China steps in as Iran war drains US oil reserves to 40-year low

Summary

Iran: The Latest — Episode Summary

China Steps in as Iran War Drains US Oil Reserves to 40-year Low

The Telegraph | August 13, 2026
Host: Venetia Rainey
Guest: Ambrose Evans-Pritchard (World Economy Editor, The Telegraph)

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Overview

This episode of Iran: The Latest focuses on the massive economic ramifications of the ongoing conflict between the US, Israel, and Iran—particularly how it is reshaping global oil markets. The discussion centers on China’s unexpected and pivotal role in stabilizing oil prices, the alarming depletion of US oil reserves, the vulnerabilities exposed across petro-states (especially Iraq), structural changes in global oil logistics, and a deep critique of America’s strategic approach to the conflict.

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Key Discussion Points and Insights

1. Why Oil Prices Haven’t Exploded — China’s Crucial Role

[02:47 – 06:06]

• China’s Demand Suppression
  • The biggest surprise has been how China managed to slash internal oil demand by 5 million barrels/day—far more than predicted.

    “China crushed its internal demand by 5 million barrels a day, which nobody thought was possible.” – Ambrose Evans-Pritchard [02:50]

  • This reduction is possible due to:
    • Ceasing to fill its massive Strategic Petroleum Reserve (SPR) (which was built in anticipation of conflict over Taiwan).
    • Halting oil re-exports (import, refine, and re-export business).
    • Aggressive domestic demand management, though the exact measures remain opaque.
• Costly Products Despite Flat Crude
  • Though crude hovers at $85/barrel, refined products (diesel, jet fuel) are at record highs – “crack spreads” have “exploded.”
  • Diesel prices in the US are up 50–60% [04:19], leading to inflation up and down the supply chain.
• Pivotal Shift in Market Influence
  • China has replaced Saudi Arabia (and OPEC) as the decisive player in regulating global oil: by throttling demand rather than altering supply.

    “China can regulate it by just turning off demand... It’s now replaced Saudi Arabia as the essential regulator of the global oil market.” – Ambrose Evans-Pritchard [07:05]

  • Raises doubts about whether conventional wisdom about oil scarcity (and investments like North Sea oil) still applies.

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2. Strategic Petroleum Reserves: US & Allies Scraping the Bottom

[09:02 – 11:36]

• US SPR at 40-Year Lows
  • The US reserve has plummeted to 298 million barrels—the lowest since 1983, with safety levels nearing “critical.”
  • Continuous SPR drawdowns risk chemically degrading the reserves and the infrastructure.

    “You can only use them four or five times before you start degrading them chemically.” – Ambrose Evans-Pritchard [10:17]

• Limits on Further Depletion
  • Only minimal further drawdown is feasible—insufficient relative to global oil demands.
• Other Nations Also Vulnerable
  • Allies (Japan, Korea, Europe) have also drawn down their reserves, leaving the broader system perilously exposed if the crisis endures another 6 months.

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3. Rerouting Oil Flows Amid Chokepoints and Conflict

[11:36 – 14:47]

• Pipeline Workarounds
  • Saudi Arabia is moving oil east-to-west to the Red Sea’s Yanbu port, and via Egypt to the Mediterranean as Red Sea and Hormuz straits face blockades (primarily Houthi activity).
  • Oil exports from Egypt's Med ports have doubled recently, but rerouting is not infinitely scalable or secure.
  • Both pipelines and ports themselves could become conflict targets; Yanbu and the pipelines are now potentially vulnerable.
• Ripple Effects on Global Transport
  • Chokepoints (Panama Canal, Rhine) are overstressed. Canal passage fees have skyrocketed 18-fold. Droughts and supply chain rerouting further snarl logistics.

    “The canal is jammed up... fees now have gone up something like 18 times in a year... a million dollars a passage.” – Ambrose Evans-Pritchard [14:11]

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4. Petro-States in Crisis: Iraq's Economic Freefall

[14:47 – 16:38]

• Iraq Devastated by Strait Closure
  • Iraq, a classic petrostate, exports 80–90% of its oil via the Al Basra terminal—now blocked.
  • May 2026: Iraqi crude exports down 97% year-on-year. State salaries (core to social stability) cannot be paid on time.
  • Temporary fixes via Turkey and Syria pipelines are minor; real solutions take years, risking destabilization.

