When renowned economist Javier Milei won Argentina’s presidency in late 2023, he came armed with a chainsaw. Not a literal one, though he had famously wielded one on the campaign trail. The chainsaw was a metaphor for what he promised to do to the Argentine state: cut it down, fast and without mercy.

Nearly two-and-a-half years into his presidency, that chainsaw has done real damage to government spending. Whether the cuts have healed the patient or simply reduced the bleeding while leaving deeper wounds untreated is the central question facing Argentina today.

The honest answer is, both things are happening at once. At the national accounts level, Argentina looks better than it has in years. Investors are calmer. The currency has stabilised. The government is, for the first time in almost two decades, spending less than it earns. But zoom in from that altitude, and a different picture emerges.

Factories are running at half capacity. Small businesses are filing for bankruptcy at record rates. Ordinary Argentines are putting groceries on credit cards because their wages have not kept pace with prices. The country is experiencing a split reality, and understanding that split is essential to understanding where Argentina goes from here.

The Surplus and What It Cost

For most of its modern history, Argentina spent more than it collected in taxes. The gap was filled by printing money, which fed inflation, which eroded savings, which triggered crises. The most devastating of these came in 2001, when a rigid currency peg to the US dollar, years of fiscal deficits, and a mountain of foreign debt combined to produce the largest sovereign default in history at the time.

Banks froze deposits overnight. Five presidents came and went within two weeks. The economy contracted by nearly 11%. Recovery came slowly, driven largely by a commodity boom and debt restructuring, but the institutional scars ran deep. Milei’s government decided that ending this cycle required fiscal discipline above all else, which meant that the government must not spend more than it earns.

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By that measure, the policy has worked. In the first four months of 2026, Argentina ran a primary fiscal surplus equivalent to roughly 0.5% of GDP. Including interest costs, the country still managed a positive financial balance of around 0.2% of GDP. April 2026 marked the fourth consecutive monthly surplus of the year.

Before Milei took office, Argentina had not managed a full-year financial surplus since 2008.

These numbers came primarily from cutting spending rather than raising taxes. In fact, tax revenues have been falling in real terms for months. The government eliminated 211 public programmes across various ministries, saving roughly two billion US dollars. Public sector wages were cut in real terms. Subsidies were slashed. Infrastructure investment was curtailed. The state was made smaller, fast.

The outside world noticed. Argentina’s sovereign risk premium, which measures how much extra interest investors demand to hold Argentine debt, fell below 500 basis points for the first time since 2018, and has held roughly there since. The IMF completed its second review of a 21 billion dollar lending arrangement in May 2026, releasing a further billion dollars, and bringing total disbursements to nearly 16 billion dollars.

Restoring credibility in international markets is a genuine achievement, and a lower risk premium eventually means lower borrowing costs for businesses and households alike.

The Factory Floor is Dark

The problem is that the path to fiscal balance has run straight through the country’s productive economy, and the damage there is severe.

Argentina’s industrial sector has been contracting for over a year. The Argentine Industrial Union tracks factory performance through a monthly index where a score above 50 signals expansion, and below 50 signals contraction.

In January 2026, that index stood at 36.5 points, its fifteenth consecutive month below the neutral threshold. Industrial capacity utilisation fell to 53.8% by the end of 2025, down from 65.6% two years earlier. In the automotive sector, factories are running at just 31.2% of capacity. In textiles, rubber, and plastics, conditions are at historical lows.

What does this look like in practice? Machines sit idle. Workers are sent home early. Shifts are cut. Companies that cannot pay their bills enter legal proceedings to restructure their debts before going bust entirely.

Filings for concurso preventivo, the Argentine legal process allowing a struggling company to restructure before formally going bankrupt, have risen by more than 130% compared to the same period last year, now exceeding the levels recorded during the worst months of the Covid-19 pandemic.

Daniel Rosato, President of Industriales Pymes Argentinos, did not mince words while describing what his organisation is witnessing on the ground, “We had warned that this year we were going to arrive at the closure of more than 1,000 SMEs, but the rhythm we see in the degradation of the local economy and the presentations of concursos preventivos demonstrates that the damage to the productive framework is much worse. There is no time to debate ideologies, only to save companies and their workers, who are the ones harmed by so much inaction.”

Industry associations have petitioned Congress for emergency support through temporary freezes on debt enforcement, tax payment deferrals, and extended restructuring timelines. Without intervention, they warn, the wave of factory closures will accelerate.

The asymmetry between large and small firms is significant. Large and medium-size companies are suffering, but they have access to lawyers, financial advisors, and bank relationships that help them manage the crisis. Micro and small enterprises, which form the backbone of Argentine manufacturing and retail employment, have almost none of those buffers. Their production and sales figures are deteriorating nearly twice as fast as those of larger competitors.

The Credit Card Kitchen Table

The industrial downturn has a human face, and it sits at the kitchen table.

Argentine wages have fallen by 20% in real terms since 2018, the steepest drop of any country in Latin America over that period. By comparison, Mexican workers saw real wages rise by more than 22% over the same period. The Latin American average was a modest gain of 2%.

Under Milei, public sector workers have seen their real wages fall by more than 17% since the administration took office. Private sector workers have fared somewhat better, losing around 1.5 per cent in real terms. For households already stretched by years of wage erosion, even small additional losses are deeply felt.

The response has been to borrow. Credit card debt has doubled relative to historical averages, with delinquency rates at their highest in more than 20 years. What makes this particularly troubling is not the amount of debt itself but what it is being used for. Credit cards in Argentina were once primarily used to buy televisions or refrigerators. Now, an estimated 75% to 80% of households are using credit to buy basic food. Around 60 per cent are using debt to pay electricity and gas bills. Nearly half are borrowing to cover basic healthcare. This is not consumer finance. This is survival on credit.

Retail sales confirm the picture. Real retail volumes fell by 13.3% in March 2026 compared to the same month a year earlier. Nominal sales grew slightly, purely because prices are still rising, but the actual volume of goods purchased is shrinking steadily across nearly every category.

The Feedback Problem

Here the story gets structurally complicated, because the collapse in domestic activity is now threatening the very fiscal programme it was meant to support.

Argentina’s tax system is heavily dependent on domestic economic activity. When factories produce less and people buy less, those tax bases shrink. In April 2026, national tax revenues fell by around 4 per cent in real terms compared to April 2025, the ninth consecutive month of real decline.

Independent analysts estimate that roughly 97% of this fall is due to depressed domestic activity, not deliberate tax cuts. Export duties on beef and grains, cut in July 2025, compounded the shortfall, with receipts from those levies falling by more than 34% in real terms in April 2026.

The government’s response to falling revenues has been to cut spending further. But each additional round of spending cuts reduces economic activity, which reduces tax revenues, which requires further spending cuts.

This self-reinforcing spiral is not unique to Argentina. Many countries that pursued aggressive austerity during debt crises, including Greece in the early 2010s, found themselves trapped in precisely this loop. Argentina is living that lesson in real time.

Where the Money Goes

When Milei launched Phase 3 of his economic programme in early 2025, it liberalised the foreign exchange market significantly, removing restrictions on companies paying dividends to foreign shareholders.

Before the liberalisation, foreign companies were remitting an average of about 24 million dollars per month in profits. By early 2026, that figure had risen to an average of 333 million dollars per month, peaking at 882 million dollars in March 2026.

Between December 2023 and early 2026, Argentina generated a trade surplus of 47 billion dollars, and received foreign financing of 46 billion dollars. Yet, net international reserves rose by only about 14.7 billion dollars. The remainder was absorbed by private capital flight, debt interest payments, and profit remittances.

To attract and retain capital, the central bank must maintain high domestic interest rates, but those same rates raise borrowing costs for businesses and households, depressing the activity needed to generate tax revenues.

The Mining Future

To compensate for the contraction in domestic industry, the administration is betting on large-scale resource extraction. The Large Investment Incentive Regime, known as RIGI, offers substantial tax advantages to investors committing more than 200 million dollars. By early 2026, over 27 projects had been submitted, representing commitments exceeding 30 billion dollars, including Rio Tinto’s 2.5 billion dollar lithium project in Salta, and a 15 billion dollar copper joint venture between BHP and Lundin Mining in San Juan.

A bilateral trade agreement signed with the United States in February 2026 embeds RIGI as the primary channel for American investment in Argentine critical minerals. Over a 100 explicit legal obligations in the agreement bind Argentina to specific actions, including accepting American technical standards and modifying environmental and agricultural laws.

American commitments are largely aspirational rather than binding. Whether this arrangement allows Argentina to process raw minerals domestically rather than export them unprocessed remains a serious open question.

The Poverty Numbers and Their Limits

In March 2026, Argentina’s official statistics agency announced that the national poverty rate had fallen to 28.2% in the second half of 2025, down from a peak of 52.9% in the first half of 2024. Independent researchers have urged caution. The official measure does not reflect sharp rises in deregulated energy and healthcare costs, treats credit-financed consumption the same as wage-financed consumption, and conceals the fact that quarterly data shows poverty rising back to 32.5% in the final three months of 2025.

Community kitchens receiving public food supplies were cut from roughly 4,000 to 5,000 annually, down to 1,552 by mid-2025, worsening real food insecurity without affecting the monetary statistics. The Catholic University’s Social Debt Observatory estimates that 53.6% of Argentine children live in poverty, with 28.8% experiencing food insecurity.

The Question Ahead

Argentina in mid-2026 is a country in genuine tension with itself. The macro numbers are better than they have been in years. The micro reality, for millions of households and hundreds of thousands of small businesses, is one of sustained hardship.

Juan Pablo Filippini, an economist and PhD candidate in finance at IESE Business School, captures the distinction precisely, “Progress is not the victory lap. Argentina’s reserves are rising, sovereign risk is falling, and fiscal discipline is returning. But recovery is not measured by headlines alone. The real test is durability: stronger institutions, sustained reserve accumulation, tax compliance, and employment that catches up with growth.”

The administration has demonstrated that fiscal discipline is achievable even in a country with Argentina’s turbulent history. What it has not yet demonstrated is that fiscal discipline alone can generate the broad-based recovery that would make the hardship sustainable rather than indefinite. The path forward runs through targeted relief for small and medium businesses, a credible rebuilding of household purchasing power, and a strategy for converting booming mining revenues into domestic jobs and industrial capacity rather than profits remitted abroad.

However there is hope.

Javier Milei, said in his inaugural address at Buenos Aires on December 10, 2023, stated: “It will not be easy. One hundred years of failure cannot be undone in one day, but one day begins, and today is that day.”

Many Argentinians are clinging to this hope that the austerity measures will revive their economy to the golden age of early 20th century, when Argentina rivalled the United States of America as an economic powerhouse.

The post Argentina’s Chainsaw Balance Sheet at a Crossroads appeared first on International Finance.

Interim President Delcy Rodriguez has asked IMF Managing Director Kristalina Georgieva for access to $5 billion in special drawing rights (SDRs) that Venezuela holds. This would be used for infrastructure, electricity, and water improvements.

The new administration has also opened the energy sector to foreign investment. Shell will develop the Loran field, which had been abandoned for 23 years, and comprises seven natural gas deposits, with six of them straddling the maritime border with Trinidad and Tobago. As per Rodriguez, the project would allow Venezuela ‘to take a very important step forward in its gas development, and also as a gas exporter’.

After taking over Venezuela’s reigns post the US-staged arrest of controversial president Nicholas Maduro, the Rodriguez government has identified the Latin American country’s huge energy reserves as one of the routes to help the nation escape its economic abyss. Agreements have been signed with several of the world’s leading oil companies, including Britain’s BP and Spain’s Repsol.

Chavismo: A period of mixed opportunities

The 1999–2013 phase under Hugo Chavez was all about a massive, oil-fuelled expansion of social spending and poverty reduction, coupled with the erosion of long-term economic stability through nationalisations, rigid price controls, and extreme dependence on petroleum exports.

Under Chavez, Venezuela benefited from a historic surge in global oil prices, which skyrocketed from roughly $11 per barrel in 1998 to over $100 by the late 2000s. The influx of petrodollars allowed the administration to double domestic social spending. It heavily subsidising food, healthcare, and education, which significantly reduced poverty and income inequality during his presidency.

The Chavez administration nationalised major industries. In 2003, it brought forward stringent currency and exchange controls to prevent capital flight from the Latin American nation, alongside strict price controls on basic goods.

However, it missed a trick, by not using its oil wealth to diversify the domestic economy. By the end of Chavez’s term, petroleum accounted for 95% of Venezuela’s export revenues, and about half of all government income.

The move of purging state-run enterprises of experienced workers, and replacing them with political loyalists was another blunder, as the move hindered productivity. By the time of Chavez’s death in 2013, the foundation of the economy was critically damaged by rampant inflation, chronic shortages of basic goods, and an overvalued currency.

Chavez must be credited for sharing Venezuela’s vast oil wealth with the poor and disenfranchised. Chavismo (the term that defined the Chavez-led left-wing populist movement in Venezuela) witnessed the percentage of Venezuelans living below the poverty line falling to 36.3% in 2006 from 50.4% in 1998.

Infant mortality fell from 20.3 per thousand births when Chavez came to power, to 12.9 by 2011. The access to education was another massive plus for the country, with the number of children enrolled in secondary education rising from 48% in 1999 to 72% in 2010.

However, ‘Chavismo’ came at a cost, as the Latin American country had to reduce state-run oil company PDVSA to the status of a ‘piggy bank’, in order to sponsor the government’s social security projects, while neglecting oil infrastructure and production.

Maduro rule: The abyss kicks in

However, the real downfall happened in March 2013, as Nicholas Maduro took over the administration’s reigns immediately after Chavez’s death.

The domestic economy shrank 71% between 2012 and 2020, while inflation topped 130,000%. Its oil production, the beating heart of the country, dropped to the unthinkable less than 400,000 barrels a day.

Between 2013 and 2025, as per the World Bank and the IMF, approximately 80% of the country’s GDP evaporated, a figure that dwarfs what happened to the United States in the Great Depression (29%), and to the Soviet Union during its collapse.

Along with the structural fragility, Venezuela missed the opportunity to utilise sovereign wealth funds to sterilise the liquidity generating from its trade. Even though the Latin American nation had an entity called Macroeconomic Stabilization Fund (FEM), by 2014, the fund held less than $3 million.

As crude prices collapsed, Venezuela faced a choice between fiscal austerity or monetary expansion. As per Iranian freelance journalist Amirreza Etasi, a keen observer of Maduro’s economic missteps, the administration attempted to plug a fiscal gap, approaching 15% of GDP, not by cutting spending, but by expanding the monetary base.

As inflation ticked upward, the government attacked the symptom (prices) rather than the cause (liquidity). The 2014 ‘Fair Prices Act’ capped profit margins, and mandated sales below replacement cost.

“The economic result was a textbook negative supply shock. Manufacturers, unable to cover marginal costs, halted production lines. The scarcity index for basic goods skyrocketed to over 80%. To manage the fallout, the government militarised food distribution (CLAP), shifting from a market economy to a clientelist rationing system prone to massive corruption,” Etasi said.

Simultaneously, the Central Bank of Venezuela (BCV) was stripped of its autonomy, with Maduro government turning the entity as a printing press for the Ministry of Finance. This triggered hyperinflation (technically defined as monthly inflation exceeding 50%) in November 2016. By 2018, annual inflation hit an astronomical 130,060%, though IMF estimates were higher.

To mask the collapse of the currency’s value, Venezuela engaged in serial redenomination. In 2008, three zeros got removed. In 2018 and 2021, the number stood at five and six, respectively. In total, 14 zeros were removed from the currency in 13 years.

