal with in the coming month, economically and security-wise, is the result of years of postponement of the EU’s problems. Luckily, in Malta, the GDP grew three times as much as it was in 2013. And we can cushion part of the impact and sustain it for a short to medium-term period. If it were not the case, we wouldn’t be able to sustain all the benefits provided by the PL in government since 2013, not least free childcare, increased pensions, and the public sector wage bill. People must realise that we do not live in a bubble. We are part of the world, and any impacts, regional or global, will affect our economy. The choices we make today will shape our future stability and prosperity. It is crucial that we remain vigilant, adaptive, and ready to take responsible decisions, both as individuals and as a country. The cushioning of these impacts depends on the ideologies of those governing the country. You either choose a government that believes in intervention or a party that believes in the free market. The choice is ultimately yours.