    “They’re completely essentially innocent bystanders... probably suffered worse hit than anybody else.” – Ambrose Evans-Pritchard [16:47]

• Iran’s Surprising Resilience
  • Despite sanctions, Iran has managed to keep export flows and, due to war rallying effect, has transitioned to a hardline military regime—paradoxically strengthened by external attack.

    “The war saved a dying regime... and now you’ve essentially ended up with a military regime rather than the clerical regime.” – Ambrose Evans-Pritchard [17:32]

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5. Nuclear Weapons Proliferation — A New Motive

[18:26 – 19:40]

• Iran’s ability to “weaponize” the Strait is a short-term asset; over time, pipelines will erode this leverage.
• The war has likely strengthened Iran’s motivation to pursue nuclear weapons for deterrence—seen as the reason it was attacked in the first place.
• Broader, long-term risk: More countries (Japan, Korea) may now reconsider their own nuclear options if the US security umbrella is seen as unreliable.

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6. Western Economic Fallout — Who’s Hurt Most?

[21:04 – 25:12]

• UK’s Relative Resilience
  • Despite forecasts, UK growth in Q2 is modest but not dire (0.4%).
  • UK’s decoupling from imported gas since 2022 has lessened the blow.
• Germany and Japan Face More Pain
  • Germany’s high reliance on energy imports and heavy industry have made it more vulnerable—now in a “depression” for 5–6 years.
  • Japanese economy, highly dependent on fossil fuel imports, is also under strain.
• Product Shock Across West
  • The spike in crack spreads means that diesel and jet fuel prices are hitting the US, UK, and Europe equally; aviation and shipping costs are up everywhere.

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7. Strategic Folly — America’s Miscalculations in the Gulf

[25:12 – 28:46]

• Barbara Tuchman’s “March of Folly”
  • Ambrose compares Trump’s intervention to classic cases of governments acting against their own self-interest, due to hubris and misjudging adversaries.

    “They didn’t understand how the other side was thinking... an extraordinary misjudgment.” – Ambrose Evans-Pritchard [26:51]

• US Strategic Interests Misaligned
  • The US, now a net energy exporter, had no need to entangle itself in the Gulf on energy grounds.
  • Critical resources and focus were diverted from primary strategic theaters (Asia–Pacific, NATO/Eastern Europe) for a secondary, unnecessary campaign.
  • The war has further eroded US global standing.

    “China is now more trusted than the United States and by quite large margins.” – Ambrose Evans-Pritchard [28:16]

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Notable Quotes & Memorable Moments

• On China’s Market Power:

  “China can regulate [the oil market] by just turning off demand... It’s now replaced Saudi Arabia as the essential regulator of the global oil market.”
  — Ambrose Evans-Pritchard [07:05]

• On US Reserves Vulnerability:

  “You can only use them four or five times before you start degrading them chemically. If you keep tapping into them... you damage the structure of it.”
  — Ambrose Evans-Pritchard [10:17]

• On Iraq’s Plight:

  “They’re completely essentially innocent bystanders... probably suffered worse hit than anybody else.”
  — Ambrose Evans-Pritchard [16:47]

• On Strategic Folly:

  “They didn’t understand how the other side was thinking... an extraordinary misjudgment.”
  — Ambrose Evans-Pritchard [26:51]

• On US Power and Perception:

  “China is now more trusted than the United States and by quite large margins.”
  — Ambrose Evans-Pritchard [28:16] "If I was an American diplomat looking at that, I would say, 'Houston, we have a problem.'"
  — Ambrose Evans-Pritchard [28:40]

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Key Timestamps

• [02:47] — Why the oil price hasn’t spiked; China’s suppressed demand
• [04:15] — Refined product costs and supply chain shock
• [09:02] — US Strategic Petroleum Reserve at lowest since 1983
• [11:36] — New pipeline and shipping routes, pressure on energy infrastructure
• [14:47] — Iraq’s oil export catastrophe
• [17:32] — Iran’s regime solidifies due to external pressures
• [18:26] — Implications for nuclear proliferation
• [21:04] — UK, Germany, and Japan: comparative economic impacts
• [25:12] — “March of Folly” analogy and US strategic miscalculation
• [28:16] — China surpasses US in global trust metrics

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Conclusion

This episode delivers a comprehensive analysis of how the Iran war is creating ripple effects through the global economy, with China’s market interventions cushioning a much larger disaster—for now. The draining of US and allied oil reserves presents a latent risk, while frontline petro-states like Iraq face existential threats and Western economies brace for further aftershocks. Most striking is the suggestion that the war is not only contrary to US interests but is also realigning global power perceptions, with China gaining international stature at America’s expense.