Post the 2002–03 PDVSA strikes, the executive branch of the oil company fired over 18,000 technocrats (geologists, reservoir engineers, and managers) stripping the company of its institutional memory. They were replaced by political loyalists.

“In the capital-intensive oil industry, failure to invest in depreciation and amortization (D&A) is fatal. PDVSA stopped injecting water and gas into aging wells to maintain pressure. Result: production freefall from three million barrels per day (bpd) to a nadir of under 700,000 bpd by 2020. The collapse was sealed by the physical failure of the power grid. The March 2019 nationwide blackout, caused by brush fires and neglected transmission lines at the Guri dam, paralysed the country for days. Without electricity to power the upgraders in the Orinoco Belt, the heavy crude turned into sludge in the pipes, causing permanent damage to the infrastructure. This event alone cost the economy an estimated $2.9 billion in GDP,” Etasi remarked.

By 2019, price controls were abandoned, and the US dollar was allowed to circulate freely (de facto dollarisation). While the move stopped the hyperinflationary bleeding, it bifurcated the nation into two distinct economies.

The dollar economy (20%) was a segment fuelled by remittances, illicit gold exports to Turkey/UAE, and government contracting. On the other hand, emerged the bolivar economy (80%): Public sector workers and pensioners earning in local currency, whose purchasing power was obliterated.

By late 2025, oil production crawled back toward 900,000 bpd, aided by specific licences for United States’ Chevron and swap deals with India’s Reliance Industries involving naphtha for crude. However, with a credit-starved banking sector (due to 73% reserve requirements) and decimated public utilities, sustainable growth remained mathematically impossible.

The Gini coefficient, on the other hand, rose from 40.7 in 2014 to 53.9 in 2024, making Venezuela the most unequal country in the Americas. In 2025, Venezuelan inflation soared to 475% in 2025, the highest in the world.

On 2019, Washington imposed full blocking sanctions on the government of Venezuela, freezing all its assets in the United States, and cutting off state-owned oil company PDVSA from the American financial system.

Facing the heat, Maduro did implement a series of economic measures in 2021 that eventually ended Venezuela’s hyperinflation cycle. He paired the economic changes with concessions to the US-backed political opposition, including negotiations for what many had hoped would be a free and democratic presidential election in 2024.

However, in April 2024, the then Joe Biden government allowed the primary oil and gas waivers to expire, citing a failure by the Maduro government to uphold the democratic commitments made in the 2023 Barbados Agreement.

Delcy Rodriguez: Administrator facing a daunting task

Delcy Eloina Rodriguez Gomez, daughter of the Venezuelan guerilla leader and politician Jorge Antonio Rodriguez, wears multiple hats: lawyer, diplomat, and politician. The third is the one she is wearing now. Her promotion from vice-president to President came in January 2026, immediately after Maduro’s arrest.
She has inherited an economically fragile country that needs more than miracle to become ‘great’ again (going by Trump’s immediate reaction on her appointment). The American sanctions on the Venezuelan Central Bank (BCV) have been lifted, and Luis Perez-Gonzalez, deputy of former BCV President Laura Guerra, has been handling the institution’s leadership role since April this year.

It was the same BCV that remained a mere spectator when multiple zeros got stripped from the bolivar after one of the longest hyperinflationary episodes in modern history. Also, the central bank, during Maduro’s time, became notorious for not publishing key economic data. And when it started publishing stats, they were incomplete, forcing IFM and World Bank to stop cooperation with Venezuela in 2019.

The task of converting BCV from a mere spectator of government-sponsored economic miscalculations to the lead actor of Venezuela’s transformation will be a painful task. In the near term, the effects of sanctions relief will likely be most visible in exchange rate auctions, with greater transparency and reliability in these operations potentially helping reduce the gap between the official and the black market rates.

This would directly affect people’s daily life, by reducing price distortions, and helping stabilise inflation expectations. It would also reopen the door to multilateral institutions and international markets, particularly renewed engagement with the IMF, a necessary step toward debt restructuring and access to credit.

However, BCV 2.0 should be independent from political pressures, apart from possessing the ability to communicate a coherent monetary policy. This will satisfy Venezuela’s economic discourse, apart from attracting investment. BCV should be the first ‘government institution’ in the post-Maduro era, that should be capable enough to challenge the administration’s economic narratives.

Despite having abundant natural resource, the state-sponsored mistakes of blocking manufacturing development and industrial diversification have resulted in long-term stagnation and inequality.

Wages in the Venezuelan labour market, based on a mix of public sector, state-owned companies, private activities and a very extensive informal economy, are insufficient to cover basic needs. Being a formal employee no longer guarantees an acceptable standard of living, pushing many public servants to take on side jobs, or turn to the parallel economy.

580,000: the exact number of active businesses, that have been destroyed in Venezuela since early 2000s. The tally of 830,000 from the beginning of the 21st century now stands at less than 250,000 today.

With real GDP collapsing by more than 75%, along with hyperinflation, the country has shifted into a de facto dollarisation, where the sovereign bolivar (VES) coexists with the US dollar, which has become the standard for salaries and prices.

More than 7.5 million Venezuelans have left the country since 2015, about 22.5% of the population. Between 2012 and 2017, 22,000 doctors emigrated, as did more than 167,000 teachers. This exodus has created skill shortages in many sectors, while further weakening education, healthcare, and administration.
Reforms: Key weapon for Rodriguez administration

Rodriguez has brought new laws and regulations reversing Chávez’s nationalisation drive, by reopening key sectors, like hydrocarbons and mining, to private investment.

She has formed a ‘Commission for the Evaluation of Public Assets’, that will audit state ownership in other economic areas, such as agriculture, manufacturing and infrastructure.

Another commission has been formed, consisting representatives from the state, business sector, active workers, and pensioners to ‘review labour conditions, address precariousness, and strengthen the social security system’.

An increase in the so-called ‘integral minimum income’ to the equivalent of $240 per month has been implemented for public sector workers. The amounts are set in US dollars but paid in bolivares at the day’s official exchange rate set by the central bank.

The latest adjustment involved an increase of the ‘economic war bonus’ from $150 to $200 a month, alongside a $40 monthly food bonus. The economic war bonus for pensioners has been raised from $58 to $70 a month, and for public sector retirees from $130 to $168.

There will be a new, one-time ‘professional and academic recognition’ bonus, ranging between $60 and $120, aimed at strategic sectors, such as security, education, and healthcare. Labour inspectorates have been told to address workers’ demands regarding employment conditions.

Venezuela’s National Economic Council has been tasked with designing a more ‘efficient’ tax model aimed at making the Latin American country ‘more competitive’.

The Law on Streamlining and Optimization of Administrative Procedures have been enacted, with the goal of modernising public administration by reducing bureaucracy and incorporating digital tools. The law grants the executive authority to eliminate procedures, shorten timelines, and improve coordination between institutions.

Another mixed commission will evaluate which state-owned assets have ‘strategic’ importance, potentially opening some to private investment. However, the hydrocarbons sector will remain under state control.

The energy sector reform

The partial reform to the ‘Organic Hydrocarbons Law’ has now brought more flexible taxation, apart from lowering royalty baseline rates, and repealing previous restrictive levies to incentivise investment.

On the other hand, the electricity sector has been thrown open to private investment, allowing the creation of joint ventures. The sector, under Maduro administration, earned the infamy of lacking both investment and maintenance. Large parts of the country used to endure hours-long electricity outages, affecting water and telecommunications services.

GE Vernova Venezuela recently signed a Memorandum of Understanding (MoU) with the Venezuelan government to add at least 1 GW of electrical capacity to the National Electric System (SEN) within 24 months. The broader objective contemplates recovering more than 5 GW of capacity over the next four years.

As per the Financial Times, Wall Street banks and funds have now set their eyes on Venezuelan oil assets after Trump’s $100 billion investment pitch (that came in January) and recent legal reforms. Lionheart Capital and Elliott Management are among those pursuing deals, while JPMorgan and Jefferies lead investor trips to Caracas. ExxonMobil and ConocoPhillips, however, are in the ‘wait and watch’ mode, citing unresolved governance, contract, and debt issues.

US Treasury issued sanctions waivers allowing select Western firms to operate, and contract disputes can now be settled in the United Kingdom, France, or Singapore under American law. Venezuelan authorities have already revised proposals under investor pressure, removing clauses allowing government termination for ‘public interest’.

By May, Venezuelan oil production moved past one million barrels per day (bpd) for the first time in over seven years. The feat, confirmed by an OPEC monthly report (apart from measured by secondary sources), was made possible due to a massive 46,000 bpd production increase compared to the March-April period.
It has been a good comeback from the abyss of 2019, when the imposition of American sanctions and export embargo on the Venezuelan energy sector resulted in crude production plummeting under one million bpd, hitting a low of around 350,000 bpd in 2020.

The final take: Nurturing democracy

Rodríguez is not out of the woods yet. Democratic transition is another front, where the acting President will be facing tremendous heat in the coming days.

The return of opposition leader Maria Corina Machado, who the Maduro government barred from competing in the July 2024 election, is imminent. However, things have got complicated, with the comeback of Dinorah Figuera, an exiled lawmaker and elected president of the parallel opposition National Assembly that emerged after the 2015 parliamentary election, after eight years. As per the reports, she has the backing of both Trump and Rodriguez.

What kind of political economy will emerge in the Latin American country in the coming days is not clear. However, it is clear that the Latin American country is betting on its natural resources to come out of the decades-long rut.

More than the hydrocarbons, investing in and uplifting the fragile social sector will make the real difference, if the country wants to be a healthy and competitive economy in Latin America in the coming days.

The post Earthquakes Derail Venezuela’s Escape From Abyss appeared first on International Finance.

Despite the historic GCC deal, which saw the UK become the first one among the G7 (Group of Seven) to enter into a trade pact with the Middle East, the pressure on Starmer got unbearable. He ended up losing his popularity among his own Labour MPs.

The Starmer government’s struggle to improve UK’s stagnant living standards, along with the alleged mishandling of a £22 billion fiscal hole, brought the curtains down on the 63-year-old’s tenure in 10 Downing Street.

A lion’s share of the criticisms against the administration was directed towards its way of handling the stagnant British economy. Inflation, high energy prices, low productivity levels, rising unemployment and an underperforming SME, headwinds that arrested the European country’s growth.

A sector in distress

The SME sector occupies 99.9% of the overall British business landscape. Not only does it employ roughly 60% of the private sector workforce, but it also keeps the country’s growth engine chugging by contributing heavily in construction, professional, scientific and technical services, and manufacturing. Despite 68% of SMEs reportedly being profitable, many of them are facing hurdles on the scaling and cashflow fronts.

A 2025 report from Make UK, and think tanks Civitas and ERA Foundation, titled ‘The Growth Mission: A Blueprint for Scaling up SME Manufacturers’, made these discoveries: despite accounting for 99% of the 250,000 active manufacturing businesses in the United Kingdom, SMEs struggle to access finance during the ‘make or break’ seed to early growth stages of investment, a challenge which, if solved, could boost UK manufacturing investment by £9.2 billion annually.

“Almost two-thirds of these SMEs have ambitions to grow into large businesses over the next decade, which, if realised, could add £83 billion in value to manufacturing, and help propel the UK from the 12th largest manufacturing economy in the world to the seventh,” according to the report, a statement which gives a sad reflection on what could have been the story of the British SMEs had the government supported them.

To correct these issues and help SMEs scale up, the report made a number of recommendations to the Starmer administration, including the creation of an Estonia-style ‘British Business Burokratt Software’ tool to pool data collected by HMRC (His Majesty’s Revenue and Customs) and ONS (Office for National Statistics) that would help micro-target support to identified companies.

Another proposal was the introduction of a super-growth allowance (150% capital allowance), along with the formation of an enhanced Growth Enterprise Scheme (GEIS) to boost SME scale-up efforts.

In March 2026, exactly one year after, came the first-ever SME whitepaper from Lovey (formerly Love Finance), the United Kingdom’s fastest-growing SME lender and broker. Titled ‘The 2026 H1 SME Finance Outlook’, the research not only explored how SMEs accessed finance in 2025 but also examined their outlook, priorities and borrowing appetite for 2026.

The one similarity between the two studies is the discovery of the persistent financial pressure (tax burden and rising costs) on SMEs, while the lack of access to external finance results in missed scaling opportunities for these businesses.

Along with the independent creative market research agency Atomik Research, Lovey surveyed 504 British SME owners across the retail, manufacturing, hospitality and construction sectors between December 2025 and January 2026.

“The findings show that UK SMEs were entering 2026 with cautious optimism, balancing growth ambitions with economic pressures and a changing funding landscape. While confidence remains relatively strong, access to external finance continues to play a critical role in helping businesses invest, expand and respond to economic pressures,” the study observed.

While 82% of SMEs applied for external finance during 2025, 81% missed business opportunities due to a lack of finance. Despite 71% of the surveyed business bosses looking to seek external finance in 2026, tax burden (25%) and rising costs (24%) have remained the two biggest (and constant) growth barriers for them.

Why did 2025 become the year for ‘limited growth opportunities’ for British SMEs? The answers were rising costs, squeezed margins, and cash flow challenges. This unholy trinity created a situation where, due to the lack of funding, companies had to postpone or abandon expansion plans.

“Smaller SMEs were particularly affected. Among businesses with revenues between £500,000 and £1 million, 87% reported missing multiple opportunities due to lack of finance, compared with 82% of businesses with revenues between £250,000 and £500,000. Looking ahead, demand for finance remains strong across sectors. Hospitality businesses are the most likely to seek external finance in 2026 (89%), followed by manufacturing (71%), retail (66%) and construction (56%),” Lovey commented.

The research also highlighted regional disparities in access to funding. In the East Midlands, 96% of SMEs reported missing at least one opportunity due to lack of finance, followed by Wales (94%) and London (91%).

Unemployment numbers

In March, unemployment went up to 5.2%, the highest level since early 2021. More than 1.88 million people were out of work, an increase of 331,000 year-on-year.

Youth unemployment hit its five-year high of 14%, as 575,000 young people aged 18-24 remained jobless. Payrolled employees fell by 134,000 over 2025. Retail and hospitality got hit particularly, as 122,000 fewer people remained in payroll employment in these two sectors.

A month after, there wasn’t a big change. British businesses ​posted fewer job vacancies, with the Iran war starting to show its impact on the European country’s economy. Vacancies fell to 705,000 in the three months to April, the lowest number since the three months to ⁠February 2021.

Wage growth, excluding bonuses, stood at 3.4% in the first three months of 2026 compared ​with the same period in 2025, the slowest increase since 2020. The unemployment rate, a high-profile gauge of any economy’s health, ticked up to 5% for Q1, from 4.9% in the three months to February. The drop in payrolls in April 2026 also became the biggest since May 2020, at the start of the COVID-19 pandemic.

As per the ONS, lower-paying sectors like hospitality and retail saw some of the largest falls in payroll numbers and vacancies, with employers complaining that higher payroll taxes and a government ​reform to give workers more rights have ​made hiring more expensive.

In the words of Andrea Reynolds, a non-executive director for Berkshire Hathaway European Insurance, along with the CEO and founder of Swoop, a venture that simplifies the process of sourcing funding for SMEs, “Behind every redundancy, every unfilled vacancy, every shuttered shop front, there’s a small business owner who’s had to make an impossible choice.”

“From April 2025, employer National Insurance contributions rose from 13.8% to 15%, while the threshold at which employers start paying dropped from £9,100 to £5,000. For a business employing someone on £30,000, that’s an additional £866 per employee, per year, which many small businesses simply cannot absorb. Even for those that can, absorbing costs means lower profits. Lower profits mean less investment. Less growth. Fewer jobs,” she said in her article for EliteBusiness.

