Israel-Iran conflict's impact on the global economy
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Hello and welcome to World Business Report from the BBC World Service. I'm Leanna Byrne. And on this edition, President Donald Trump has lashed out at both Iran and Israel despite a ceasefire deal. But as the region pauses for breath, we're asking what's the impact on the global economy? Plus, we're in Taijin, China for the Summer World Economic Forum, where global leaders are meeting against a backdrop of slowing growth and rising trade tensions.

Also, we'll head to rural northern Uganda, where one social enterprise is using agricultural waste to power homes and plug the energy gap.

I got my battery for electricity, which I'm using for cooking. It has improved my life. Right now I'm getting light. My children now, they read their book in time. But first, two political and economic allies are at odds. Donald Trump said he's not happy with Israel.

Do you understand that?

Now that just comes hours after Israel agreed to a US-brokered ceasefire with Iran, a truce that now appears very fragile with both sides trading accusations of fresh attacks. So what does this moment mean for the global economy, for markets and for the power dynamics in the region? Earlier I spoke to Mohamed El-Erian, Chief Economics Advisor to Allianz and President of the Queen's College, University of Cambridge.

So the markets are pricing in the closure of this chapter of conflict between Israel and Iran. And you see this in the collapse of the oil price. It's down $10 in just 48 hours. You see this in global equities. They are higher. And once again, the market is behaving as if the geopolitical shock was something to be faded early on, and that we're going to go back to

something that resembles business as usual. The US and Israel are allies, though. So does this show that possibly the US is losing its grip on Israel or the rest of its allies even? I think it's being interpreted as Israel pursuing certain goals for domestic political reasons. And as we've seen previously under other US administration, the US seeking to restrain it. What is different this time around is

is that this is much more public than what we've heard in the past. But we've had that sense of frustration from other presidents before. Now, before this conflict, the World Bank was already projecting the slowest decade of global growth since the 1960s. So with a geopolitical flare-up like this, how can that affect already fragile growth and inflation prospects?

So whatever your forecasts were for growth and inflation, they should be lower for growth now and higher for inflation. What has happened over the last 13 days has added to the sense of uncertainty, and that impacts growth in two ways. One, it makes the supply side less flexible. We're seeing once again global supply chains being put under pressure, and we're seeing shipping rates go up, insurance rates go up. So you have a supply side effect, but you also have a demand side effect.

where people are more uncertain and already we are seeing precautionary behavior on the part of both households and companies. We also are seeing yet more pressure on inflation, which puts central banks in particular in a very difficult situation.

because they would like to respond to the risk of lower growth, but they're constrained in terms of their worries about inflation. What about stagflation? We speak about that a lot. And for listeners, that's where we see weak growth alongside persistent inflation pressures. You know, particularly in energy importing economies, could that be a real risk, especially in the Middle East? Well, it certainly is already a real risk. And the non-oil Middle Eastern countries are also impacted greatly.

by lower tourist inflows. Tourism has collapsed in the last few days to many of those countries. The reason why people like me who saw the stagflation of the 1970s and early 1980s tend to call this period one of stagflationary winds, not actual stagflation, but winds. Think of a tailwind that pushes you towards lower growth and pushes you towards higher inflation. That is what we are going to continue to experience.

What are central banks thinking right now? I mean, they've been making interest rate decisions. A lot of them have stuck or else actually increased their interest rates. How can they manoeuvre this situation? Yeah, and we're seeing quite a diversity among central banks.

So the one that's most inclined to cut rates and has cut rates the most is the European Central Bank because they have got a deeper problem on growth. The Bank of England has gone to a cut every two meetings. And the one that hasn't done anything all year long is the Federal Reserve. The last cut by the Federal Reserve goes back to last year. And there's a lot of speculation now as to whether we will get two more cuts this year.

this year from zero, or whether we may end up with no cuts this year. When you've got a conflict like this, does it reinforce this global trend towards economic fragmentation? It does. And one of the most interesting things for people following markets is what did not happen. The dollar hardly moved. It traded within a 1% band.

throughout the Israel-Iran war. U.S. yields, the interest rate on U.S. government bonds, hardly fell. All this when oil was doing crazy things and gold was moving all over the place. And that has raised questions about the role of the U.S. as a safe haven. Is the U.S. still viewed as the safe haven or have people migrated to somewhere else? Of course, that migration can only happen slowly. And that's why it's a notion of fragmentation as opposed to a complete change in the global order.

