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It's chaos on the markets as the conflict in the Middle East continues.
It's World Business Express from the BBC World Service.
I'm Leanna Byrne.
Energy price rises will hit Asia and Europe, and how food prices could go up if fertilizer shipments get caught up in the conflict.
It's day four now of the US-Israel war with Iran.
In the last couple of hours, the US is warning of an imminent attack in the Saudi city of Tehran, a major centre for the oil industry.
Israel has sent soldiers into southern Lebanon as its clash with Iran-backed Hezbollah intensifies.
With all this, and as US President Donald Trump raises the prospect of a prolonged conflict, the financial markets are reacting badly.
Fiona Sincotta is Senior Market Analyst at Citi Index.
Fiona, let's look at the global indices first.
Where are we at?
Yeah, so Wall Street's opened, and it's opened around 25 lower, falling to its weakest level since November last year.
It is however, faring a little bit better than Europe, which is down 4 extending losses of 2 yesterday.
And this is basically... because Europe is just more reliant on imported energy.
Now, oil prices up 8% today, up 15% so far this week.
So, huge rises there.
And if we're looking at the currency markets, the US dollar is definitely the favorite.
It's up over 1 as it sort of benefits from safe haven flows and also the fact that the US is actually a net exporter of oil.
All right.
Thanks, Fiona.
I'm going to come back to you in a minute.
We're going to talk about energy now, because disruptions to energy supplies prompted China, which is the world's largest oil and gas importer, to come out and call all sides of the war to make sure ships have a safe passage through the Strait of Hormuz.
Right now, tanker traffic through the strait is effectively halted.
And this has sent Europe natural gas prices surging by more than 40%.
Simone Tagliapietra, research fellow at the economic think tank Brugel, explained to me what's behind this spike.
This is serious.
Qatar has shut its production of LNG liquefied natural gas yesterday, which amounts to 20 of the global LNG production.
To put it simply, there is no way to replace this Qatari production on the market in the short to medium term.
And the impacts of this shock on the economy.
Global LNG and energy markets will largely depend on the duration of this shutdown and, of course, also the duration of the tensions around the Strait of Hormuz which, as we know, represents the world's most important energy choke point, where 20 of the oil and around 25 of the LNG transit every day to global markets, as we see, in particular in Europe, for the very simple reason that, for example, European and Asian consumers we need now to compete to get cargos of LNG on the spot market.
And of course, as a reaction to this competition, prices are going up.
And who is more vulnerable?
Would it be Europe or Asia?
Europe gets only a fraction of this LNG.
So it needs to be clear that 80 of the oil and the LNG that goes out of the Gulf really goes to Asia.
Europe only covers 8% of its LNG imports with Qatari LNG.
So the implications on Europe are more obvious.
Second round effects are through the price dynamics due to these upcoming competition in the global market, being the market more tight.
Asia is more directly exposed.
So one of the major question marks is China.
Will China be able to reduce its gas demand, for example by doing fuel switching from gas to coal in power generation, in order to smooth out a little bit the impacts of this situation?
We have seen in the past that this is possible.
China can reduce quite significantly its gas demand.
But that will not be enough.
So Europe might also need to reduce its own gas demand, even just as a reaction to high prices.
So that means that industries that are heavily reliant on gas in Europe, facing these high prices, might have to reschedule their production processes or might have to reduce their production if the price really goes to the roof.
That was Simone Taglia Piazza from Bruges.
OpenAI says it's rewriting parts of what it calls an opportunistic and sloppy deal with the US government over the use of its AI in classified military operations.
Its CEO, Sam Altman, says new language will explicitly ban the technology from being used to spy on Americans.
OpenAI made the deal after its rival Anthropic and the Pentagon fell out over AI and surveillance.
Now, another way the US-Israel war with Iran could hit the global economy is by influencing food prices in supermarkets.
The longer the Strait of Hormuz is closed, the more likely it is to lead to higher global prices of staples like corn and wheat, because the waterway is vital to shipping one third of the world's urea, an essential ingredient in fertilizer.
That's according to Sven Holsester of the CEO of Yara.
That's the world's second largest fertilizer company.
Half of the food production in the world is a direct result of fertilizer.
And the most important shipping route for fertilizer is going through the Strait of Hormuz.
So it's about 20 for LNG, but for urea, a key fertilizer, one third of the product is going through the Strait of Hormuz.
So this has huge impacts on the flow of fertilizer and then indirectly also on food production.
So if shipments through the Strait were disrupted for several weeks, walk us through what happens next in fertiliser markets.
This really depends on the length of the disruptions, because it's about getting fertilizer to the fields or the farmers.
And in several parts of the world, we're now closing in on the application season.
So if fertilizer is not available in the quantities that farmers need for some crops, you could see reductions of up to 50 in the first season.
So it would have very big consequences if this lasts over an extended period of time.
So does that mean prices would see rises?
That's the likely impact of this.
Of course, already see significant increases in energy prices.
It takes energy to produce fertilizer as well.
So it's both impact to the availability of fertilizer produced and shipped through the Strait of Hormuz.
But also for fertilizer producers across the world.
We use natural gas to produce fertilizer and with increases in the production cost, that also has implications.
So it's a double hit for fertilizers.
So what crops would feel this the most?
Are we talking about staples like wheat, rice or corn?
You will have impact on all of them.
Fertilizer is being used for most crops across the world.
And are lower incomes, food importing countries, are they most exposed to that kind of shock?
That's the sad reality and what we've seen through all the crises that we've been going through in the last few years that it's the ones that are most vulnerable that pay the highest price when it comes to the impact on the food system.
But of course, if this lasts for some time, it will have a significant impact, given that one third of the urea fertilizer is going through the Strait of Hormuz.
That was Sven Holstetter, the CEO of Yara.
Now, before we go, let's talk about the Eurozone inflation.
That's the rate that prices rise.
Well, Eurozone inflation rose to 1.9% in February.
Still with me, Fiona Sincotta.
Now, important to say, Fiona, this is before the Middle East conflict began.
But at the same time, people didn't expect it to rise.
No, it was expected to hold steady at 1.7%, but it is still below the ECB's 2% target.
I think what's interesting here though, as we've just heard, you know, persistently high oil prices, rising food prices could see inflation rise in a similar fashion to when Russia invaded Ukraine.
And that means, in the worst case scenarios, that we could see central banks actually being forced to hike rates again, rather than the cutting that we've seen more recently.
That is interesting.
Fiona, what do you think?
Does this feel similar to what we saw back in 2022?
It does.
The initial market reaction feels similar to that period.
I think, you know, the same questions are coming up, you know, how long could this last?
And that really will dictate the economic impact on the longer term market impact.
For sure.
Fiona Sincotto, Senior Market Analyst at Citi Index, thank you so much.
And we'll be following along with all the latest developments and bringing them straight to our listeners and telling you how they will affect you.
And that is it from World Business Express.
I'm Leanna Byrne.
Thanks for listening.
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