To complicate things further, every cycle of increase in the National Minimum Wage will make 2026 an expensive year for British businesses, amid headwinds like the Iran war and the resultant supply chain disruptions.

As per the Centre for Policy Studies, employer NICs (National Insurance Contributions) for a minimum wage employee will rise from £1,617 to £2,583 this year alone. Talking about a minimum wage increase, the latest ratio stands at £12.71 per hour for workers aged 21 and over, adding up to £900 more per year for full-time workers.

As per Reynolds, labour-intensive yet tight-margin sectors like hospitality, retail and caregiving; each wage hike cycle creates situations like job cuts, reduction in operational hours or, in the worst-case scenario, shutdown of the entire business. Her blunt advice to the Starmer administration was: if you want to tackle the growing menace of unemployment, you need to ease the cost of doing business for SMEs.

“Raise the VAT threshold. Immediately. The current threshold is £90,000, but if it were linked to inflation, it would be £103,000. Businesses are becoming VAT liable through inflation, rather than growth. The Federation of Small Businesses estimates VAT compliance adds £4,100 on average to a business’s running costs. I also know that struggling to pay the VAT bill can critically injure the cash flow of otherwise profitable businesses. So, raise the threshold and thousands of businesses will save thousands of pounds,” she stated.

Reynolds also suggested measures like reviewing employment costs.

“National Insurance, the national minimum wage, and business rates don’t exist in isolation. Each one compounds the others. Small businesses need breathing room, not a cascade of incremental tax rises that look manageable individually but are crippling collectively. Make it easier to access finance. Many SMEs are facing a cash flow crunch. They need working capital, not lectures. During Covid, government-backed schemes like CBILS and RLS improved access to alternative finance and simpler application processes. The government can pull this lever if they really want to,” she remarked.

Geopolitics poisons the cocktail

While the Iran war and the Hormuz stalemate have created one of the worst energy shocks the world has ever experienced, British SMEs will face rising energy bills as heating oil costs rise. As per The Guardian, about 7% of all small and medium-sized companies warm their properties and provide hot water using heating oil, whose price, in some cases, has more than doubled in recent weeks.

The situation has got complicated for businesses based in rural areas. Since they are not connected to the gas grid, they have to depend on heating oil. According to the Federation of Small Businesses (FSB), the material is used by about 17% of rural SMEs. And some of their members have already started rationing their fuel use to cope with the sharp rise in prices.

The FSB, which represents about 200,000 businesses and sole traders, has called on the United Kingdom’s competition watchdog to include the SME sector in its investigation into the price rise in the heating oil market. The trade body is equally apprehensive about rogue energy brokers taking advantage of the market crisis to push small companies into signing up to long-term deals on bad terms.

As per corporate restructuring specialist Begbies Traynor Group (BTG), the number of UK businesses in ‘critical financial distress’ has soared by more than a third. Hotels and leisure firms are particularly hard-hit, with mounting labour costs, increased tax burdens and now the Iran war making things difficult for them. The study came up with a disturbing ratio: a growing number of companies edged closer to collapse in Q1 2026.

Businesses considered to be in ‘critical financial distress’ surged by 36.9% to 62,193 for the period, compared with the same quarter in 2025. Concurrently, the number of businesses experiencing ‘significant’ financial distress rose by 9.6%, reaching a total of 634,867.

“Firms have contended with a series of tax increases throughout the year, including adjustments to national insurance contributions, further squeezing their finances. It also comes amid a backdrop of shaky consumer confidence, particularly affecting sectors reliant on discretionary spending habits. These challenges have been exacerbated by energy and materials inflation following the outbreak of war in the Middle East towards the end of the quarter,” BTG stated.

Recession fear

Add the S&P ‌Global’s preliminary UK Composite Purchasing Managers’ Index, which in May 2026 tumbled to 48.5 from 52.6 in April, its first reading ​below the 50.0 growth threshold since April 2025, indicating the kind of drop in activity British companies have been going through since 2025, with ‌the Iran war only piling up more problems for entrepreneurs.

Even though manufacturing firms reported a rush of orders, ‌the increase was largely due ⁠to clients trying to get ahead of possible further price increases or supply chain problems. Also, businesses are unsure about how long the energy prices will remain in the higher territory. Business owners have scaled back their hiring plans ​for the 20th month ​in a row, with expectations for future business being the lowest since April 2025.

The recession fears, especially in the SME circle, have hit their two-year high, according to iwoca’s SME Expert Index, which emerged in May.

As per the survey, 70% of participating finance brokers saw their SME clients getting worried about the rising energy prices, with over three-quarters (78%) expecting disruption to supply chains to negatively impact the business performance. Over half (54%) talked about entrepreneurs getting mentally prepared about the prospect of a recession, the highest level since Q3 2023 and up from 42% in Q4 2025.

Colin Goldstein, Chief Commercial Officer, UK, at iwoca, said, “These numbers reflect what we’re hearing from brokers – small businesses are worried, and the concerns are stacking up. Costs, inflation, supply chains: none of these have easy fixes. What SMEs can control is making sure they have the right financial backing to absorb shocks and keep moving. That’s where we come in, and it’s where we’re focused.”

Another report from the Item Club gave a harrowing stat: the UK is expected to lose around 163,000 jobs in 2026, with elevated energy costs, disrupted supply chains and squeezed household spending putting a dampening outlook on the overall economic health. The worst affected will be manufacturing and construction firms that are facing soaring operating costs.

All eyes on the Andy Burnham

Andrew Murray Burnham, a British politician who has been serving as Member of Parliament for Makerfield since June 2026, and is expected to take over from Starmer, needs to fix quite a lot of things. SMEs will be one among them.

It’s not like the Starmer administration didn’t do anything. In August 2025, it launched a scheme called ‘Backing Your Business’, under which a sweeping £4.5 billion funding package was announced to support SMEs. Then in March 2026, government departments, for the first time, set individual spending targets for SMEs to deliver over £7.4 billion a year to British businesses by 2028.

Billions were allotted separately to boost supply chains, with the goal of creating a thriving private sector that will drive GDP growth and generate wealth across the European country, apart from creating a massive number of jobs.

However, things on the ground look totally different. The SME sector looks squeezed, with recession fears kicking in among the business owners. The government wanted them to create jobs. The Item Club report says otherwise: potential loss of 163,000 jobs by this year-end.

Energy costs have continued to rise, forcing Chancellor Rachel Reeves to announce increased support for energy-intensive companies through the ‘British Industry Competitiveness Scheme’, which will be important for the UK construction and infrastructure supply chain, as it provides support for the manufacturing of steel, cement, ceramics, chemicals, glass, and heavy manufacturing.

During the peak of Iran war, Starmer promised to examine ‘every lever that’s available’ to help British households and industries cope with the crisis.

Ministers were reportedly told to work on support packages ‘that proved their worth during previous crises’. While the current energy price cap expires this summer, Starmer, in the days leading up to his shock resignation, indicated that this support would manifest as a fuel allowance for winter 2026, with the price shocks expected to continue for a good part of 2026.

To deal with the supply chain disruptions, the government is investing £100 million ($133 million) in reopening a carbon dioxide (CO₂) plant in Teesside. The facility, operated by Ensus at the Wilton International industrial site, had been mothballed since September 2025 after a trade deal with the US removed a tariff on American ethanol imports, making domestic production unviable.

While the move is going to take care of the CO₂ generation-related requirements to serve purposes like keeping packaged food fresh and carbonating soft drinks, it is also going to assist domains like water treatment, healthcare and the nuclear industry.

Elevated energy prices and supply chain disruptions will be the realities the British SMEs will have to deal with for the next few months. Burnham’s task should be a straightforward one: keep the assistance, both monetary and supply chain-wise, going, because SMEs are the nation’s growth engine.

The post Save SMEs: Labour Government’s Toughest Challenge appeared first on International Finance.

Factories on both sides of every border pass parts back and forth. A car built in Michigan contains components machined in Ontario and wiring from Monterrey. The arrangement, now formalised under the United States-Mexico-Canada Agreement, underpins roughly $1.6 trillion in annual trade between the three countries. It has made North America one of the most tightly integrated manufacturing regions on Earth.

That arrangement is now under serious strain. The second Donald Trump administration has used its opening years to challenge the foundations of the deal, deploying tariffs, legal threats, and negotiating pressure to push both neighbours toward a version of the agreement that serves American interests far more narrowly.

Formal bilateral talks between the United States and Mexico began in Mexico City on May 28. Canada has been left out of those opening rounds entirely. On July 1, the agreement faces its first mandatory review, at which all three countries must decide by consensus whether to extend it for another 16 years.
The outcome of that review will shape the economic geography of North America for decades. To understand what is at stake, it helps to start at the beginning.

How the Integrated Economy Was Built

NAFTA, signed in 1993, was the agreement that first stitched the three economies together. Earlier, each country maintained its own tariffs and trade barriers, and manufacturers largely sourced components domestically, or from global suppliers.

NAFTA changed the incentive structure fundamentally. If you could produce something more cheaply across the border, it suddenly made sense to do so. Over the following decades, supply chains reorganised themselves around that logic.

By 2024, the total value of goods and services moving between the three countries had reached an estimated $1.93 trillion annually. Canada and Mexico are now the United States’ two largest trading partners, ahead of China. The depth of integration shows up in a striking statistic.

Nearly 74 cents of every dollar of manufactured goods exported from Mexico to the United States contains value that originated somewhere within North America. For vehicles and automotive parts specifically, that figure rises to nearly 77 cents. The borders between the three countries have, in economic terms, become largely administrative lines that goods cross and recross during production.

The USMCA, which replaced NAFTA in July 2020, was meant to modernise this arrangement. It updated rules around digital trade, labour standards, and intellectual property. It also tightened the rules that determine whether a manufactured good qualifies for duty-free status, most notably in the automotive sector.

The Tariff Shock of 2025

The first major disruption to this integrated system came on February 1, 2025, when the Trump administration announced near-universal tariffs of 25% on all imports from Canada and Mexico. The stated justification was national security.

The administration claimed that illegal immigration and fentanyl trafficking from both countries constituted an emergency under a law called the ‘International Emergency Economic Powers Act’, which gives the president broad powers in genuine crises.

The move sent immediate shockwaves through integrated industries. At Port Laredo, which handles a large share of US-Mexico vehicle trade, imports of vehicles fell by $4.1 billion in the first half of 2025. Metals imports across the border dropped by more than 13%. Canada responded quickly, announcing 25% retaliatory tariffs on $30 billion of American goods, then another $29 billion.

Ottawa prepared a third package worth $125 billion. The integrated economy that had been built over three decades was suddenly operating under conditions it had never been designed for.

The administration eventually exempted goods that met USMCA’s rules of origin from the universal tariffs, meaning most trade between the three countries continued duty-free. But the tactic had demonstrated something important. Washington was willing to use the threat of comprehensive tariffs as a lever.
That lever broke in February 2026. The US Supreme Court ruled 6-3 that the International Emergency Economic Powers Act does not actually give the president authority to impose tariffs unilaterally. The court held that levying tariffs is a power reserved to Congress, and that it had not been properly delegated to the executive branch. The ruling invalidated the administration’s primary tool for rapid, large-scale trade pressure.

The administration quickly pivoted to a different legal authority, invoking Section 122 of the Trade Act of 1974 to impose a temporary 10% global surcharge on imports. But this surcharge has a hard 150-day limit built into the law, scheduling it to expire on July 24, 2026. With its main tariff weapon gone and a deadline approaching, Washington turned its attention to the USMCA Joint Review as the primary arena for extracting concessions.

The Fight Over Cars

The automotive sector sits at the centre of the current negotiations, and understanding why requires a brief explanation of how the rules work.

Under the USMCA, a vehicle qualifies for duty-free treatment only if it meets a set of regional content thresholds. At least 75% of a vehicle’s value must originate within North America. 70% of the steel and aluminium used must come from North American sources. A certain share of the vehicle’s value must be produced in facilities that pay workers an average of at least $16 per hour.

These are strict rules. The previous agreement, NAFTA, only required 62.5% regional content. When the USMCA was negotiated in 2018 and 2019, the Trump administration’s first term pushed for these tighter thresholds specifically to encourage more manufacturing to remain in the region.

The practical result has been unexpected. Because the standard US tariff on imported passenger vehicles from anywhere in the world is only 2.5%, many manufacturers have simply decided that it is cheaper to pay the tariff, and ignore the USMCA rules than to reorganise their complex global supply chains to meet the thresholds.

Between 2020 and 2025, non-compliance rates for vehicles imported into the United States quintupled. Rather than pulling manufacturing back into North America, the rules pushed some producers out of the preferential system altogether.

The labour requirement has also produced mixed results. The rule was designed to raise wages for Mexican automotive workers by requiring that a percentage of a vehicle’s value come from facilities paying at least $16 an hour. In 2024, the average Mexican automotive worker earned $5.66 per hour, compared to $30.86 in the United States. Manufacturers have mostly met the labour threshold by counting their American and Canadian operations, where wages are already high, rather than raising pay in Mexico.

Now the Trump administration is pushing for something more radical. They want a US-specific minimum content rule. This would require that a defined share of the value of every vehicle made in Mexico come specifically from the United States, not just from North America in general.

The logic is that this would force manufacturers to relocate high-value assembly and component work from Mexico to American factories. For Mexico, this is a fundamental challenge to the deal’s structure. For Canada, it is a sign of where Washington’s priorities lie.

Canada on the Outside

Canada has been excluded from the opening rounds of negotiations entirely. The current schedule runs bilateral US-Mexico talks through late July 2026 without Ottawa at the table.

This exclusion comes at an awkward moment for Canada’s new government. Justin Trudeau resigned in early 2025, and Mark Carney became Prime Minister in March of that year. Carney is a former central banker, respected internationally for his economic expertise. His government won a majority in April 2026, giving him a stronger political base. But seven months into formal trade tensions with the United States, Canada’s trade minister has managed only a single day of in-person talks with the US Trade Representative.

Washington’s demands of Canada go beyond the core trade agreement. The administration has insisted that Canada scrap its ‘Online Streaming Act’, a law that requires streaming platforms like Netflix and Disney+ to contribute a percentage of their Canadian revenue to funding domestic Canadian content.

US negotiators argue this unfairly targets American companies. Washington also wants changes to Canada’s supply management system, which uses quotas and price controls to support the domestic dairy industry, and the removal of provincial bans on American alcohol imports.

Canada abolished its 3% digital services tax in mid-2025 as a goodwill gesture. But Carney’s government has made clear it will not accept humiliating terms to preserve the deal.

Speaking directly to an American audience at the Economic Club of New York on May 28, Carney called for a re-imagination of continental trade, stating: “There should be a ‘true partnership’ that re-imagines cooperation in specific sectors challenged by global competition.”

Furthermore, upon launching his government’s Advisory Committee on Canada-US Economic Relations to tackle the crisis, his office reinforced this stance: “Canada is approaching its economic relationship with the United States with focus, discipline, and unity… Our goal is a strong economic partnership with the United States that creates greater certainty, security, and prosperity for all.”

Carney has simultaneously been pushing a domestic agenda centred on reducing Canada’s extreme dependence on the US market, advocating economic diversification into Asia and Europe. The problem is that more than three-quarters of Canada’s total goods exports go to the United States. That dependence does not disappear because a government decides to reduce it.

Mexico’s Careful Balancing Act

Mexico is in a different position. President Claudia Sheinbaum came to power in 2024 with a mandate to manage the country’s complex relationship with Washington carefully. Her approach has been to offer security cooperation in exchange for trade goodwill.

