How is Israel's bombing affected Iran's economy?
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This BBC podcast is supported by ads outside the UK. Hi there, I'm Ed Butler. Welcome to World Business Report from the BBC World Service. Coming up today, we're going to be hearing from Iran as citizens and businesses there react to Israeli airstrikes and what looks like increasingly widespread supply disruption. Also in the show, we're in Thailand as the latest deadline looms for the threat of increased tariffs on US imports.

and why the Canary Islands and other parts of Spain are protesting against tourism. More on that later in the show. But first, now to the streets of Tehran.

That's the sound of traffic in the Iranian capital today, much of it heading out of the city. Social media videos show lines of cars stretching into the distance as many thousands of citizens...

speak of massive disruption and a fear of Israeli airstrikes affecting them. The Israeli military called on citizens in just the last couple of hours to evacuate large parts of the city. Iran says that more than 220 people have been killed so far by missile and drone attacks since the bombing started last Friday.

For years, our protests have been crushed. Our currency has collapsed. Our wages shrink by day. And our dreams have gone up in smoke.

And now we have to fear going to bed in case of a bomb falls on us. I feel like a loser. We won't lose this fight against Israel. Mr Netanyahu, even though this regime kills us, we won't let you decide our destiny.

The words there are citizens of Tehran. Well, Israel now says it has taken full control of the skies over the city. It's destroyed one third of Iran's missile launches, it claims, as the two sides exchange heavy strikes for a fourth day. The economic fallout is also being felt internationally on which...

much of which we will be hearing more about shortly. But first, a look at what has been targeted. Humayun Falakshahi is a lead research analyst for the crude oil market Kepler. Hi, Humayun. Iran is a critical country in the global supply of oil of natural gas, of course. To what extent is that, the energy infrastructure, being targeted at the moment?

Hi, thanks for having me. So far, the attacks that we've seen over the weekend have mainly targeted

infrastructure that is tied to the domestic market. So it seems that it has been a very calculated move from Israel. Maybe one reason behind it was to show Iran, the Iranian leadership, that they could hit other more critical infrastructure. So the two facilities that have been hit, there is one gas processing plant in the south, which

may disrupt a little bit of gas production, LPG production and condensate, but it's nothing major to international markets because Iran consumes its gas mainly domestically. 95% of its gas is consumed domestically. And then the two fuel depots near Tehran have also been hit. And this is also for the domestic market. So it seems that for now, at least,

Israel doesn't want to escalate things on the energy front and doesn't want international markets to be heavily impacted by the ongoing war. Yeah, because, of course, Iran produces about four million barrels of oil a day. And I guess there will be pressure coming from Washington as well as elsewhere on the Israelis to limit the fallout economically of what's going on here.

Absolutely. As you said, Iran produces about 4 million barrels per day of oil. That's about 4% of global oil supply. And when you look at exports, the country exports around 1.5 million barrels per day. And that is all going to China. In fact, Iran represents a share of about 10% in Chinese oil imports.

So it's very important for world markets, because if you lose that supply from Iran, then obviously Chinese buyers would scramble for other suppliers. And that would mean higher prices. That's something, of course, that Washington, Donald Trump doesn't want right now. So Israel says it's now taken full control of the skies over Iran. That's the Israeli claim.

We know that there's been heavy bombardment in just the last couple of hours. What kind of assets would cause you most concern on the economic front were they to be targeted? What is Israel not going for yet, if you like, that you think it might extend to in due course, given that we're expecting weeks of this bombardment, according to the Israelis?

I think there's a few steps forward for Israel if they want to escalate it. First of all, they could hate gas production facilities at South Park. So Iran holds the largest gas

natural gas field in the world shared with Qatar that produces alone about 10% of the global gas supply. But again, that would mainly impact the domestic Iranian gas market. Then another step would be to hit the Kharg oil island, where in the north of the Persian Gulf, that's 96% of Iran's oil exports originate from that port.

So that would be an obvious one if Israel wants to escalate things further. And then finally, that won't be down to Israel, but rather to Tehran. They could decide to blockade or to close the Strait of Hormuz. About one third of global seaborne oil trade passes through the Strait every day. And so that would be obviously catastrophic for prices. And we probably should see Brent's

prices reach triple digits and even way beyond triple digits, if that's the case. But again, we think that the likelihood of that is very, very low right now. Right now. Okay. Thank you very much. That's Hommayoun Falakshahi, lead research analyst at Kepler. Thanks for your thoughts.