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For further reading, Venetia and Ambrose recommend Ambrose’s article on “March of Folly” dynamics in US Gulf policy, linked in the episode show notes.

Transcript

[Ambrose Evans-Pritchard]

The telegraph.

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[Venetia Rainey]

I'm Venetia Rainey and this is Iran. The latest It's Thursday 13th of August 2026. On today's episode, how the Iran war is reshaping the global economy and why the oil markets haven't seen more disruption. Hint the main factor is China. Plus the country suff the worst impact from the closure of the Strait of Hormuz and why this war goes against America's core strategic interests.

[Ambrose Evans-Pritchard]

A short time ago, the United States military began major combat operations in Iran. Iran's supreme leader, Ayatollah Ali Khamenei, was killed in the attack.

[Venetia Rainey]

For the first time ever, the US Navy used a surface sea drone in combat to strike Iranian targets.

[Ambrose Evans-Pritchard]

The Strait are almost completely closed again. Does anyone really think that someone can tell President Trump what to do?

[VRBO Advertiser]

Come on.

[Venetia Rainey]

Well, it's a very quiet day today. Not much news around, so we're going to take the opportunity to take a big picture look at the economic impact of this war because we regularly mention it glancingly on the podcast, but it's absolutely huge. So I just want to use this episode to do a deep dive and to help dissect it all. I'm very happy to be joined by our World Economy editor, Ambrose Evans Pritchard. Amber is welcome to around the latest. I want to start with oil as it's really at the heart of the economic impact that this war is having. And we had a reasonably dire warning. At least it sounds dire to me. And maybe you could do a sense check as to whether it's very serious. A warning yesterday from the International Energy Agency. They said although the market is projected to return to surplus towards the end of this year, risks remain substantial and the urgency of reopening the Strait has increased as previously available inventory buffers are rapidly depleting. That sounds very serious. And yet oil prices are around $85 a barrel. It's higher than before the war, but way down from the $100 barrel peak that we had earlier in the war and during the beginning phases of the Ukraine Russia conflict. Why?

[Podcast Host/Producer]

Why is this?

[Venetia Rainey]

Why haven't prices gone more berserk?

[Ambrose Evans-Pritchard]

The Prices didn't go up as much as a lot of people feared because China crushed its internal demand by 5 million barrels a day, which nobody thought was possible. And that's probably not sustainable for a very long time. So when they come back into the market they're going to start putting pressure on it again. The other thing is that so much refining capacity has been knocked offline both in the Middle east and in Russia, crucially about 4 million barrels a day. That has basically reduced demand for oil by almost 7 million barrels a day, which is a lot. You're talking about huge numbers here. We don't actually consume oil. We consume diesel, petrol, jet fuel, naphtha, these other products. That's actually what people feel and those are trading at pretty high prices. The crack spread between the oil price and the refined product is at kind of record levels, really exploded, tripled, quadrupled in Rotterdam in New York. So it's hitting the United States too. So although the oil price may look relatively well behaved, the actual products that keep the global economy humming are very expensive and they're just about as bad as they were in 22 at the height of the, the beginning of the Ukraine war. And basically the thing you have to remember is the whole of the American farm economy transport system or the trucking system anyway runs off diesel and those prices have gone up 50, 60%. So they're gonna be knock on effects through the whole supply chain of the economy for a long time to come just from what's already happened. And it could get a lot worse because the war hasn't ended. The world has lost about 1.6 billion barrels of oil supply that it wouldn't otherwise have gotten. It's been able to deal with that by massively reducing inventories. But the US Strategic Petroleum Reserve is down at basically its minimum safe levels. You go a little bit lower, not much lower before you start damaging the structure of it. The US massive commercial inventories at Cushing and Oklahoma are basically, they're scraping the barrel. There's just about nothing there left.