When the Trump administration threatened tariffs in early 2025, Mexico deployed more than 10,000 National Guard troops to its borders, cracked down on fentanyl labs, and extradited prominent cartel figures to the United States, including Rafael Caro Quintero, one of the founders of the Sinaloa Cartel. The message was that Mexico could deliver results that Washington wanted on the security front, and those results were worth more than a trade war.

On the trade side, Sheinbaum sought early on to anchor the coming milestone within the strict boundaries of the original text. In a press conference, she clarified her country’s legal position: “A ‘review’ of the USMCA free trade pact will take place next year rather than a ‘renegotiation’… The agreement says that.”

Following up on US political pressure later in the cycle, she maintained a pragmatic front, stating plainly: “I do not believe the US will withdraw from USMCA.”

Mexico has moved to align its own tariffs with Washington’s concerns about China. In December 2025, Mexico raised tariffs by up to 50% on goods from countries with which it does not have a free trade agreement, a measure primarily aimed at Chinese manufacturing imports. Mexico also launched investigations into hundreds of domestic firms that were importing Chinese steel through special programmes and re-exporting it to the United States, effectively using Mexico as a conduit to avoid American tariffs.

ALSO READ | Trade wars push Mexico toward Saudi Arabia

But the China problem is not easily resolved, and the reason becomes clear when you look at what some major US companies are actually doing. General Motors sold roughly 198,000 vehicles in Mexico in 2025. Of those, 64.1% were manufactured in China.

Only 11.3% were made in Mexico itself. Only 7.8% came from the United States. In other words, the American company most associated with North American manufacturing was selling vehicles in the region’s second-largest economy that were almost entirely made in China.

This is not an aberration. It reflects 20 years of decisions by American multinationals to integrate Chinese manufacturing into their global operations. Any aggressive push to decouple from Chinese supply chains does not just inconvenience Chinese companies. It disrupts the business models of General Motors, Ford, and dozens of other US corporations. That is the bind that Washington is navigating, and it makes the demand for complete decoupling considerably more complicated than the political rhetoric suggests.

Four Possible Outcomes

As the July deadline approaches, analysts see four realistic scenarios for what happens next.

The most likely outcome is what might be called the painful extension. The three countries fail to meet the July deadline, but eventually, sometime in late 2026 or early 2027, reach a new deal. Mexico and Canada accept stricter automotive content rules, tougher labour standards, and tighter restrictions on Chinese goods moving through their territory into the American market.

In exchange, Washington agrees to extend the agreement for 16 years and provides some relief on the tariffs that remain in place. Nobody is happy with the result, but the integrated economy survives largely intact.

The second scenario is – serial annual reviews. If the three countries cannot agree by July, the core mechanism laid out in Chapter 34 of the deal dictates the framework. According to Article 34.7 of the USMCA text:

“This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term… If, as part of the joint review, one or more Parties do not confirm their desire to extend, the FTC [Free Trade Commission] shall conduct joint reviews annually thereafter…”

The deal stays technically in force under this rolling loop, but every year brings another round of negotiations and another period of uncertainty. For companies trying to decide whether to build a factory or sign a long-term supplier contract in North America, that uncertainty is costly. Investment slows. Supply chains gradually diversify away from the region.

The third scenario is a split into bilateral agreements. A US-Mexico deal and a separate US-Canada deal. This would preserve some market access for both countries but would fracture the trilateral supply chains that have made North American manufacturing competitive. Canada and Mexico would lose the leverage that comes from negotiating together, and each would be more exposed to American pressure individually.

The fourth scenario is withdrawal. Any country can leave the USMCA with six months’ notice. The Trump administration has repeatedly used the threat of withdrawal as a negotiating tactic. The risk is that the threat becomes reality, either by design or by miscalculation.

If the United States were to actually withdraw, goods from Canada and Mexico would lose their tariff-exempt status overnight, and the integrated manufacturing networks of three decades would face an immediate, severe shock.

Why It Matters Beyond North America

The agreement has functioned as a model for how wealthy economies can integrate production across borders while managing political sensitivities around jobs and wages. If that model breaks down, it signals to the rest of the world that no regional trade arrangement is secure when one large partner decides to renegotiate the terms by force.

For businesses operating across North America, the immediate concern is the certainty about the rules that determine where factories get built, where suppliers are contracted, and how supply chains are designed. The longer the uncertainty continues, the more those decisions get deferred or redirected elsewhere.

The livelihoods of millions of people depend on integrated industries that exist because the trade framework made them possible. Automotive plants, logistics networks, agricultural supply chains, technology manufacturing. All of it was built around the assumption that the rules would remain stable.

What happens in Mexico City and Washington over the next several months will determine whether that assumption remains valid.

The post NAFTA: North America’s Trade Glue Is In Turmoil appeared first on International Finance.

This mineral wealth has become the financial engine of one of the world’s most violent and complex crises. It pays the wages of military rulers who seized power in a wave of coups. It funds Russian mercenaries operating thousands of kilometres from home. It fills the war chests of jihadist groups who have turned large parts of the three countries into ungovernable territory.

Understanding how this works, and why the world has struggled to stop it, requires looking at history, geography, and the mechanics of how gold moves from a hole in the ground to a vault in Dubai.

How It Got This Bad

The three countries at the centre of this story share more than borders. They are among the poorest nations on Earth. Niger, for instance, had an average income of just $560 per person in 2023. Nearly half its population lives below the international poverty line. The average person there can expect to live to 61. They describe lives shaped by hunger, illness, and a near-total absence of the public services most people take for granted.

Yet, for decades, these same countries sat on vast mineral wealth, and a great deal of that wealth left without benefiting the people living above it. France, the former colonial power in all three nations, maintained a deeply influential role long after formal independence. One of the most resented symbols of this was the CFA franc, a shared currency tied to the euro and historically managed with French oversight. Local governments were required to park a large portion of their foreign reserves in accounts at the Bank of France, which limited how freely they could manage their own economies. Meanwhile, Western mining companies operated under generous tax arrangements that critics argued left very little behind for the host countries.

This frustration eventually boiled over. Between 2020 and 2023, military officers staged coups in all three countries, ousting elected governments that large parts of their populations had come to see as corrupt and subservient to foreign interests. The new leaders expelled French troops, tore up defence agreements with the United States and the European Union, and withdrew from ECOWAS, the regional bloc that groups 15 West African nations. In September 2023, they formalised their break by forming the Alliance of Sahel States, known by its French initials AES, and agreed that an attack on any one of them would be treated as an attack on all three.

The problem they immediately faced was money. International aid dried up. Regional sanctions bit hard. Yet, these juntas had armies to pay, insurgencies to fight, and Russian paramilitary forces arriving to help prop up their regimes. The answer, as it turned out, was sitting right beneath their feet.

Squeezing the Mining Giants

Industrial gold mining in this part of Africa had for years been dominated by large foreign corporations, mostly from Australia, Canada, and the United Kingdom. They ran sophisticated operations, employed thousands of people, and paid taxes, though the new governments were convinced they had not been paying nearly enough.

Mali moved first and most aggressively. After an audit suggested the government had lost somewhere between $500 million and $1 billion in revenue it was owed, the authorities rewrote the mining rule book. Under the new code, introduced in 2023, the state gets an automatic 10% stake in any mine for free, with the option to buy an additional 20%. Foreign companies must sell a portion of their shares to Malian investors. Old tax exemptions were abolished. The message was clear: the terms of the old relationship were no longer acceptable.

What followed was less a legal process than a corporate shakedown. The Malian government simply summoned executives, detained them if necessary, and demanded settlements. In November 2024, the CEO of Australian miner Resolute and two colleagues were arrested in the capital Bamako. They were held for over a week before the company agreed to pay $160 million to settle alleged unpaid taxes. Resolute had little choice; the mine in question, at Syama in southern Mali, accounts for more than 60% of everything the company produces.

The biggest confrontation was with Barrick Gold, the world’s second-largest gold miner, over its Loulo-Gounkoto complex in western Mali. This single site represents roughly 14% of Barrick’s revenues worldwide, and about a third of Mali’s total gold output. The government claimed the company owed $5.5 billion in back taxes. It issued an arrest warrant for Barrick’s CEO, detained local employees, and in mid-2025, had a court hand operational control of the mine to a state-appointed administrator. After Barrick pursued international arbitration, a settlement was eventually reached in November 2025. The company agreed to pay $437 million, drop its legal case, and operate under the new framework. Several employees were released and operational control was to be returned in 2026.

Other companies settled too. UK-based Hummingbird Resources paid around $31 million. Canada’s B2Gold restructured its ownership arrangement at the large Fekola mine, converting the government’s share into a preferred stake that earns guaranteed dividends, in exchange for approvals to expand underground operations worth up to 100,000 extra ounces per year.

These settlements handed the juntas a significant short-term windfall. Mali alone confirmed in late 2024 that it had secured nearly $800 million from mining companies, with more payments due. But the longer-term picture is troubling. Industrial mining requires massive upfront investment that takes years to recoup. When governments detain executives and seize assets, future investors take notice. The pipeline of new projects that would sustain these revenues over the coming decades is unlikely to materialise if companies believe their assets can be arbitrarily taken away.

The Refinery Question

The more strategically significant development is what the AES governments are building now. Both Mali and Burkina Faso have begun constructing their first domestic gold refineries.

On the surface, this sounds entirely reasonable. At present, gold extracted in these countries is mostly exported as raw ore to be refined in Switzerland or South Africa. The refining process, which turns raw material into standardised gold bars ready for the global market, adds significant economic value. Why should that value be captured abroad? Building refineries at home means jobs, income, and a bigger slice of the value chain.

Mali’s refinery, being built near the capital Bamako, is designed to process up to 200 tonnes of gold per year. Its partner in the project is Yadran, a Russian conglomerate. Burkina Faso’s facility, launched by President Ibrahim Traoré in late 2023, is projected to handle 150 tonnes annually. The governments speak enthusiastically about the employment these facilities will create, citing hundreds of direct jobs and thousands of indirect ones.

But analysts who track illicit financial flows see something else entirely. The problem is not refineries per se; it is what a refinery does to the traceability of gold. Once ore from different sources is melted down together and cast into standardised bars, it is impossible to tell where the gold originally came from. A bar that comes out of the Bamako refinery might contain gold from a legitimate industrial mine, gold extracted by Russian mercenaries from a site they seized by force, and gold that jihadist groups taxed from informal miners in territory they control. The bar looks the same regardless.

This matters enormously because the global gold market operates on the principle that you can trace where bullion came from. The London Bullion Market Association, which sets the standards for gold traded internationally, requires strict checks on provenance. Gold that fails those checks cannot legally enter the mainstream market. A Russian-backed refinery in Mali, however, can export its bars directly to the United Arab Emirates or to Russia itself, bypassing European compliance checks entirely. From Dubai, the gold enters the global supply chain, and at that point, it is virtually untraceable. European jewellers, electronics manufacturers, and banks may unknowingly be buying what researchers call ‘blood gold’.

The Artisanal Sector and the Jihadist Tax

The industrial mines run by multinational corporations are only part of the picture. Across the Sahel, hundreds of informal digging sites operate with almost no regulation. In Burkina Faso alone, an estimated 430,000 people work in this artisanal sector, supporting over a million dependents. These are people digging by hand, often using mercury and other hazardous materials, in sites that may be little more than pits in the desert. Child labour is common. The work is dangerous and the rewards are small.

These sites are also deeply vulnerable to exploitation by armed groups. Jihadist organisations, principally a network called JNIM and a local affiliate of the Islamic State, have steadily taken over large parts of the rural Sahel. As they did so, they imposed themselves on the artisanal mining economy. They do not typically dig for gold themselves. Instead, they run protection rackets. Miners who want to keep working must pay fees. Transporters moving raw gold along roads pay tolls at checkpoints. These groups levy a form of taxation on the entire informal economy of the areas they control, and the gold sector is one of their most lucrative targets.

The revenue funds their operations directly. JNIM and allied groups have used this money to blockade towns, cutting off food and supplies to force civilian compliance, and to sustain sieges of military outposts. They pay fighters, buy weapons, and recruit from communities that have been terrorised, or economically marginalised.

Once this gold has been taxed, it enters a smuggling network that stretches from the Saharan interior to the coast. Criminal middlemen aggregate illicit gold with material from legitimate sources. It crosses borders, often through Togo or Benin, and then flies out of airports in Accra, Lomé, or Bamako, frequently destined for gold markets in Dubai. The UAE has become a critical node in this system, a place where gold of uncertain origin is absorbed into the global supply chain with relatively few questions asked. Burkina Faso alone is estimated to have lost over $490 million in a single year to gold smuggling and the under-declaration of exports.

Russia’s Cut

No account of the Sahel’s gold economy is complete without examining Russia’s role. After France’s decade-long military presence in the region failed to contain the jihadist insurgency, the AES governments turned to an alternative partner. The Wagner Group, a Russian paramilitary organisation, began deploying to Mali and then Burkina Faso. After Wagner’s founder Yevgeny Prigozhin died in a plane crash in 2023 following his brief mutiny against the Kremlin, the force was reorganised and rebranded as the Africa Corps, operating under the direct command of the Russian defence ministry.

Russia’s pitch was simple. It offered security with no conditions attached, no lectures about democracy or human rights, no awkward press conferences after civilian casualties. In exchange, the Africa Corps received access to mining sites.

Since Russia’s full-scale invasion of Ukraine in 2022, the Kremlin has reportedly earned over $2.5 billion from gold operations across Mali, Sudan, and the Central African Republic. This money helps offset the impact of Western sanctions on Russia’s economy and, according to researchers, effectively subsidises the war in Ukraine.

The Africa Corps’ tactics on the ground are instructive. In February 2024, Russian mercenaries arrived by helicopter at an artisanal site called Intahaka in eastern Mali, one of the largest informal gold sites in the country, capable of hosting up to 4,000 miners. They drove out the armed group previously controlling the area and immediately began charging miners for access. They had turned a humanitarian landscape into a revenue stream.

This strategy, critics argue, is inherently self-defeating as a counterinsurgency tool. When Russian forces raze villages, kill civilians suspected of sympathising with jihadists, and displace entire communities, they hand JNIM and its allies their most powerful recruitment pitch imaginable. Researchers tracking conflict data have found that civilian deaths attributable to Russian mercenaries in Mali are significantly higher than those caused by either the Malian military or rebel groups. The Africa Corps has been linked to mass executions. The result is a cycle in which Russian brutality generates the very instability that justifies the continued presence of Russian mercenaries.

Uranium and a Nuclear Footnote

While gold dominates the Sahel’s shadow economy, Niger’s crisis has added a genuinely alarming dimension. Niger holds some of the world’s largest untapped uranium reserves, and the French nuclear energy company Orano has operated there for decades. France has historically sourced around a fifth of its reactor fuel from Niger, a fact that sits uncomfortably alongside Niger’s near-complete lack of domestic electricity access.

After the 2023 coup, the Nigerien junta revoked Orano’s operating rights and eventually seized physical control of the company’s main mine. Most alarming of all, the government took custody of approximately 95,000 tonnes of concentrated uranium powder, an act that violated an international arbitration ruling. That this highly radioactive material was then being transported through regions contested by jihadist groups gave nuclear security experts serious pause. The incident illustrated how resource nationalism, when pursued recklessly, can create risks that go far beyond corporate disputes.

The Wider Contagion

The World Economic Forum has described the Sahel as one of the most dangerous potential sources of global instability. The concern is not just what is happening inside Mali, Burkina Faso, and Niger. It is what is coming next.