We're looking there at the Straits of Hormuz, a crucial, obviously, supply point, a pinch point, if you like, for shipping as it comes out of the Persian Gulf. Now, crucially, parts of this strait, which is, of course, next to Iran and links the Gulf states to the Indian Ocean and the global market, it is subject very easily to disruption. And some of this has been happening, we understand.

Electronic interference has been reported, according to the UK Maritime Trade Operations Agency.

The agency says that it has received multiple reports of problems with ships' tracking systems, which are known as AIS. To give us insights into this, I'm joined by Ami Daniel now. He's the CEO of the shipping analytics company Windward. Hi, Ami. Thanks for joining us. First of all, the Automatic Identification System. Tell us what this is and why it's so important to ship it.

Sure. Good afternoon. It's good to be back on the show.

Very simply, like everybody uses flight radar to look at airplanes and see where they are, the same happens with ships. So on the skies, it's called ADS-B. In ships, it's called AIS. It's a 1960s-something protocol which says every ship transmits its location every two seconds broadly so everybody else could see where they are so there are no collisions.

And that is very important if you're in very narrow areas like the Strait of Havuz. Yeah. And obviously, a vast amount of shipping is going through a pretty narrow channel right there. About 20% of the world's energy. Yeah. It's a lot. It's double what Russia does. Quite. Think about double what Russia exports goes throughout Russia, right? Because Russia is one of the biggest countries in the world.

goes through a very narrow choke point of whatever, five kilometers. So is Iran disrupting this right now? Are all these ships flying blind? What do they do if they are?

Sure. So first of all, I can't tell you who's disrupting this, but in line with other conflicts in Syria, in the Black Sea, obviously in Ukraine, in the Red Sea, by the way, with the Houthis, we absolutely see in the last few days since the hostilities started an increased amount of GPS surveillance.

disruptions and we can estimate that almost a thousand vessels or 928 vessels are affected between Thursday and today. Now think of the cargoes they're taking, it's a lot of cargo. So it's meaningful I think and I wouldn't expect it to stop until the hostilities finish I think. Right, but you wouldn't be traveling at night perhaps if you couldn't see where you were going.

Well, it doesn't really work this way because ships have to transit 24-7. You don't just stop, especially during hostilities, by the way. It could be even more dangerous, right? Because the last thing you want to do is being a floating duck. Why is Iran doing this, though? Or is it not deliberately doing this?

I think somebody's deliberately doing this, and I expect it would be Iran, by the way, because if you're getting shot at with bombs and missiles, the standard practice is to try to disrupt their GPS location system so they can't hit where they want to hit.

So you're using this as a defense mechanism in many countries, by the way, in Israel as well. So it's trying to jam the missiles, not the shipping. It's just the shipping is a kind of casualty of this war. Yeah. Actually, I think Iran has a vested interest not to disrupt the shipping because, as a previous speaker said, the previous guest, it's about it exports a couple of million barrels of oil a day, a couple of million barrels times $60 is $120 million a day.

And I think we can see, and it's just even fresh from five minutes ago, it was out in the Wall Street Journal based on our data, we see in the first time in this war a slowdown of exports of oil from Iran, which is big. So there's 300, sorry, 200 and something tankers waiting to enter Iran, and they're now entering. And the reason is probably the hostilities. So indeed, I don't know if Israel meant to do this, but...

But one of the outcomes of the culmination of all the factors, the GPS spoofing, the risk, the attacks, is that exports are getting slowed down out of Iran. And that's a big lever. Ami Daniel of Wynwood, thank you very much. Thank you very much. Thank you for having me.

You're with World Business Report from the BBC World Service. Rachel Winter is partner and investment manager at Killick & Co. She's a regular markets analyst with us. Rachel, we haven't seen, have we, vast movements, or perhaps as much as some had feared in terms of the price of oil. This latest disruption, Straits of Hormuz, it might change that, I guess.

It could do. So, so far, Brent crude, which is the main measure of oil, that's up about 17% since the start of June. So, that sounds like quite a lot. But actually, it's only come back up to where it was at the start of April. In April, oil was trading around about 70%.

$75 per barrel. It came down a lot when the tariffs were announced because people were concerned that the tariffs would impact global growth and therefore the demand for oil. But now it's come back up again because of these concerns about the tension in the Middle East. And absolutely, if we do get any restrictions on the Strait of Hormuz, then yes, I do believe that Brent crude could go even higher. So it could get worse, but for now, no cause for panic?

No. So at the moment, the price hasn't come up to the extent that would indicate panic, but there is always the potential for it to rise further. Rachel Winter, thank you very much for now. We'll come back to you in a minute. Now, it is just three weeks until the key 8th of July deadline. That's when Donald Trump has threatened to impose his full tariff regime on America's trading partners.