[Venetia Rainey]

Scraping the barrel, literally you're in a

[Ambrose Evans-Pritchard]

kind of bad equilibrium. It's stable, but you reach the operational stress levels of the whole international oil market. And if something else goes wrong now, it could get really nasty actually. And of course the Iranians know this. They know that all they have to do is push this one more time and they can trigger some real trouble for Trump in the midterm elections.

[Venetia Rainey]

So we've all been looking at slightly the wrong number, a slightly too rosy number for the Underlying picture, the Russian refineries that you mentioned, we know that Ukraine has been attacking those and we know that America has been pushing on Kyiv to stop attacking quite so much because it's been such a useful way to release pressure on the system, as you say. But the China element that you mentioned is fascinating and a bit more complex. Can you unpack for us how China has been able to reduce its need for crude oil by such a staggering amount? What is it doing?

[Ambrose Evans-Pritchard]

Its previous demand figures were inflated because it was buying a lot of oil to fill its Strategic Petroleum Reserve. So unlike the United States which went in with half depleted strategic reserves, China had massive reserves. It was basically preparing, most people think, for potential conflict over Taiwan. But it's proved to be very useful for this conflict. So they probably had 1.5 billion barrels tucked away, which is massive. Basically they immediately stopped filling it up. So that freed up probably maybe as much as one and a half million barrels a day, but a lot. They then had another side business where they were importing oil and then refining it and processing it and then re exporting the oil around the world. So they stopped that and they imposed an immediate embargo on exports. So that cut another slice and then they did all kinds of things internally which kind of we don't really fully understand yet. It seems like basic demand management essentially. I think when people come back and look at this in the future, the regardless is a critical turning point of the whole history of the oil markets globally because nobody thought that China had this ability to submit a switch off demand like that. So it's now replaced Saudi Arabia as the essential regulator of the global oil market. Because Saudi Arabia used to increase supply or cut off supply depending on what price it wanted. Now China can regulate it by just turning off demand. On the other side of the equation then that's come as a shock to everybody. And I make another point when we come out of this. I think people realize that actually the world probably doesn't need quite as much oil as had been thought. And we're going to go thread into a big glut when all this is over because structurally there's too much oil production which has all kinds of implications. For example, for our debate over drilling in the North Sea. Is it really actually going to be viable even if you open it all up for further drilling? How much is going to be extracted? We could have a debate about that.

[Venetia Rainey]

You mentioned China essentially replacing Saudi Arabia in terms of being able to influence the oil market. Does that mean the end of opec? Does that mean China is the new opec? OPEC is obviously much bigger than Saudi Arabia, but I'm just wondering if that releases the grip that Gulf has had on that.

[Ambrose Evans-Pritchard]

The new OPEC is OPEC plus Russia plus Kazakhstan. So it's already become bigger. The fact that China can do this takes away quite a bit of their leverage in the market. I'd say it is the new big kid on the block basically in the oil market that we hadn't fully understood before. But you don't have to go that far out. 3, 4, 5 years and you'll be seeing quite a big reduction in China's oil imports already. Essentially it's flat. So we reach this plateau where China's oil demand is not increasing. And I think it'll probably go down a pretty steep curve and it'll mostly be used in the future for petroleum products, for plastics, for things like that, but not for transportation, except for jet fuel, which you can't easily replace.

[Venetia Rainey]

You also mentioned the US Strategic Petroleum Reserve falling. I think it's now down to its lowest level since January 1983. That's according to data that was released by the Department of Energy on Monday. The US has drawn about 172 million barrels from those reserves since March as part of a coordinated agreement with the IEA to release barrels to help calm the oil markets. How significant is this dwindling of the U.S. strategic reserve? You often see posts going round on X saying the clock is ticking for America to make a deal with with Iran. Is that right? It doesn't sound right, but you tell

[Ambrose Evans-Pritchard]

me is one component. Obviously it was very unwise to go into a war in the Middle East. The archery of the global oil system without having first filled the Strategic Petroleum Reserve. It could have been. I think it can take about 750 million barrels or something. I think they only had about 450 or something. I don't know what it was.