Jihadist groups, funded partly by the gold economy and partly by the chaos that Russian mercenaries have deepened rather than resolved, are moving south. They have already conducted attacks in the northern regions of Benin, Togo, and are edging toward Ghana and Cote d’Ivoire. These coastal nations are more stable and more economically developed, but they are not immune. Analysts estimate that sustained spillover of violence could reduce the GDP of some coastal states by up to 5%.

Meanwhile, the AES withdrawal from ECOWAS has shattered the regional security framework that existed to manage exactly these kinds of cross-border threats. The replacement mechanisms being assembled are underfunded and slow.

What It All Means

The Sahel’s $15 billion gold economy is not simply a story about a distant conflict. It is a story about how illicit money moves through the global financial system, how Russian geopolitical ambitions are partly bankrolled by West African soil, and how everyday consumers in wealthy countries may be inadvertently connected to all of it.

Breaking this cycle would require the global gold market to take provenance far more seriously, and for intermediary hubs like Dubai to face real consequences for absorbing material of uncertain origin. It would require the international community to engage coastal West African governments with genuine economic support rather than leaving them to absorb a crisis they did not create.

Until then, the gold keeps moving, the violence keeps spreading, and the war chest keeps filling.

The post $15 Billion ‘Blood Gold’ Keeping the Sahel at War appeared first on International Finance.

Cross-border wealth refers to money that individuals or families hold in a country other than the one they live in. Think of a wealthy Indonesian family keeping investments in Singapore, or a European entrepreneur holding assets in Zurich. These arrangements are entirely legal and extremely common among the rich, and the city that attracts the most of this money earns enormous advantages, such as jobs, fees, taxes, real estate demand, and influence.

In 2025, Hong Kong booked USD 2.95 trillion in such assets, narrowly surpassing Switzerland’s USD 2.94 trillion. Executive Partners Analysis put the moment in perspective in May 2026: “Hong Kong now books $2.95 trillion in cross-border private wealth. Switzerland books $2.94 trillion. The margin is $10 billion on a base of nearly $3 trillion, which is to say the margin is almost nothing. But the direction is everything. This reversal is unlikely to be undone.”

The Rise of the East in a World of Abundance

The backdrop to Hong Kong’s rise is a year of spectacular global wealth growth. Total global financial wealth rose by 10.7% in 2025 to reach USD 333 trillion, the fastest expansion since 2021. If you include physical assets like property and land, total global net wealth approaches $550 trillion. Much of this growth was driven by surging stock markets, which rose 13.2% globally on average. Gold was a particular standout, jumping roughly 44% in the year, as central banks and retail investors alike rushed to buy the commodity amid concerns about the long-term stability of major currencies.

This wealth is not spreading evenly. Globally, cross-border assets grew by 8.4% to USD 15.7 trillion, but nearly 90% of all new offshore money flowed into just 10 booking centres. The result is a world increasingly divided into two gravitational poles: an Eastern Hub, anchored by Hong Kong and Singapore, pulling in wealth from mainland China, India, and Southeast Asia, and a Western Hub, dominated by Switzerland, the United States, and the United Kingdom, serving European, Middle Eastern, and Latin American clients.

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Hong Kong now sits atop both of these poles, and analysts project it will continue growing at around 9% per year through 2030. As BCG’s 2026 Global Wealth Report Stated: “Hong Kong is cementing its role as China’s gateway to global markets, though that same concentration ties its trajectory tightly to economic and regulatory developments on the mainland.”

The China Connection

The single biggest reason for Hong Kong’s ascendancy is its relationship with mainland China. More than 60% of the assets booked in Hong Kong come from mainland Chinese clients. This is the product of a deliberate policy architecture designed to channel mainland wealth through Hong Kong’s internationally trusted financial system.

The centrepiece of this architecture is the Cross-boundary Wealth Management Connect, commonly called the WMC, a scheme that allows residents of the Greater Bay Area, the cluster of cities in southern China that includes Shenzhen and Guangzhou alongside Hong Kong, to invest in financial products on either side of the border. When it was upgraded in early 2024, the scheme raised individual investment quotas and allowed a wider range of products and participants. By April 2025, over 154,000 individual investors from the Greater Bay Area were using it, and they had moved more than RMB 112 billion across the border. The number of eligible investment funds available to mainland investors through the scheme grew from around 160 at the end of 2023 to 358 by March 2025.

The impact on Hong Kong’s banking and investment industry has been dramatic. Between 2022 and 2024, investment transaction volumes at retail banks more than doubled, from HKD 819 billion to HKD 1.774 trillion. In private banking, which serves the very wealthy, volumes grew from HKD 2.975 trillion to HKD 4.466 trillion over the same period. Total assets under management in Hong Kong grew by 13% in 2024 to reach HKD 35 trillion.

Private banks expanded their office space by between 35% and 50% to handle the surge. By mid-2025, a streamlined onboarding process for wealthy clients at seven private banks had already processed transactions exceeding HKD 70 billion, with 13 more banks preparing to join the system.

Inviting the Ultra-Wealthy Home

Managing money is one thing. Getting the people who own it to move there is another. Hong Kong has been pursuing both strategies simultaneously. Paul Chan, the Financial Secretary of the Hong Kong Special Administrative Region, described the underlying logic plainly, “Leveraging the advantages of ‘one country, two systems’, complemented by free, open, transparent, and predictable economic policies as well as a stable and secure investment environment, and cross-market connectivity, Hong Kong is attracting more and more ultra-high-net-worth individuals and family offices.”

In March 2024, the government launched the New Capital Investment Entrant Scheme, a residency programme that allows wealthy foreigners to obtain the right to live in Hong Kong in exchange for a minimum investment of HKD 30 million, roughly USD 3.85 million. Of that amount, HKD 27 million must go into approved financial assets or real estate, and HKD 3 million must be placed into a government-run strategic investment fund that deploys capital into local technology, artificial intelligence, biotechnology, and sustainable industries.

By the end of February 2026, the scheme had received 3,166 applications and was on track to bring in approximately HKD 95 billion in new capital. Of those applicants who have completed their investments and received approval, most put their money into mutual funds and listed equities. The tax incentives driving these decisions are significant. Hong Kong levies no capital gains tax, no inheritance tax, no wealth tax, and no value-added tax. Income tax on locally earned salaries tops out at 17%, which is extremely low by international standards.

These conditions have made Hong Kong a magnet for family offices, which are private companies set up by very wealthy families to manage their investments and financial affairs across generations. By the end of 2025, there were over 3,380 single family offices operating in Hong Kong, a 25% increase in just two years. The government had set a target of facilitating 200 new family offices and hit it ahead of schedule, with a new target of 220 additional offices set for 2026.

The Succession Reckoning

Underlying the family office boom is a generational pressure that rarely makes headlines but is reshaping the entire wealth management industry. Decades of rapid wealth creation across East and Southeast Asia have produced a high concentration of first-generation fortunes. In Singapore, Malaysia, and Indonesia, between 40% and 50% of major family enterprises are still run by their founders, with the median age of leadership above 70. These families are now confronting what happens next.

Michael Kahlich, Managing Director and Partner at Boston Consulting Group, framed the scale of the challenge in the 2026 Global Wealth Report, “Families are increasingly confronting succession as a design challenge rather than a single transfer event. The firms that can help clients navigate governance, inter-generational alignment, and long-term wealth structures will define the next era of wealth management in Asia.”

The complexity is real. Modern family fortunes span multiple asset classes and multiple jurisdictions. Younger family members are often dispersed globally, pursuing careers outside the founding business, and may have very different views on what to do with inherited wealth. Many prefer venture capital or sustainable investments over running a traditional manufacturing operation. Equal distribution among heirs can fragment ownership and dilute control. The wealth managers and private banks best positioned to win in Hong Kong are no longer simply those offering access to products, but those capable of designing governance frameworks that can hold a family’s financial interests together across borders and generations.

The Stock Market Revival

If the wealth management business is one engine of Hong Kong’s comeback, its stock exchange is the other. In 2025, Hong Kong reclaimed its position as the world’s top initial public offering, or IPO, venue.

An IPO is when a private company sells shares to the public for the first time, raising capital in the process. Hong Kong raised USD 37.4 billion across 119 listings in 2025, a 231% increase on the year before, exceeding the combined total of the previous three years.

The momentum continued into early 2026, with 40 companies completing IPOs in the first quarter alone, raising the equivalent of around USD 13.3 billion, a 489% year-on-year increase and the strongest quarterly performance in five years.

BCG’s Michael Kahlich observed that the physical aggregation of capital and companies is now forcing even European institutions to relocate: “What ultimately matters is client proximity. Two major wealth-management clusters are emerging globally. Singapore and Hong Kong serving Asia, and Switzerland, the UK, and the US serving Western markets. Swiss banks have responded by expanding operations heavily in major Asian hubs.”

The dominant story driving Hong Kong’s IPO revival is China’s artificial intelligence boom. While technology listings in the United States have struggled, with companies going public at high valuations and then performing poorly, Chinese AI and technology companies have found Hong Kong to be a more receptive and practical venue.

More than 85% of Chinese AI-related companies that went public through early 2026 chose Hong Kong. This is partly because of a specialised regulatory framework called Chapter 18C, which allows innovative technology companies in areas like AI, semiconductors, autonomous vehicles, and robotics to list even if they have not yet generated significant revenue. The bet is on future potential rather than current profitability.

Leading Chinese AI companies that listed have seen post-listing share price gains exceeding 400%. More than 500 companies are now waiting to list, most of them mainland Chinese firms specialising in advanced manufacturing and technology.

Not Everything is Booming

For all the financial energy flowing through its banking towers, Hong Kong’s recovery is uneven on the street level.

Tourist numbers are healthy. Visitor arrivals rose 12% in 2025 to nearly 50 million people, with mainland Chinese visitors accounting for roughly three-quarters of the total. But tourist spending is another story. Total international visitor spending in 2025 remained 15% below the level seen in 2018, before the social unrest and pandemic that scarred the city’s reputation. In contrast, regional rivals Singapore and Macao have both exceeded their pre-pandemic spending levels.

Modern mainland tourists tend to be savvy, cost-conscious travellers who use their phones to compare prices and seek out cultural experiences rather than splashing out on designer goods. Hong Kong’s currency, pegged to the US dollar, makes it expensive relative to other regional destinations. Broad retail sales fell by 5.5% in the first five months of 2025, and hotel room rates have softened despite near-full occupancy.

The government has responded with investment, earmarking HKD 1.6 billion for tourism in its 2026-27 budget, and launching promotional campaigns in new markets including India, Southeast Asia, and the Middle East. Luxury goods showed some resilience, with jewellery and watch sales jumping 20% in April 2026, but the broader consumer economy remains two-speed.

The Shadow Over the Success Story

The most difficult question hanging over Hong Kong’s financial renaissance is whether the institutional framework that makes it valuable can survive the political pressures bearing down on it.

Hong Kong’s unique appeal has always rested on a single foundation: ‘one country, two systems’, the arrangement under which it operates a common legal system, free capital flows, and independent courts, even as it is politically a part of China. International investors, wealthy families, and global banks trust Hong Kong precisely because it offers Chinese proximity combined with Western legal protections. That combination is increasingly under strain.

The enactment of Article 23, a sweeping national security law, in March 2024, followed by updated implementing rules in March 2026, has substantially expanded the legal risks of operating in Hong Kong. The law defines state secrets very broadly, potentially covering information about economic conditions, government policy decisions, and technological developments.

For financial firms, this creates practical uncertainty. Routine business activities, such as conducting due diligence on a Chinese company, auditing assets, or analysing markets, could potentially be characterised as illegal intelligence collection if they touch on sensitive topics.

Foreign consulting and investigation firms have already faced enforcement actions on the mainland under similar laws. A Q2 2026 geopolitical risk assessment captured the essential tension: “The question for the rest of the decade is whether the territory can manage what analysts are calling its security paradox. Can Hong Kong continue to present itself as a globally trusted, transparent financial centre while operating under a tightening legal and political environment.”

Political life has also narrowed. The Democratic Party, Hong Kong’s oldest pro-democracy political organisation, dissolved in late 2025 following financial difficulties and warnings from security authorities.

Where Does This Leave Global Wealth?

Switzerland is not finished. Its greatest strategic advantage is diversity. It draws clients from many different continents and continues to attract money from volatile regions like the Middle East whenever geopolitical tensions flare. It is nobody’s sole focus, which makes it resilient. The United Arab Emirates is also advancing rapidly, recording 11.1% growth in cross-border wealth in 2025 to reach USD 721 billion, as it positions itself as a bridge for wealth owners who want to move assets out of traditional Western centres without losing access to global markets.

But for now, the top spot belongs to Hong Kong. Its GDP grew by 5.9% in the first quarter of 2026, the 13th consecutive quarter of expansion and the strongest rate in nearly five years. The financial machinery is functioning at peak capacity. If the territory can preserve its common law framework and operational transparency while continuing to deepen its integration with the Greater Bay Area, its position at the top of global wealth management looks durable. If the two impulses pull too far apart and international capital begins to feel the friction, the current moment could look, in hindsight, like a high-water mark.

The post Hong Kong overtakes Switzerland to become new home of global wealth appeared first on International Finance.

The military conflict involving the United States, Israel, and Iran began on February 28, 2026. It was not just a geopolitical event, but the beginning of an economic crisis reshaping the daily lives of millions of people in the United Kingdom.

This article is an attempt to explain what is happening, why it matters, and what it means for ordinary British workers, families, and businesses.

Distant war and British utility bills

The worst part of the Middle East conflict has been the blockade of the Strait of Hormuz, which passes one-fifth of all oil and LNG. Both Iran and the United States tried to play hardball with the maritime chokepoint to get the better of each other at the negotiation table in Islamabad. The biggest victim of the geopolitical power play has been global energy security.

Before the war, a barrel of Brent crude oil traded at $70-$72, but within weeks, future prices shot up to $119 per barrel. The prices that buyers were actually paying on the spot market (where oil is bought and sold for immediate delivery) reached $150 at the time, driven by intense panic buying and shortage fears.

The shock was specifically compounded for the United Kingdom, as the European country imports a large portion of its energy. Net import dependency stood at 43.8% in 2024, which means that when global energy prices spike, the UK does not have enough domestic supply to shield itself.

Wholesale gas prices inside the UK surged from 78 pence per therm at the end of February to 171 pence per therm in the weeks that followed. That is more than double in a matter of weeks.

The International Energy Agency (IEA) described what happened as the single most significant supply disruption in the history of the global oil market. Global oil supply fell by over 10 million barrels per day in March 2026 alone.

The ripple effects were felt almost immediately at petrol stations across the UK. The average price of petrol rose from 131.6 pence per litre to 140.2 pence per litre. Diesel jumped from 141.1 pence to 158.7 pence per litre. These were not gradual, creeping increases. They happened within a month.

Inflation is back, and it is stubborn

The official measure of inflation in the UK, known as the Consumer Price Index (CPI), rose to 3.3% in March 2026. That sounds like a modest number until you consider that just two months earlier, the Bank of England (BoE) had been close to hitting its 2% target and was preparing to start cutting interest rates. Those plans are now on hold indefinitely.

The largest driver of the March inflation rise was motor fuel, which went up by 8.7% in a single month. The last time fuel prices rose that sharply in a single month was during the early period of the Ukraine war. Food inflation is expected to follow.

The Food and Drink Federation has warned that food prices could rise by as much as 9% by the end of 2026 if supply disruptions continue. Part of the reason is fertiliser. Producing nitrogen fertiliser requires enormous amounts of natural gas, and many fertiliser suppliers in the Gulf and Egypt can no longer export their products because of the maritime blockade.