Apart from China, no region in the world is more dramatically affected by the threatened import taxes than Southeast Asia. And I've recently been to Thailand, where I've been hearing more about the impact of the tariff threat on people there.

I'm standing in a rubber plantation in eastern Thailand, Thailand being the number one exporter globally. A third of the world's rubber comes from Thailand. There are little cups attached to each tree, which is dispensing a small amount of white liquid. That is the sap of the tree. That becomes natural rubber. It gets exported around the world, and it is a multi-billion dollar industry.

Much of it, of course, going to the U.S., but for how much longer? I'm here with Doang Chai. She's 73 years old. She's a farmer here in this area. Doang Chai, how long have you had a rubber plantation here?

It's about 28 years. She thinks this business is good because it's only one-time investment. She takes care of the trees about seven years, then you can start harvesting. How worried are you by what you're hearing from the United States that they may be putting up taxes and making it very hard to export to the U.S.?

Since Trump policed it about the trade, the price of the rubber is going down very much. So that's what she's concerned. The price going down, she doesn't like it. She doesn't like it at all. This is the challenge facing all industry here in Thailand and across Southeast Asia. On your left is Berra. Berra is the top four Indian company, a tire producer.

We're also looking for other types of industry. Rayong Kitapol is driving me around his industrial park, a massive free trade area south of Bangkok, a facility built a few years ago to welcome foreign firms, offering them low corporation taxes and relatively cheap skilled labour. What's this in front of us? In front of us is a container full load of concrete for the construction work. A lot of construction happening.

So you're still expanding? I think this is depending how is the trade deal, Thai and United States, going to work out. It's less activity, definitely. Yeah, everybody in the mode of wait and see. Some aren't even waiting. Rayong shows me the site of one of his main former Chinese clients, a solar panel maker called Standard Energy that's already mothballed its operations in the wake of the US tariff threat.

That's the sound of silence. I'm standing in one of Thailand's biggest deep-sea water ports. There are several docking points here for huge container ships, the kind that you see travelling the world, the world's oceans, taking products back and forth.

Many of them come from here. Thailand exports hundreds of billions of dollars worth of goods from cars to pharmaceuticals, food products. All of it comes from places like this. But listen to this. It's very, very quiet here. There are only a couple of ships I can see stowed at anchor. The cranes are all virtually idle.

I think that the rate of export might decline dramatically. We're going to see that difficulty, not only Thailand, I mean, I think the whole Asia cannot avoid it.

That's Tanakhorn Kasatsrawan of Thailand's National Shippers Council. He says that the US is Thailand's number one export market now, some $60 billion worth a year. And unless there's a further extension on the tariff freeze from July the 8th, Thai goods could be facing a devastating 36% tax rate. Others in the region are looking at an even higher number. And he says the disruption is already affecting the entire global trading system.

Uncertainty not only hurt us, but hurt the whole supply chain. People just say, stay home. Why buy clothes? Why buy stuff? I think it's already happened. If the whole consuming market consumed less because of this panic, the world would not grow. People want to see the better life, the better dream, the better hope. I need to ask President Trump to help us

The words there of Danakorn Kasetsaruan of the Thai National Shippers Council. And Thailand's Commerce Minister has, by the way, today told reporters that he is confident that the current 10% tariff will be used to help the Thai shipping industry.

will be extended. That's the current rate that's being applied. This after trade talks with the US, which begin later this week. We're going to keep you posted on that, of course. There's more from me in Thailand, by the way, today in today's edition of Business Daily on the BBC World Service or wherever you get your podcasts.

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Now, back to Rachel Winter, our markets guest, still with us. Rachel, other company news today. The Trump family has announced a new business venture, a mobile phone cellular service for Americans to be launched in September. What do they say?

A bit of a surprise, really. I don't think anyone was expecting this, but the family has always been good at capitalizing on their own name. So they will be launching their own mobile phone service, focusing specifically on items that were manufactured in the U.S. They're looking at phones that would be manufactured in the U.S. They're looking at using networks where the infrastructure has been manufactured in the U.S. And I think

particularly important. They're looking to have a US-based call centre for anyone that needs assistance. So that's the information we have so far. The news only came out today, so I suspect more detail will be published over the coming hours. Yeah, a Trump-branded gold smartphone will be part of the package. We're being told, made in the US, as you say, President's son Eric has been

unveiling some of the details. More, perhaps, to come later. Now, elsewhere, Renault. Luca Di Meo, he's poised to become the head of the French luxury group Gucci. Is that right? Sending their shares higher, but it's sending Renault's shares down.