[Venetia Rainey]

And now it's at 298. Just to give our listeners a sense. Yeah, now do not.

[Ambrose Evans-Pritchard]

Yeah, okay, there you are. I don't know whether some people say the safety level's 300, some people say it's 270, whatever, but you're getting close to it. The point is they can't do a second round of this.

[Venetia Rainey]

Sorry, when you say safety level, what does that actually mean? Like the physical infrastructure starts to be damaged or what's the risk?

[Ambrose Evans-Pritchard]

Yeah, these reserves, you can't use them that often. You can only use them four or five times before you start degrading them chemically. If you keep tapping into them, you reduce their sort of shelf life. And there comes a point when it gets too low, the actual volume get too low, then you damage the sort of chemical structure of it, if you like. They basically can't go down to 100 without wrecking the system. So maybe they can do another 50, maybe they can do a million or something, but 60 million, I don't know. But that's not going to make a line. Bit of difference, frankly, to this global picture. We've got talking about global oil demand, about 300 and 304 million barrels a day. This is really quite small beer. I think the bigger stuff is the commercial reserves in the US and they're also very, very low. And then you've got these other reserves around the world. We've got OECD countries, all have their own strategic reserves, but those are also quite diminished. And the Japanese have. And the Koreans have released a huge amount of their proportion of their reserves, probably rather unwisely. I don't think the Japanese are pasted very well. They do have huge reserves, but they're no longer huge reserves. So, yeah, we can take a. You can dip into it a bit more. But if this goes on for six months and there's no resolution, so what's Trump going to do?

[Venetia Rainey]

Meanwhile, things are changing on the ground in the Middle east. We're seeing a global pipeline investment boom. More companies offering shipping routes across the Arctic to avoid the Bab El Mandab Strait and the Strait of Hormuz. I saw, but I just want to focus on the oil. We've seen, for example, Saudi Arabia increasingly relying on its east to west pipeline to go to the Yambu port in the Red Sea. Now that the Houthis have increased attacks and announced a maritime blockade on Saudi Arabia, they're increasingly trying to get it out to, I think, the Mediterranean via the Samud pipeline across Egypt. Oil exports from Egypt's Mediterranean port have doubled to about 2.3 million barrels per day in August, compared to 1 million barrels per day last month, according to Kepler. And the majority of those exports are Saudi crude. So we're really seeing these big players trying to figure out other ways to get their products out, aren't we? We're seeing the reality changing on the ground in a way that suggests that people think this will probably be a semi permanent problem.

[Ambrose Evans-Pritchard]

Saudis are done. You've got to give them credit. They've done a pretty good job of switching a whole lot of supply through the East, West Pipeline, probably there was some already going through that, so they're probably up to about 6 million barrels a day, maybe more. But there was already some going through that before, so it's not addition. So probably they managed to get maybe four and a half million barrels a day that they lost with the straight of four moors out that way. But the Houthis have attacked that port before they have the capability of reaching it. So if that little spat continues to escalate, then the Yambu port becomes a target, too. Pipeline itself potentially a target. It's pretty well defended. If the US Escalates and it launches another big round of a bombing of Iran, and especially if the US Starts hitting Iran's energy infrastructure, Iran will retaliate by unleashing everything it can against all the energy infrastructure of the region and probably mobilizing the Houthis. I know they operate independently and they've got their own agenda, but they may join in much more aggressively than they have so far and go for the port of Yanbu. And then we are in real trouble. At the end of the day, you lose the Strait of Hormuz and the Red Sea, and you're in real trouble. You're seeing these spillover effects everywhere. You're seeing it in the Panama Canal, for example. Now, because the whole global system's so dislocated. There's more oil and products going from the eastern United States, all Texas, through to California into Asia. The Canal is jammed up. I think the fees they're charging now have gone up something like 18 times in a year. Some colossal increase is a million dollars a passage for some of these ships. And also the Panama Canal itself has got some problems because of the droughts. So they may have to reduce the volumes going through there. So it's right. Same problem we have on the Rhine River. So the system's under a lot of stress from lots of different angles. And when you have a crisis in the Middle east like this, it spills over into all kinds of unexpected places. And that's what we're seeing. And all the delayed effects of this have yet to hit economically.