British farmers are facing doubled fertiliser costs, and many have decided it is simply not worth planting crops this year. Less domestic food production means more imports. More reliance on imports, in a disrupted global market, means higher prices at checkout.

There is also an unusual and little-discussed risk around carbon dioxide gas, which the food industry depends on for slaughtering livestock humanely, carbonating drinks, and preserving packaged goods.

The government has already invested 100 million pounds to reopen an industrial plant on Teesside specifically to ensure a domestic carbon dioxide supply. Major retailers like Tesco say shortages have not yet reached shelves, but the Food and Drink Federation is not ruling out significant gaps in availability by the summer if the Strait remains closed.

Growth has stalled

Britain’s economy was beginning to recover early in 2026. GDP grew by 0.5% in February, which was a small but encouraging sign. That momentum has now been cut short. The EY Item Club, one of the UK’s most respected economic forecasting bodies, now expects the economy to grow by zero in both the second and third quarters of the year. For the full year of 2026, it has cut its growth forecast from 1.4% down to 0.7%.

Matt Swannell, the Chief Economic Adviser to the EY Item Club, warns that the labour market is entering a period of severe distress. Matt remarked, “Spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession… The heightened energy prices from the war are also set to deliver the ‘biggest hit since the pandemic’ to the jobs market, with the jobless rate projected to peak at 5.8% by the middle of 2027.”

The International Monetary Fund has gone further in some respects. It identified the United Kingdom as the country that suffered the biggest downward revision to its growth forecast among wealthy nations in its spring 2026 outlook. The IMF now expects UK GDP to grow by just 0.8% in 2026, compared to 1.3% predicted earlier.

The OECD, another major international economic body, expects Britain to have the second-lowest growth rate and the second-highest inflation rate among G7 nations. The United States, by contrast, is expected to grow by 2.3%. The gap is stark.

Why is Britain being hit harder than most? Several reasons compound each other. The UK is a net importer of gas. It has very limited gas storage, estimated at just two days of supply at the peak of the crisis. Its economy is highly integrated with international trade and supply chains. And its growth was already sluggish entering 2026, leaving very little buffer when the shock arrived.

The word economists are reaching for to describe this situation is stagflation. That is what happens when an economy stops growing, but prices keep rising. It is the worst of both worlds, and it is the same condition that devastated many Western economies in the 1970s during the oil embargo. The last thing any government wants to see return.

Jobs are being lost

Behind the big numbers are real people losing real work. British employers cut 11,000 jobs in March 2026, the first clear month where the economic fallout from the Iran conflict showed up directly in employment figures. Analysts from EY Item Club estimate that approximately 250,000 jobs could be lost by mid-2027 if current conditions persist.

The unemployment rate stood at 5.2% at the start of 2026. Forecasters now expect it to rise to 5.8% by mid-2027, which would mean over 2.1 million people looking for work. That would be the highest level of unemployment in more than a decade.

The sectors bearing the brunt are those that depend heavily on energy or on consumer spending. Manufacturing, hospitality, logistics and construction are all under severe pressure. Businesses that were already operating on thin margins are finding that rising energy costs, supply chain delays, and weakening customer demand are simply too much to absorb simultaneously.

Many companies are moving into what economists call a defensive posture. Instead of hiring, investing, or expanding, they are cutting costs and building cash reserves to survive the uncertainty.

The Deloitte CFO Survey, which measures confidence among finance directors at major British companies, recorded a collapse in sentiment to a net figure of minus 57% in late March. That is the most pessimistic reading since the height of the COVID-19 pandemic.

Consumers are pulling back

Ordinary households are responding to the situation predictably. When things feel financially uncertain and prices are rising, people spend less. Consumer confidence, as measured by the Deloitte Consumer Tracker, fell to minus 14.1% in the first quarter of 2026, its lowest level since 2023.

Spending power is expected to fall by 0.3% across the year for the average household. People are cutting back on things they do not consider essential. Travel has taken a particularly sharp hit. Spending on travel fell by 3.3% in March 2026, the first such decline recorded by Barclays in five years.

Jet fuel prices have more than doubled since the conflict began, and airlines are passing those costs on to passengers. International holidays are being postponed. People are choosing domestic breaks instead, or simply staying home.

The hospitality sector, which was already struggling with the April 2026 increase in the minimum wage and higher business rates, is now facing what industry figures are calling a summer of shortages. Breweries are worried about carbon dioxide availability ahead of the football World Cup in June, usually one of the most commercially important periods in the calendar.

What the government is doing

Chancellor Rachel Reeves has been walking a difficult line. On one side, there is enormous pressure to protect households and businesses from rising costs. On the other hand, the government is painfully aware that uncontrolled spending could damage Britain’s fiscal reputation and push up borrowing costs, as happened during the 2022 mini-budget crisis.

“This is not our war, but it is pushing up bills for families and businesses. That’s why it’s my number one priority to keep costs down… Obviously, no sensible person is a supporter of the Iranian regime, but to start a conflict without being clear what the objectives are… I do think that is a folly and it is one that is affecting families here in the UK,” The Chancellor said.

The approach taken has been cautious and targeted. Rather than offering blanket support to everyone, the government has focused on the most vulnerable. It has extended the existing 5 pence cut in fuel duty, saving the average driver around 90 pounds per year. It is also working on contingency plans for further energy bill support in the autumn, when demand for gas heating typically rises sharply.

To fund these measures, the government has expanded the windfall tax on electricity generators. Companies that generate electricity from gas-linked sources are currently making exceptional profits because of how electricity pricing works in the UK market.

The government has raised the Electricity Generator Levy from 45% to 55%, capturing more of those windfall profits and redirecting them toward household support. This levy has also been extended beyond its original 2028 end date.

The government has explicitly said it cannot absorb every price rise on behalf of the population. It is a difficult message to deliver, but it reflects the reality that with national debt on track to reach 100% of GDP by 2029, the room for large unplanned spending is very limited.

Internationally, Reeves has been vocal in criticising the war itself. She has called it a mistake and a folly, language that puts her at odds with US Treasury Secretary Scott Bessent, who has defended the conflict as a necessary cost for long-term global security.

Reeves led a joint statement signed by finance ministers from 11 countries, including Japan, Australia, Spain, and the Netherlands, calling for a negotiated resolution and the reopening of the Strait of Hormuz. The diplomatic tension with Washington adds another layer of uncertainty to the UK’s economic relationships.

BoE is stuck

Normally, when inflation rises sharply, a central bank’s response is to raise interest rates. Higher rates make borrowing more expensive, which cools spending and helps bring prices down. But the Bank of England (BoE) is in an unusual bind.

Before the Iran conflict, financial markets expected the Bank to start cutting its main interest rate in April 2026, as inflation had been falling toward the 2% target. Now, with inflation at 3.3% and rising, those cuts have been shelved. But the Bank is not raising rates either.

The reason is that the economy is simultaneously weakening. Raising rates aggressively into a slowing economy risks causing a deeper recession. The Monetary Policy Committee has held the rate at 3.75% and is expected to keep it there for some time.

Economists describe this as an unenviable balancing act. If the Bank holds firm, inflation may become entrenched, especially if workers begin demanding higher wages to keep up with rising petrol and food costs. If it cuts rates, it risks fueling inflation further. The most likely outcome, according to analysts, is that rates stay on hold until around mid-2027, when inflation is expected to gradually return closer to target.

For homeowners approaching the end of fixed-rate mortgage deals, this is unwelcome news. Over a million British households are expected to face higher mortgage payments in the coming months as their fixed deals expire, adding to the broader pressure on household budgets.

Industry under pressure

Some of the starkest stories from the current crisis involve British manufacturers. Energy-intensive industries (those that need enormous amounts of gas or electricity to operate) are in genuine difficulty. Steel, chemicals, glass, ceramics, cement, and paper are all facing input cost increases that many cannot absorb or pass on.

The British Plastics Federation has reported that 58% of its member companies are experiencing severe or significant operational impacts. Almost all of its members are reporting rising raw material and energy costs.

Some firms have added surcharges of up to 30% to their prices, which risks sending customers to overseas competitors, particularly American ones, who benefit from access to cheap domestic natural gas and are insulated from the Hormuz disruption.

The construction sector is also struggling. Output had already fallen by 2% in the three months to February 2026, with private housebuilding dropping 6.5%. The conflict has made things worse through supply chain delays and surging material costs.

Bricks, cement, asphalt, and insulation are all more expensive to produce when energy costs are this high. Construction experts have warned that many projects are moving from commercially challenging to commercially unviable.

One of the most unexpected consequences involves renewable energy. Two major offshore wind projects off the Norfolk coast are facing delays because key components, specifically steel turbine foundations and offshore substations, were ordered from suppliers in the UAE. Those components cannot currently be shipped through the Strait of Hormuz. The conflict that is driving demand for cleaner energy is simultaneously delaying the infrastructure needed to deliver it.

Where things stand

Growth has stalled. Inflation is rising. Jobs are being lost. Businesses are pulling back. Consumers are cutting spending. And the root cause of all of it, the blockade of a narrow waterway seven thousand kilometres away, shows no immediate sign of resolution.

What makes the situation particularly difficult is that even a ceasefire would not instantly fix things. Energy infrastructure that has been damaged takes time to rebuild. Supply chains that have been disrupted take months to restore. And business confidence, once lost, is slow to return.

Britain’s vulnerability at this moment reflects structural issues that existed long before the conflict began. The country is too dependent on imported energy. Its gas storage is inadequate. Its industrial base has been gradually hollowing out for decades. The current crisis has exposed all of that with uncomfortable clarity.

The months ahead will be tough, particularly for lower-income households, energy-intensive industries, and anyone whose livelihood depends on consumer spending. The government and the Bank of England are trying to prevent the worst outcomes. But the margin for error is small, and the decisions being made in Washington, Tehran, and on the waters of the Persian Gulf will matter as much as anything decided in Downing Street or Threadneedle Street.

The post What the Iran war is doing to everyday life in Britain appeared first on International Finance.

The centre-right Tisza Party, led by the telegenic former teacher and activist Peter Magyar, won 53.5% of the popular vote and captured 138 of the country’s 199 parliamentary seats. That is a two-thirds supermajority, the kind that lets a government rewrite constitutional rules if it chooses to. For a country that had grown accustomed to democratic backsliding and institutional decay, the result was genuinely seismic.

But elections are easy compared to governing. Peter Magyar now inherits an economy that is, to put it plainly, a mess. Hungary barely grew in 2025, expanding at just 0.4%, one of the weakest performances in the entire Central and Eastern European region. The government is spending far more than it collects.

Billions of euros in EU funds have been frozen because the previous administration refused to clean up its institutions. A massive influx of foreign investment in electric vehicle factories is running into serious trouble. And the banking sector, which should be a pillar of economic stability, is being squeezed so hard by taxes that its profitability is shrinking.

None of this is impossible to fix. But fixing it will require juggling several extremely difficult tasks at the same time, with very little room for error.

The EU money problem

The most urgent item on Magyar’s to-do list is unlocking somewhere between 18 and 19 billion euros that the European Union has been sitting on because of concerns about rule-of-law violations and corruption under the Orban administration. To put that number in perspective, it represents roughly 11% of Hungary’s entire annual economic output. For a country with a stretched budget and sluggish growth, that money is a lifeline.

The political obstacle to accessing those funds has essentially disappeared with Viktor Orban’s defeat. The EU, which was deeply frustrated with Budapest for years, now has a willing partner in Magyar’s pro-European administration. But the removal of the political obstacle has simply revealed the next one, which is execution.

The European Recovery and Resilience Facility, the main mechanism through which a significant portion of this money flows, has a hard deadline at the end of August 2026. That means the new government has only a few months to legislate the required reforms, implement them credibly, and convince Brussels that the changes are real rather than cosmetic.

That is an extraordinarily tight timeline for any government, let alone one that is just getting on its feet. Bureaucracies do not transform overnight. Institutions that were built to serve one set of political interests do not simply flip a switch and become transparent and accountable. If Hungary misses this window, the consequences are severe. The government would have to impose painful spending cuts to fill the gap, the kind that would hurt ordinary people, derail the modest economic recovery that analysts are projecting, and rapidly erode the political goodwill that Peter Magyar’s landslide victory has temporarily provided.

Bond markets have already signalled cautious optimism. After the election results came in, money started flowing back into Hungarian sovereign debt, with investors pricing in the expectation of lower risk, a cleaner business environment, and restored fiscal credibility. The long-term prize, Euro adoption, is also back on the table now that the new government is genuinely pro-European. But all of that optimism is conditional. It evaporates quickly if the government fumbles the EU funds question.

An economy walking a tightrope

Even if the EU money comes through, Hungary faces a structural fiscal challenge that will not be resolved by a single capital injection. The government deficit is expected to reach 5.1% of GDP in 2026, up from an already elevated 4.6% the previous year.

The EU has formally flagged Hungary through what is known as the Excessive Deficit Procedure, essentially placing the country on a watchlist and demanding corrective action. The Hungarian Fiscal Council calculated that a spending adjustment worth 1.7% of GDP was needed to comply with European fiscal rules, and that estimate was made before things got even worse. By February 2026, the deficit had already burned through roughly half its full-year budget, largely because the outgoing Orbán administration spent lavishly in the run-up to the election.

The pre-election giveaways were considerable. The minimum wage was raised by 11% at the start of 2026. Mothers with multiple children received a lifetime income tax exemption. A fourteenth month of pension payments was disbursed. Bonuses were handed out to military and law enforcement personnel. Housing support packages were extended to public sector workers. Every one of these measures costs real money, and none of it was properly funded. The incoming government is now stuck with the bill.

Here is where things get politically complicated. Peter Magyar campaigned on promises of his own, including cuts to value-added tax, lower taxes on low-income workers, and the preservation of pension and family support programmes. Those are popular commitments. But making good on them while simultaneously reducing a deficit that is already too large requires a level of fiscal creativity that borders on the miraculous.

Something will have to give, and the new government will have to decide fairly quickly what that something is. If it pursues austerity to satisfy Brussels, it risks alienating the voters who just handed it a historic mandate. If it keeps spending, it risks losing the EU funds and spooking the bond markets that are currently giving it the benefit of the doubt.

The projected economic recovery, real GDP growth of 2.3% in 2026, rising modestly to 2.1% in 2027, is real but fragile. It is being driven largely by consumer spending, fuelled by those pre-election wage increases and government transfers. Exports are also expected to pick up as new automotive factories come online and German industrial demand recovers. But inflation remains sticky.

Consumer prices are expected to ease from 4.5% in 2025 to around 3.6% in 2026, but the National Bank of Hungary is keeping interest rates elevated at around 6.25% to make sure inflation does not reignite. Higher borrowing costs are fine for controlling prices, but they make it more expensive for businesses and homeowners to borrow, which dampens investment and economic activity.

The banking squeeze

Hungarian banks have had a rough few years, and 2025 was no exception. The sector’s combined after-tax profits fell by 8% to just under 1.5 trillion Hungarian forints, a direct result of an aggressive tax regime that the Orbán government imposed and repeatedly extended.

The total additional tax burden on Hungarian banks in 2025 amounted to roughly 830 billion forints, composed of a financial transactions fee that surged 31%, an extra-profit tax that climbed 29%, and special sectoral levies that rose by 18%.

The original justification for these taxes was that banks were making windfall profits thanks to the high-interest-rate environment that came with the inflation crisis. The argument had some surface logic to it. When the central bank raises rates sharply, commercial banks typically see their net interest margins widen, meaning the gap between what they pay depositors and what they charge borrowers grows. The government’s position was that this passive profit boost should be partially redirected to the public finances.