Yeah. So if we look at what the markets are doing, we can see that Di Maio was a very respected manager. So the shares of Renault that he's leaving are down 7%. So clearly investors in Renault are very disappointed at his departure, whereas shares in Kering, which as you say, is the owner of Gucci, those were up 9.4% this morning. So investors there are clearly very happy that he's coming on board. Right.

Finally, Boeing. I want to talk about them because they always seem to be a lightning rod, don't they, for anything that's happening in aerospace. Shares in the Planemaker, whose 787 was, of course, the aircraft involved in the Air India plane crash reported last week that left at least 270 people dead. What's happened to them?

Well, the shares are actually up a little bit today, but I would use the phrase a rising tide will lift all boats. So the whole market is up today and I think Boeing shares are up as a result of that. But I do have to say there's still a huge amount of uncertainty over Boeing. We still don't know exactly what caused that crash last week. So I suspect the shares will move as and when we get a bit more detail there. A big week finally for interest rates. 40% of the World Central Bank setting rates this week. What are we to look out for, do you think?

Well, I think perhaps the one that's the most uncertain will be the UK. So we had been hoping that here in the UK rates would be cut over the course of this year. But the last inflation reading for the UK was 3.5%, which was significantly above target. And that will make it difficult for the central bank to cut rates.

Rachel Winter, thank you very much indeed. Now, protesters took to the streets in cities across Spain, Portugal and Italy over the weekend, all to complain about what they're calling over-tourism. This was the scene in Palma on the island of Mallorca yesterday.

Yeah, the protesters are upset about tourism, about the popularity of their country as a tourist destination. It's creating all kinds of challenges, they say, for locals, such as a lack of affordable housing, poor access to services, even a lack of decent job opportunities for local people. And the benefits, they reckon, of the revenue from tourism are not being fairly distributed. Sharon Backhouse...

directs a project that researches sustainable tourism on the Canary Island of Tenerife. She joins me now. Hi, Sharon. There have been protests there too, haven't there? Tell us what specifically is affecting people in Mallorca and why are they so upset?

Hi, thank you very much for inviting us on the programme. We're actually based in the Canary Islands where we've seen huge demonstrations over the past year and discontent is really growing. We have a massive tourism industry which last year generated 22 billion euros for the Canary government purse. But we have among the lowest salaries in Spain, real problems with housing for the people.

The sanitary services are grinding down to a halt and people are calling for a change. The Canary Islands, as you know, are much loved, especially by Brits, and were the sort of leaders in the mass tourism model. But they're saying that that model is now broken and we need to install a more sustainable model of tourism where locals benefit too. Yeah. Meanwhile, though, tourism does generate 7 billion euros a year, doesn't it, for Tenerife alone? Yeah.

Yes.

And it's a destructive model that eats up very limited territory and resources. We're seeing macro hotels destroying beautiful landscapes and basically exiling Canarians from some of the landscapes and coastlines that they love. And they're turning it into a theme park, say, protesters. The problem is these investors are making stellar profits, but they pay very low wages. And it's a model that depends on precarious jobs, split shifts,

often employing young women with children who perhaps have emigrated from South America sometimes and don't have that security around them and are very afraid to speak out for better conditions. So we are seeing now possible hotel worker strikes coming this summer. They had given the hotel owners a deadline of Friday to upskill.

up the conditions and the pay for cleaning, for example. But they are meeting today to see if they're going to go ahead with the strike unless they receive a last minute offer. Right. So, I mean, we were talking to you about a lot of these problems a year ago, I think. Yes, that's right. Has anything actually changed? What have the government said in response to the things that you've been calling for?

Well, at the time they said they were going to investigate and bring out some new measures. But basically, the local environmental platforms are saying they just don't go far enough and they don't address the problems. So one of the things they're calling for is an eco tax so that they can that money can be reinvested in protecting the environment and regenerating areas that have been affected. But instead, what they've introduced is an entrance fee.

And the problem with an entrance fee is that it's not transparently reported. And there's a concern that it's just going to become the new cash cow for a very small number of people. What they're looking for is measures that really protect the Canary Islands for the future and generate real opportunities for local Canarian people.

It's much easier for a foreign investor. They get the red carpet treatment when they come to the Canary Islands, really low tax regime. But it's so much harder for locals to set up and be entrepreneurs. And that just can't be right. I think all of us who have a love for the Canary Islands and the destinations that we travel to on holiday, we want to make sure that locals are benefiting from all of this mass industry. Sharon Backhouse, thank you very much indeed. That's Sharon Backhouse from Geo Tenerife. And that's it.

for today's World Business Report. Thank you all for listening.