[Venetia Rainey]

We're going to take a short pause now. Coming up after the break, which country has been the worst affected by the closure of the Strait of Hormuz? Welcome back. You're listening to Iran, the latest with me, Venetia Rainey and our World Economy editor, Ambrose Evans Pritchard. One of the countries that has been particularly badly affected is Iraq. And this week, the Iraqi government put out a bunch of statements, basically Insisting it's got plenty of reserves, ways of paying salaries for state employed people the next 10 to 11 months. And that's really significant because I think something like 2/3 of working age Iraqis rely on the state for their livelihoods. And just to give our listeners a bit of context, so almost all of Iraq's oil, somewhere between 80 and 90%, is shipped out of the Al Basra oil terminal normally because it doesn't have any alternatives. And so that would go through the Strait of Hormuz. But obviously the blockade has completely changed that. By May, crude exports from Iraq were down 97% year on year. That is a cratering and this is really troubling. Iraq is a classic petro state.

[Podcast Host/Producer]

Right.

[Venetia Rainey]

Somewhere between 85% and 90% of its national budget comes from exporting oil. And this feeds straight down, as I said, two thirds rely on the state for their livelihoods and these salaries are now being delayed. So we had a couple of protests earlier this month from people who are concerned about their not being paid. Iraq is now looking to export oil, more oil through a Turkish pipeline. It started trucking some oil out overland routes, not very efficient. And it's also trying to revive a pipeline through Syria into Lebanon. But these aren't short term solutions, are they? It points to the way that these petro states in the Middle east are trying to compensate, but they won't be able to do it fast enough to keep up with the ravaging, frankly, effects of this conflict. And I guess we'll start to see much bigger problems towards the end of this year if the war doesn't wrap up soon.

[Ambrose Evans-Pritchard]

Yeah, I mean it takes a long time to build pipelines. And where do you get the steel from? Where do you get the engineers from? These things are huge enterprises, especially across large expanses of desert. No, it's tempted terrible for Iraq, the collateral casualty of this war. We could basically destabilize the country again completely. They're completely essentially innocent bystanders. They probably suffered worse hit than anybody else in some respects worse shape than Iran. Iran has been able to get a lot of its oil out. In fact, in these various sort of intermittent on again, off again war, they've been able to get a lot of oil out. And they've shown by the way in the past that in 2019, for example, they were able to withstand a period when they were hardly getting any out for a long time. And I think the assumption among many people in Washington is that they put more economic pressure on Iran. It'll crumble from the inside, I think is wishful thinking. And I think the regime has got a new lease of life as a result of this war, which is one of the great ironies of it all. The war saved a dying regime. It was losing its credibility among the Iranian people. And external attack has had a rally around the flag effect. And now you've essentially ended up with a military regime rather than the clerical regime. And it's one that's very tight knit, a very hard line, and absolutely determined to develop nuclear weapons.

[Venetia Rainey]

Yeah, it's a pretty damning assessment. I think the only point in which I'd disagree potentially is that the Iranian regime is now more determined to seek nuclear weapons. I can absolutely see why there might be more of a motivation, but I don't think we've heard them really talking about it yet. And there's still a lot of internal divisions between the sort of clerical part of the regime and the military part of the regime. We'll see where sort of power truly settles probably after this war is over.

[Ambrose Evans-Pritchard]

People say, you know, well, they don't need nuclear weapons anymore because they've got the Strait of Hormuz. And that's proved to be a much more potent and usable weapon. It is now, and it will be for five years, but by the time all these other new pipelines are built, it will be a much diminished weapon. So they kind of need to keep this going on two fronts. I mean, from their point of view, I can see they have a very strong motive to keep going with nuclear weapons because they wouldn't have been attacked had they had nuclear weapons in the first place. And I think the countries all over the world have looked at this and said, well, if you want to avoid being attacked out of the blue like this, you better have nuclear weapons. So we could get. Another consequence of this war is a proliferation in several countries, and I might add even including possibly Korea and Japan, who feel very unsettled about the nuclear umbrella. I mean, for lots of different reasons. But the added new reason is that all these weapons systems, American weapon systems.