The problem is that what was sold as a temporary emergency measure became permanent. Banks have now been operating under this heavy burden for several years, and the effects are visible. Return on equity has fallen. Banks have become more cautious about lending.

Capital that could have been deployed into business loans or mortgages has instead been transferred to the state. The financial sector’s ability to fund the industrial expansion that Hungary desperately needs is being constrained.

To cope, banks have been cutting costs aggressively, primarily by closing branches. The network shrank from 1,401 locations to 1,300 in a single year. But interestingly, overall employment in the sector actually rose, from around 39,800 to 40,500 workers.

That tells you where the money and energy are going. Banks are investing in technology, hiring data scientists, software engineers, cybersecurity professionals, and compliance specialists, while shrinking the frontline retail workforce. Mobile banking, AI-driven risk assessment, and automated customer service are replacing the branch teller.

This digital pivot isn’t a mere cost-saving exercise. Research on banking systems in emerging markets consistently shows that banks which embrace digital infrastructure can reduce their reliance on expensive external debt funding and manage liquidity more efficiently. For Hungarian banks, technology is partly a lifeline in an environment where traditional profitability is being taxed away.

The new government has signalled awareness that the banking tax regime needs to change. Unwinding those levies would immediately improve bank capitalisation, lower the cost of credit for businesses, and stimulate the corporate lending that drives private sector investment. But here again, the government faces a dilemma. Every forint of tax revenue it gives back to the banks is a forint it needs to find somewhere else to plug the fiscal hole.

The EV factory dream

One of Hungary’s biggest economic bets over the past decade has been attracting foreign investment in electric vehicle manufacturing and battery production. The logic was sound. Europe is transitioning away from combustion engines. Batteries are the critical component of the new automotive era. If Hungary could position itself as the battery capital of Europe, it would secure high-value manufacturing for decades.

The results have been impressive on paper. Hungary captured 47% of all Chinese electric vehicle-related foreign direct investment entering the European Union in 2023.

Two projects have become symbols of this strategy. Contemporary Amperex Technology Co. Limited, better known as CATL, the world’s largest battery manufacturer, is building a 7.3-billion-euro gigafactory in Debrecen. BYD, the Chinese electric vehicle giant, is constructing a 4.64-billion-euro manufacturing plant in southern Hungary.

The reason Chinese companies are so keen to invest in Hungary is partly about access. The European Union has imposed tariffs of up to 27% on electric vehicles imported from China, and the American market is essentially closed to them. By manufacturing inside the EU, Chinese firms can sell their products as European-made and sidestep those barriers. Hungary, under Viktor Orban, was a particularly welcoming host, offering generous subsidies and asking few political questions.

Under Peter Magyar, the political equation has shifted somewhat. But the deeper problem with these investments is not political. It is structural. BYD has already delayed the start of mass production at its Hungarian factory until late 2026, and the plant is expected to operate well below its initial capacity targets for at least the first two years.

More troublingly, BYD is simultaneously developing a separate one-billion-euro factory in western Turkey, where labour costs are lower, and production is expected to hit 150,000 vehicles annually by 2027. Hungary simply cannot compete on labour costs with Turkey, and its workforce is already stretched thin. This points to a vulnerability at the heart of the investment model. Hungary has attracted enormous amounts of capital, but much of it is in the form of assembly operations rather than genuine centres of research and innovation.

Chinese companies have historically brought their own workers with them, as CATL did in Germany, where 40% of factory staff were imported from China, rather than training and employing local people. Without requirements to share technology or develop local supply chains, Hungary risks becoming a sophisticated screwdriver factory, assembling components that are designed, engineered, and largely produced elsewhere.

The new government needs to insist on more. That means pushing for technology transfer agreements, mandating local supplier development, requiring meaningful research and development investment, and creating conditions where Hungarian engineers and scientists can genuinely participate in the innovation, not just the assembly. Otherwise, the moment production can be done more cheaply somewhere else, those factories will move.

The digital economy

Hungary’s digital sector is larger and more sophisticated than many people outside the region realise. It accounts for about 6.7% of the country’s total economic output, worth approximately 31.5 billion US dollars in 2025.

The country is a European leader in broadband infrastructure, with 37% of households connected to gigabit-speed internet in 2024, more than double the EU average of 18%. The national strategy aims for 95% gigabit coverage and 90% of public services delivered digitally by 2030.

In advanced manufacturing, the adoption of “Industry 4.0” technologies, which encompasses smart sensors, real-time data analytics, digital twin modelling, and AI-assisted quality control, is transforming what Hungarian factories can produce and how efficiently they operate.

The story of TDK Electronics, a major global manufacturer, illustrates the shift vividly. The company replaced its legacy systems, which included fax machines and isolated software programmes running on outdated computers, with unified digital manufacturing systems that allow managers to monitor and adjust production in real time. The efficiency gains were substantial.

Hungary has also made genuine progress in artificial intelligence (AI) research. The government-backed Artificial Intelligence National Laboratory recently completed a five-year programme involving eleven research institutions. The results included breakthroughs in predictive maintenance for factories, the development of language models specifically optimised for the Hungarian language, and research into autonomous robotics. The follow-up programme, backed by a budget of 20 billion forints, is explicitly designed to turn these research outputs into commercially viable products within three to four years.

Pharmaceutical and biotech companies are emerging as one of the more exciting growth areas. Firms like “Avidin Ltd,” which uses AI to identify cancer drug targets, and “ChemPass,” which develops AI-assisted discovery platforms for new medicines, represent exactly the kind of high-value intellectual property creation that Hungary needs more of.

These are companies that are not easily relocated to cheaper jurisdictions, because their value lies in people’s knowledge, networks, and accumulated research, not in physical assembly capacity.

The main gap in Hungary’s digital story is at the level of small and medium-sized businesses. While the country’s large manufacturers and financial institutions are digitally sophisticated, many smaller companies have been slow to adopt even basic tools like cloud software, digital invoicing, or enterprise resource planning systems.

Some of this is cultural caution. Some of it is cost. Some of it is the result of regulations, including strict data sovereignty laws, that make cloud adoption complicated. Bridging this gap is critical to raising the country’s overall productivity and ensuring that smaller businesses can remain relevant as supply chains become increasingly digital.

The energy transition

Hungary’s solar energy story is one of the more striking examples of policy-driven transformation anywhere in Europe. The government originally set a target of six gigawatts of installed solar capacity by 2030. That target was surpassed by 2025, when capacity exceeded nine gigawatts. The new target is 12 gigawatts, and analysts expect it to be met comfortably.

The success has, however, created new problems. Solar power is inherently intermittent. It generates electricity when the sun shines and nothing when it does not. Hungary’s grid was not designed to manage a system where a huge proportion of generation can disappear on a cloudy day or overnight.

Onshore wind, which would provide a useful complement to solar because it tends to blow when the sun is not shining, has been virtually frozen for a decade due to zoning restrictions. Geothermal energy, which Hungary has a significant natural capacity for, remains largely undeveloped.

The result became painfully obvious during the severe cold period in January 2026, when demand for electricity hit record levels and the grid struggled to cope. The lesson is clear. Hungary needs to invest heavily in battery storage, grid upgrades, and diversification of its renewable energy mix, including wind and geothermal, before the next crisis arrives. The government has put incentive frameworks in place, including tax credits worth 30% of eligible investment costs for battery storage projects, but turning policy incentives into built infrastructure takes time.

What comes next

The Magyar administration faces an exceptional set of challenges simultaneously, each one difficult enough to occupy a government’s full attention on its own. It must unlock billions in frozen EU funds, stabilise a budget that is significantly over its limits and reform the tax environment strangling the banking sector.

It must upgrade its foreign investment strategy from assembly-line attraction to genuine innovation partnerships. It must close the digital divide between large companies and smaller businesses. And it must fix an energy grid that is increasingly unable to handle the very renewable energy it has successfully encouraged.

The decisions made in the next twelve months will shape Hungary’s economic trajectory for the better part of a decade. The foundations are there. The goodwill is there. What is needed now is execution.

The post Hungary turns page after Orban appeared first on International Finance.

When the United States and Iran effectively shut down the waterway in late February, global energy markets responded loudly. However, the consequences for the global food supply represent a slower, quieter, and more dangerous impact that many people have not noticed.

The Silence in the Strait

Before the conflict, around 130 ships passed through the Strait of Hormuz every day, but by March 16, that number collapsed to single digits, representing a reduction of 95%. This left more than 750 commercial vessels either stranded in the Persian Gulf or circling in holding patterns outside the conflict zone, waiting for a signal that never came. These ships weren’t just deterred by the physical danger of being caught in a war zone. The most decisive factor in their decision was the prohibitive cost of insuring a ship through the strait, which spiked overnight.

Marine war insurance is a specialised financial contract that has existed for centuries to protect ship owners if a vessel is damaged or destroyed in a conflict zone. In normal times, coverage costs between 0.125% and 0.25% of the ship’s value for a single voyage. For a typical large cargo vessel valued at around $120 million, this translates to roughly $48,000 per transit.

However, the financial landscape changed dramatically during the conflict. Following attacks on vessels in the Gulf, and reports of mines in shipping lanes, insurers repriced premiums to between 1% and 10% of the hull value. This dramatic shift pushed the cost of a single transit for the same vessel to $1.2 million.

At these rates, most shipping companies turned around and called it quits. Now, navigating across the strait for ordinary commercial trade was near impossible, regardless of military risk.

Ships that really needed to reach the Gulf started taking detours around the southern tip of Africa, adding weeks of transit time and burning significantly more fuel in the process. The world’s most efficient trade artery had been blocked, and global supply chains were about to discover how dependent they had become on it.

Never Just About The Oil

When the strait closed, the world’s focus was primarily on oil. The Persian Gulf supplied approximately 20% of the world’s daily petroleum consumption, causing energy markets to react with extreme alarm. However, this fixation on oil obscured a more significant vulnerability. The region also produces a substantial portion of the world’s industrial and agricultural raw materials.

One of the most critical materials is helium, with Qatar alone supplying nearly one-third of the global total. Far from being used only for party balloons, helium is essential for cooling the superconducting magnets inside MRI scanners. Without a reliable supply, hospitals globally risk losing their diagnostic imaging capabilities.

Additionally, the Gulf region is a major hub for chemical feedstock and agricultural components. It ships roughly a third of the world’s methanol, which is a foundational ingredient for manufacturing plastics, resins, paints, and synthetic fibres. Furthermore, the region supplies about half of the world’s seaborne sulphur, a critical resource required for producing phosphate fertilisers and refining battery metals such as nickel and cobalt.

But among all the commodities that pass through the Hormuz corridor, nitrogen fertiliser is perhaps the most important.

Approximately 33% of all globally traded fertilisers passes through the Hormuz corridor. For urea, the world’s most widely used nitrogen fertiliser, that figure rises to 46%. Nearly half the world’s supply of the single most important agricultural input on the planet was suddenly unable to reach the farmers who needed it.

The Invisible Line Between Gas Wells and Grain Fields

To understand this, it’s important to familiarise ourselves with the chemistry. In the 19th century, there was an influential English economist and demographer known as Thomas Robert Malthus who believed that the population growth of the world would outpace the food supply, leading to an inevitable social crisis.

In his ’Essay on the Principle of Population’, he noted that the human population was doubling (geometrically) every 25 years back then, while food production increased arithmetically (linearly). He envisioned that there would be a point of crisis which would lead to wars, famine and extreme poverty.

However, in the 20th century, German scientist Fritz Haber successfully synthesised ammonia from nitrogen gas (from the air), and hydrogen gas under high pressure and temperature using an osmium catalyst.

With this information, Carl Bosch transformed Haber’s laboratory into a massive industrial-scale process for the company BASF by 1913. This created industrial fertilisers that would lead to green revolutions across the globe, feeding billions of people effortlessly. Malthus’s apocalyptic predictions did not come true because of scientific advancements, which led to the creation of the mass production of nitrogen fertilisers.

However, the blockade on the Strait of Hormuz has cut off the supply of natural gas, which is both a raw material and a source of energy in fertiliser production. This development inadvertently might cause the fulfilment of the Malthusian prophecy.

The numbers bear this out starkly. “We have 30-35% of crude oil, which is not moving, 20% of natural gas…and between 20 to 30% of other fertilisers that are not moving out,” said Maximo Torero, Chief Economist of the Food and Agriculture Organization.

Countries like Qatar, Saudi Arabia, and the UAE have built massive industrial complexes converting cheap domestic gas into exportable fertiliser.

Qatar State Fertiliser Company (QAFCO) operates the single largest urea production facility on earth, and supplies 14% of the global urea on its own. When the conflict disrupted regional gas infrastructure and made maritime export impossible, QAFCO went offline.

Saudi Arabia’s SABIC petrochemical complexes declared force majeure (a legal term meaning circumstances beyond their control prevented them from fulfilling their contracts). Storage silos filled to capacity with nowhere to send their product, and production halted. In one stroke, 14% of the world’s urea supply vanished from the market.

This isn’t just a Gulf issue. Natural gas prices spiked globally as buyers scrambled for alternative supplies, and this crushed fertiliser production in Europe too.

In Europe, natural gas accounts for up to 80% of the variable cost of making fertiliser. When gas prices spiked by 60% following escalation of the conflict, major producers found themselves making fertiliser at a loss.

Yara International (one of the world’s largest fertiliser companies) cut production at its European plants to 35% of capacity. This removed the equivalent of millions of tonnes of finished products from an already devastated market.

Prices, Panic and the Planting Window

Fertiliser prices are spiking at an alarming rate. Urea was traded around $450-$490 per tonne in early February, but it is now being sold at over $700 per tonne by late April. That is roughly a 50% increase in mere weeks.

Other fertiliser products are also seeing a surge, with liquid nitrogen variants jumping 22% month-over-month. Consequently, distributors are now rationing retail sales, and dealers have stopped quoting future prices because there is arguably no reliable way to predict what replacement inventory would cost.

The most dire consequence of all is the catastrophic timing, as the Northern Hemisphere’s spring planting season is just beginning. This matters because farming, unlike most other industries, cannot pause and resume. Crops have biological windows in which fertilisers must be in the ground, or else you face a permanent yield loss. There isn’t a way to catch up next year.

In an April survey of over 5,700 farmers across all 50 states, the American Farm Bureau Federation found that 70% of respondents could not afford necessary fertiliser, with regional impacts varying significantly. In the South, nearly 80% of farmers were priced out because crops such as cotton, rice, and peanuts require fertiliser close to planting time, preventing them from pre-purchasing stock. Conversely, the Midwest saw some protection through advance purchasing as 67% of farmers locked in their supplies early, though one-third of the region’s farmers remained entirely exposed to volatile spot prices.

The small farmers were hit the hardest. Large-scale commercial operations were better positioned to pre-book supplies months in advance and had the financial depth to absorb price shocks. However, smallholders and family farms operating on thin margins, purchasing inputs closer to planting time, did not have the time to adjust or cope with the doubled prices.

“The skyrocketing cost of fuel and fertiliser is creating more economic hardship for farmers who have already endured years of losses,” said Zippy Duvall, President of the American Farm Bureau Federation. “Without the necessary fertilisers, we’ll face lower yields, and some farmers will reduce acres altogether.”

University specialists and soil scientists, who calculate the economic efficiency of fertilisers, revised their guidance as urea prices rose. The optimal application rate for corn in Illinois dropped by 6 pounds per acre.

It might sound like a modest change, but the relationship between fertiliser and yield is not linear. Research from precision agriculture companies reveals that cutting application rates significantly below the optimal level creates disproportionate yield losses.