[Venetia Rainey]

Yeah.

[Ambrose Evans-Pritchard]

Were removed from that theater to deploy in the Gulf, leaving them much more vulnerable. And I don't know where Taiwan sits in this, but I would have thought they must be pretty alarmed.

[Venetia Rainey]

You mentioned the Iranian economy and how you don't think those hoping for the Iranian regime to be squeezed, that that will work. We've had the US blockade reimposed. Do you see any signs that the Iranian economy is close to being on its knees? Or do you think it just doesn't really matter either way because the regime doesn't care how impoverished its people are in it.

[Ambrose Evans-Pritchard]

In my career, I've spent times in countries where they were bankrupt and in theory involved in wars. And you would think, oh, how can the economy continue in these circumstances? Because if you look at any of the normal sort of metrics, it's just untenable. And yet in these situations, they just keep going. And so I'm very suspicious of the argument that they're crumbling. It's quite a large, internal, diversified economy. They've got these porous borders all over the place. Borders, large borders with countries that are not hostile to them. There's a lot of stuff can get through. They're getting probably a lot of help from China in different ways. I didn't really see the mechanism by which an economic, long economic embargo brings them down before it brings down political consensus in the west and in the United States. It would seem to me that the political consensus in Washington for this war will break down before the Iranian economy breaks down.

[Venetia Rainey]

One of the countries that is starting to see the impact here in the west is the uk. So we had some data out today showing economic growth here in Britain has slowed in the last few months. The economy grew by just 0.4% in the second quarter of this year, down from not especially impressive, to be honest, to 0.6% in the first quarter. And Andy Burnham has been warned that the UK economy could grow by as little as 0.3% in 2027 if disruption in the Strait moves continues. How dire is this?

[Ambrose Evans-Pritchard]

Well, I don't think it's dire at all. I think it's quite good. 0.6, 0.4 in a region. Europe is a kind of. It's sort of comatose economy, has been for ages, very, very low growth there in our sort of biggest trading area. So actually we're doing pretty well. And there's been this pattern for quite some time where the big IMF and the OECD and others predict we're going to be one of the worst performing economies in the developed world. This has happened several years and then it turns out actually we were one of the better ones. And it's happening again. In terms of the effect fallout from the Iran war, there were some predictions. The IMF came out with some predictions that we're going to be one of the worst hit from the energy shock, which I completely disputed at the time. I think incorrect analysis. They hadn't taken on board the degree to which we've already lowered Our dependence on imported gas, for example, particularly you go back to the Ukraine war in 2022, roughly 42% of our electricity was generated by gas. And now you're talking about 27%. So that's a big fall. We still use it for heating, but luckily we're in the middle of summer, so we need much gas for heating. We'll face that problem in the winter. We have an advantage which we actually produce. I don't know what the latest figures are, but it's maybe 35 to 40% of our own gas we produce in our own. Plus we get all this pipeline gas from Norway. We're not as badly exposed as some. The rest we get in is shipped liquefied natural gas, LNG from the US from not from Qatar. Now normally from Qatar the US has stepped in and has replaced it essentially.

[Venetia Rainey]

So the UK not too badly affected, which countries in the west we've spoken a bit about America, but are there other countries that are being badly affected by the Iran war or will be in six months time if things continue?

[Ambrose Evans-Pritchard]

The crack spread on all these products like diesel and jet fuel and so forth, that's on we all share. America is in exactly the same position as we are. The crack spread in New York harbor, the benchmark there, and the crack spread in Rotterdam is almost the same and it's huge. So the diesel price, we're getting the same shock. And if you look at the IATA publishes this weekly jet fuel index and the price is pretty similar everywhere. It doesn't matter whether you're in Far east or whether in America or over in Europe, you're getting hit by massive jump in jet fuel costs. So we're all feeding it through these kind of, these networks. In terms of the actual macro economy, Germany's suffered a lot. It's got quite a high energy dependency. Its industries, has a lot of high energy usage industries, heavy industries, chemical industry, all these things, steel. And so they've taken a hammering and then they're basically, they've been in a depression for five, six years, much worse than Britain. And in my view the Germans have handled it quite well actually, given what's been thrown at them. They've had so many hits all at once. The car industry's been hit by the China threat. They've been that the whole dependence on Russian gas that blew up in their face and it was one thing after another. They've really suffered a lot. And of course the British and German economies are very heavily integrated, so there's no schadenfreude in this they've suffered so much, we get pulled down as well. I would say the Japanese are quite got a problem here because they import all their fossil fuels and they also have a lot of sort of heavy industry and a lot of kind of reliance on kind of oil to petrochemicals and so forth.

[Venetia Rainey]

Just want to finish by asking you about an excellent piece that you wrote for the Telegraph which we'll link for our listeners and viewers in the show. Notes about Pulitzer Prize winning American historian and journalist Barbara Tuchman's March of Folly. And for those who are not familiar with the book, it looks at sort of four major instances of government folly in human history, from the Trojans to the Americans in Vietnam. And you say that if she was alive today, she would have to add another chapter. Donald Trump's excursion in the Gulf ticks all of the boxes of her timeless book.

[Ambrose Evans-Pritchard]

Why the chapters that really interest me in her book, one of them is about the Renaissance papacy and how all the errors they made that led to the Protestant Reformation. Another one was how Britain lost the Americas when it could so easily been avoided. Another major chapter was the Vietnam War and how America blundered into this thing on a whole lot of false premises and got dragged deeper and deeper into it. But what's common to them all is they were acting against their own strategic self interest at different stages out of kind of stubbornness, out of wooden headedness, out of an illusion of invulnerability, out of hubris. And they didn't understand how the other side was thinking. And I think this has been the fundamental error with Iran. They just couldn't get inside the heads of who they were dealing with there. And Trump clearly thought he'd just be another Venezuela and it'd be a quick publicity stunt and victory and go home. That was an extraordinary misjudgment. And you know, and furthermore, he was, you now know, he was warned by the chairman of the Joint Chiefs of Staff, Dan Kane, be careful because we don't have that many munitions and we gotta be careful how much we use on this. Essentially, America no longer gets its energy from the Middle east, it doesn't need it. It's an, the world's biggest producer of hydrocarbons. It's an exporter of a net exporter of oil, it's a large exporter of LNG gas. What was it doing there? It's essentially a secondary theater. The main fight is the main contest is in the Far east and the other one, in my view, but not in Trump's view is in Europe with a native flank in Russia and all the dangers there. So he denuded the defenses on both flight and both of these theaters that are critical for this secondary war in an area where America doesn't have energy and economic interest directly. And it wasn't necessary. There was no reason for it. I don't think anybody in strategic circles seriously believes that Iran was just about to develop a nuclear weapon. I think that was just a story put out and it was just completely unnecessary to launch this thing. I'll just make one point here which if you look at the latest Pew survey, the US Pew surveys which do survey opinions around the world, and it's how they view the United States and how they view China as in their latest one. And if you look at the charts, how China has now displaced the US as the country that's more trusted, seen as a more stable force in the world, not only in countries where you might expect it so Indonesia, but also in a lot of allied countries. China is now more trusted than the United States and by quite large margins. Actually. You can look at Germany, the Netherlands, Italy by a wide margin.

[Venetia Rainey]

And that crossover has happened in the last year. I was looking at last year's Pew survey on exactly that. That has happened in the last 12 months.

[Ambrose Evans-Pritchard]

If I was an American diplomat and I was looking at that, I would say, houston, we have a problem.

[Venetia Rainey]

Ambrose Evans Pritchard, our World Economy Editor thank you very much for joining us on around the Latest. That's all for today's episode. We'll be back again tomorrow. Until then, goodbye.

[Podcast Host/Producer]

Around the Latest is an original podcast from the Telegraph, created by David Nulls and hosted by me, Venetia Rainey and Roland Duller. If you appreciated this podcast, please consider following around the latest on your preferred podcast app and if you have a moment, leave a review as it helps others find the show. For more from our foreign correspondents on the ground, sign up for our new daily newsletter, Cables, or listen to our sister podcast Ukraine the Latest. We're still on the same email address battleionselegraph.co.uk or you can contact us on X. You can find our handles in the show Notes. The producer is Peter Shevlin. The executive producers are Venetia Rainey and Louisa Wells.

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[Ambrose Evans-Pritchard]

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