For example, a farmer who uses half the recommended nitrogen does not get half the yield reduction. It can be considerably worse. This means farmers who ration inputs very aggressively in response to price shocks end up losing a lot more in crop revenue for what little they can save on fertiliser.

This effect will alter planting decisions going forward. Corn, a very nitrogen-hungry crop, might be abandoned in favour of soybeans, which can absorb some of the nitrogen they need from the atmosphere. This is going to reduce the total caloric output, and markets are going to adjust well beyond the 2026 harvest.

Torero has warned that policy coordination is now essential to prevent the crisis from deepening. “We need to avoid export restrictions…especially now for fertilisers and energy,” he said, cautioning that without coordination, vulnerable countries could be priced out of essential supplies.

David Laborde, Director of Agrifood Economics at the FAO, echoed this concern from the demand side. “If we have rising demand because biofuels start to consume more…and lower supply because we have less input…food prices will go up,” he warned.

Ill-Prepared for The Indian Monsoon

India has structural vulnerabilities which the fertiliser shock makes worse. It imports 90% of its fertiliser raw materials. The kharif season (the monsoon planting cycle sown in June and July) produces almost 100 million tonnes of rice, which is the cornerstone of food security for more than a billion people.

The Indian government has moved quickly to protect its domestic fertiliser production, declaring an emergency guarantee of gas supply to fertiliser sectors at 70% of historical consumption. The FACT plant in Ambalamedu, Kerala, which produces NPK and DAP fertilisers, was flagged as a critical operation requiring protection.

Indian diplomats secured alternative fertiliser imports, arranging 2.5 million tonnes from Morocco, and 3 million tonnes from Russia via the much longer Cape route. Both these deals cost significantly more than what Gulf supplies usually cost.

Farmers in Punjab are anxious. India’s most productive agricultural state saw widespread panic buying and hoarding. Retailers report distributors bundling unwanted products with essential ones, forcing farmers to buy expensive supplementary inputs they do not need in order to access granular urea.

Harjinder Singh of Saidwan village in Kapurthala is one of thousands facing the consequences of this shortage firsthand. “I had never realised that getting a bag of urea would be such an ordeal, when paddy cultivation is still over a month away. Generally, the time after wheat harvesting is for celebrations. This year, the days preceding the harvest were filled with anguish because of the quality of grains. Post-harvest, we are grappling with urea shortage,” he said.

The situation could be further complicated by the weather. The Indian Meteorological Department forecasts the 2026 southwest monsoon projected rainfall at 92% of the long-period average, the lowest first forecast in at least 25 years. Global agencies simultaneously indicated that there is a 62% probability of El Niño conditions developing in the summer months, which is associated with weaker monsoons. The convergence of potential drought, depleted reservoirs, and fertiliser shortages creates a genuinely alarming picture for the next kharif harvest.

The urgency was captured sharply by the head of the UN Task Force on April 21. “With hunger looming, life-saving fertiliser shipments cannot wait,” the official said. “If we don’t get some solution immediately, the crisis will be very significant and severe, particularly for the poorest countries.”

Russia’s Quiet Leverage

Russia found itself in a powerful position as the Persian Gulf fertiliser infrastructure went down. Russia exports 23% of the world’s ammonia and 14% of its urea via the Black Sea and Baltic ports, which are unaffected by the Hormuz closure.

In what analysts are calling ’fertiliser diplomacy’, Russia leverages exports to cultivate political relationships across the Global South. Countries in Africa, like Nigeria, Ghana, and Ethiopia, are pre-purchasing Russian fertilisers for the third quarter of 2026 on terms that go beyond commercial transactions.

Senior Russian officials have been explicit about their strategy. “The escalation of hostilities in the Persian Gulf region has led to the closure of the Strait of Hormuz. The logistics and trade-economic architecture, as well as global energy and food security, are on the brink of collapse,” said Russian diplomat Alexander Venediktov. He described the situation as fraught with ’very serious consequences’ for countries dependent on imported hydrocarbons, fertilisers, and food, and was candid about Moscow’s positioning. “Nitrogen additive prices have risen by 30%. In the current extremely challenging situation, Russia is ready to act in coordination with its friends, countries of the Global South and East.”

It is not the first time Russia has done this. They used a similar approach during the Black Sea Grain Initiative in 2023, when grain export negotiations became a lever for extracting broader diplomatic concessions.

China has pursued a parallel strategy from the supply side by implementing strict export controls on phosphate fertilisers and urea to prioritise domestic agricultural security, which has subsequently cut off critical volumes to Southeast Asia and other import-dependent regions. This has further tightened a global market that was already in crisis.

The End of Just-in-time

Unlike oil price spikes, fertiliser or agricultural shocks don’t announce themselves immediately. Oil prices go up at the petrol pump within days, but fertiliser shortages take months to reveal the economic damage. The crisis has a built-in delay mechanism. We will see the consequences of what is happening now in the third and fourth quarters of this year.

The World Bank has observed that markets are already pricing in expectations for a smaller harvest, as evidenced by a 13% increase in wheat prices and a 7% rise in cereal indices.

The actual supply reduction has not yet materialised, but when it does, food price inflation will skyrocket.

For wealthy countries, this means higher grocery bills and compressed farm margins. However, for lower-income nations, it can be devastating.

Nations across Sub-Saharan Africa and South Asia will suffer significantly because they rely heavily on imports, and lack the capacity to subsidise fertilisers. In tropical and sub-tropical regions, the relationship between fertiliser application and crop yield is stark due to nutrient depletion in the soil. If things remain unchanged, we can expect a 40-50% reduction in maize yield across African countries.

The UN World Food Programme and the Food and Agriculture Organization expect the combined effects of conflict, fuel price inflation, and fertiliser shocks to push an additional 45 million people into food insecurity. This is on top of the 318 million people already facing severe food insecurity worldwide. At least 18 million people are expected to cross the hunger threshold in East and Southern Africa alone.

The lesson we can learn is structural. Our global economic system was built on the philosophy of maximum efficiency and minimum inventory to eliminate redundancy, but that is because the world was predictable and global trade was always available.

But things have changed as governments are now confronting the problem in real time. Spain has allocated €500 million to subsidise farmers from price shocks, while Ghana distributed fertilisers free of charge to prevent crop failure. Additionally, India redirected its gas supply from industrial users to fertiliser plants to address the crisis.

These are emergency measures improvised under pressure. In the long run, we will need something more durable. Domestic fertiliser production capacity in import-dependent countries has to improve.

Impact Will Be Felt Beyond 2026

Economic models suggest that the effects of the 2026 shock will likely persist for years. Even under an optimistic scenario in which the Strait reopens by mid-year, urea and phosphate prices are going to be elevated well into 2028. Qatar’s Ras Laffan gas complex has been attacked, and is damaged. It might take years to be fully operational again. Maritime insurers also need prolonged periods of stability before war risk premiums subside.

The yield this spring cannot be retroactively restored. The harvest will be what it will be. The world’s food supply depends on an unbroken chain of energy, chemistry, shipping, and trust. Breaking any one link in this chain can have severe consequences in every direction, affecting farmers in Arkansas and Punjab, grocery shoppers in Lagos and Jakarta, and boardrooms in Rotterdam and Chicago.

The post The Hormuz blockade is not just about the oil appeared first on International Finance.

As the 2026 midterm elections approach, all three of those pledges are far from being fulfilled, and the reason is a collision between two of his own decisions. First is the decision to strike Iran, and the second is taxing imports at the highest rate in more than a century.

The consequences are showing up where voters feel them most directly, at the gas pump, in the grocery aisle, and at car dealerships. Surveys show consumer confidence at record lows. If the pain persists into November, Donald Trump’s Republicans could face a serious reckoning at the ballot box.

A war that reignited inflation

In late February, Donald Trump ordered joint US-Israeli strikes on Iran. Tehran swiftly responded by closing the Strait of Hormuz, the narrow channel in the Persian Gulf through which roughly a fifth of the world’s oil supply passes daily. That one decision triggered an enormous energy price shock that economists say has reversed much of the hard-won progress the United States made on inflation during 2024 and 2025.

Brent crude, the global oil benchmark, surged from about $70 per barrel before the conflict to over $110 at its peak after Iran shut the strait. When Tehran briefly signalled a partial reopening, prices fell below $90, only to climb back above $105 as tensions remained high. The US benchmark, WTI crude, approached $96. As a direct result, US inflation accelerated to 3.3% in March 2026, the highest rate in two years, driven largely by fuel.

The OECD now warns that US headline inflation could hit approximately 4.2% in 2026, up from a previous forecast of just 3%.

The IMF’s managing director, Kristalina Georgieva, has described the situation as a “reversal” of what had been a positive trajectory for prices. Simply put, two years of painful interest-rate increases to bring inflation under control have been significantly set back in a matter of weeks.

Gas prices as political poison

Since the Iran strikes began, pump prices across the United States have risen by roughly 50 cents per gallon, with station price boards changing numbers almost daily in some areas. In California, the average has already crossed five dollars per gallon.

Nationally, analysts expect average US gasoline prices to head toward three dollars fifty if oil stays above $100. The national average was already at $4.16 per gallon on April 8, up from $3.25 just a month earlier, according to AAA data.

Polling shows that voters are angry and anxious. A Reuters/Ipsos survey in early March found that 67% of Americans expect gas prices to get worse over the next year as a result of the Iran campaign.

That fear cuts across party lines. Over 44% of Republicans and 85% of Democrats share it. Only 29% of respondents approved of the strikes at all, and 64% said Trump had never clearly explained what the United States was trying to achieve.

A separate Pew Research survey later in March found that 69% of Americans were worried about rising fuel costs from the conflict. Nearly six in ten Republicans told Pew that gas prices were their biggest concern about the war, while close to eight in ten Democrats said the same.

That bipartisan pain matters enormously heading into November. When a President’s own supporters feel the squeeze at the pump every time they fill their tank, the political shelter that wartime solidarity usually offers starts to crack. Inflation, unlike foreign policy abstractions, is something voters experience personally and remember when they vote.

More than petrol

The disruption to the Strait of Hormuz has inflicted damage well beyond fuel prices. Oil is a raw material for plastics, fertilisers and chemicals, so when its price spikes, the cost of hundreds of everyday products rises in turn. Shipping routes have been disrupted, adding delays and costs throughout global supply chains.

Researchers at the Dallas Federal Reserve modelled the inflation impact depending on how long Hormuz stays restricted. If it remains closed for one quarter, it adds roughly 0.35 percentage points to 2026 inflation.

Two quarters of closure add 0.79 percentage points. Three-quarters would add approximately 1.47 percentage points on top of existing pressures. These figures translate directly into higher prices on goods ranging from groceries to building materials, even if the war itself ends.

OECD economists also note that because of the way prices ripple through supply chains, households will still be feeling the effects in rent, transport costs and consumer goods as they head to the polls in November.

The tariff tax

The Iran shock is not arriving in a vacuum. It is hitting on top of a separate cost increase that Donald Trump himself created. Namely, his sweeping tariff programme, which has imposed taxes on imported goods at levels the United States has not seen in over a hundred years.

When Trump’s second term began, the average effective tariff rate, the actual percentage tax paid on imports, stood at roughly 2.5%. By April 2025, it had jumped to an estimated 27%, the highest in more than a century.

Legal challenges and negotiated deals have since brought it down to approximately 11.8% as of early 2026, with CNN tracking the effective rate at around 16.8% by the end of 2026.

Even at those reduced levels, the tax burden on imported goods is vastly higher than anything Americans faced before Trump’s second term. Initially, companies absorbed most of the extra costs rather than passing them on to shoppers.

In 2025, the US government collected roughly $187 billion more in tariff revenue than in 2024, almost a 200% increase, and businesses covered an estimated 80% of those costs internally. But that cushion is being depleted.

JPMorgan analysts and industry consultants warn that the corporate share of these costs could fall to around 20% in 2026 as pre-tariff stockpiles run out and businesses begin repricing. The bill is now migrating to household budgets.

What does it cost a family

Research by the Centre for American Progress, drawing on Harvard Business School analysis, found that between October 2024 and March 2025, prices of everyday nondurable goods such as cleaning products and toilet paper rose approximately 5%.

Furnishings climbed around 8%. Clothing jumped roughly 14%. A Yale Budget Lab estimate puts the ultimate annual cost to the average US household at approximately $1,700 once tariffs are fully passed through.

Food is now entering the pressure zone as well. Tariff effects typically take 12 to 18 months to work through to consumer prices fully, meaning peak pressure will fall between April and October 2026, right in the heart of election season.

Food prices were already up 2.9% year-on-year in January 2026. Yale’s modelling implies an effective annual food cost increase of around $1,500 for a typical household once tariff effects are fully felt. Combined with higher fuel bills, those numbers become punishing for families already stretched thin after years of post-pandemic inflation.

The sharpest tariff increases fall on metals, vehicles, electrical equipment and computers, raising the cost of cars, appliances and new home construction. Consumer goods with thin margins and heavy import dependence, such as coffee and fresh produce, have seen particularly sharp price swings.

For a middle-income family, the combined effect feels less like an America-first economic strategy and more like being squeezed from every direction at once.

Collapsing confidence

The University of Michigan’s Index of Consumer Sentiment, one of the most closely watched measures of how Americans feel about the economy, fell to a record low in April 2026. The US dollar has also weakened to its lowest point in four years.

While a weaker dollar helps American exporters, it also makes imported goods more expensive, piling onto the inflation already generated by tariffs and the energy shock. JPMorgan Chase chief executive Jamie Dimon, writing in his annual shareholder letter on April 6, laid out the compounding risk in stark terms.

“Now, because of the war in Iran, we additionally face the potential for significant ongoing oil and commodity price shocks, along with the reshaping of global supply chains, which may lead to stickier inflation and ultimately higher interest rates than markets currently expect,” said the document.

Donald Trump’s standing on the Iran conflict itself remains fragile. The same Reuters/Ipsos poll showing only 29% approval for the strikes found that roughly two-thirds of respondents felt the administration had never given a clear picture of what military victory was supposed to look like. When people see their purchasing power shrinking without a clear benefit to offset that sacrifice, frustration tends to find expression in protest votes, especially in the tightly contested districts that decide control of Congress.

Running out of road

Donald Trump could still seek a diplomatic de-escalation with Iran, but after framing the military campaign as a defining test of American resolve, any visible retreat risks being labelled as capitulation.

He could roll back tariffs to ease household budgets, but that would contradict a central pillar of his economic philosophy and anger the constituencies that have benefited from protection.

The White House has already quietly delayed planned tariffs on some furniture and Italian pasta in early 2026, a move analysts read as political damage control rather than principled policy. Wall Street has coined the nickname “TO,” standing for “Totally Chicken Out,” for the administration’s pattern of pulling back from tariff threats whenever markets or polls react badly, suggesting investors see trade policy as more performative than strategic.

Piecemeal retreats like these, however, may not be sufficient to change how voters feel about their household bills by November.

The Dallas Fed’s research suggests that even a relatively brief Hormuz disruption will keep inflation elevated through the end of 2026. The 12-to-18-month lag for tariff pass-through means price pressures will be near their peak immediately before Election Day.

Independent analysts estimate that Donald Trump’s combined policies will cost typical households between $1,500 and $1,700 per year. Consumer sentiment is already at a record low. Neither has the conflict toppled Iran’s leadership, nor has it delivered the concessions the White House sought.

However, the combined arithmetic of oil shocks and tariff costs is already eroding Trump’s standing at home, and as November approaches, his most dangerous political adversary may not be a foreign one, but the monthly household budget.

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