There is this sense that this is yet another opportunity for China to come across as saying, I'm the stable one among the superpowers. Redirect trade towards me. Redirect your payment system towards me. And over time, we will build pipes around the US-dominated system.

That was Mohamed El-Erian, Chief Economics Advisor to Allianz and President of Queen's College University of Cambridge. Let's take a look at the markets now because there's plenty to talk about. Brent crude, the international benchmark for oil, is currently trading down 5%. Fiona Sincotta is Senior Market Analyst at Citi Index. Fiona, good morning or hello. Hello. It's not morning. Oh my God. Fiona, how are the markets interpreting the ceasefire?

Yes. So, I mean, oil prices is what we've been really following quite closely as sort of a barometer of the situation in the Middle East. And they have fallen quite significantly yesterday and today in total down around 13%. So, that suggests that this ceasefire has actually calmed fears of the conflict broadening out into the region. Right.

We also heard from Jerome Powell today, the Fed's keeping rates on hold. So what did we learn from his testimony? Yeah, so Jerome Powell stands, is reiterating his concerns that, you know, inflationary impact could be coming to the US economy. We heard from the Fed last week where they left interest rates unchanged. And again, Federal Reserve

Chair Powell said that the economy remains solid. But again, he's just highlighting those concerns of the potential inflationary impact of Trump's trade tariffs and now these high oil prices that we have seen, even though they were just for a brief period of time. It is interesting because the stock seems surprisingly steady, which might be a surprise for a lot of people listening. Maybe not for you, Fiona. I mean, what does that say about investor sentiment right now?

Yeah, so I think investors are really sort of focusing on the positives here and the fact that there had been a ceasefire and they see that as sort of, as I said, potentially calming fears that are broadening out into the region, into the broader region. So there is still a sense that this could still happen.

come together and a ceasefire may still be agreed, even if it has been violated, that we're on the right track. So that initial fear that we had, you know, just a few days ago, has really calmed quite considerably. Okay, Fiona, don't go anywhere, because we're going to turn now to the World Economic Forum and Tangent China, where global business leaders, central banks and policymakers, they're all gathering. And at

the moment of course there's relative calm as we were saying after days of market turmoil and I asked our business reporter Sirinjana Tiwari who's at the forum what the mood is like. Well there definitely was a sigh of relief today as those oil prices came down I think around 5% the business leaders that were in attendance at the World Economic Forum in Tianjin

China are here to try and figure out how to sort of navigate the other major challenges facing the global economy, things like tariffs, higher inflation, high interest rates. And then they had the added sort of layer of having to deal with potential disruption to the supply of oil and gas, higher oil prices, and how that impact might impact their business.

Still concerns around the volatility and the on-again, off-again ceasefire, but certainly some relief as far as the steady supply of oil goes for now at least. Absolutely. I'm sure the instability is tough to talk about. But of course, you mentioned this interest rates remains a very hot topic globally. Has there been much talk there about what central banks might want to do, especially from the US or from China?

I think that's all up in the air. I mean, given the rise in oil prices, everyone is anticipating sort of that it might cost more to produce whatever products they are manufacturing, especially in the region, obviously a region that's home to many manufacturing hubs, whether it be textiles or chips or other electronic goods.

In amidst all that, you know, this meeting comes against the backdrop of tariffs as well. So businesses are having to navigate tariffs. And there is a sense that they're trying to figure out another way, you know, as the U.S. really ramps up its trade war around the world and especially with China.

Is there another way? China is certainly putting itself forward as a real global leader when it comes to these things. It's really pushing investment in artificial intelligence and saying, actually, we should be investing in these companies, especially ones like DeepSeek, because they ultimately add value.

to global growth. And that's something a lot of sort of accounting firms and consultancy firms are saying as well, that going forward, things like artificial intelligence could really boost global growth at a time when there are so many other challenges around the world. Yeah, so many. It's interesting, isn't it? Because the World Economic Forum, I think the theme this year

It's all about finding new frontiers for growth, but you've got this going on in the background. Is there any other fresh ideas or industries emerging from the forum that we should be paying attention to? I think the big one is artificial intelligence. And it is interesting because, you know, we cover these stories so much about artificial intelligence and it feels like a lot of talking.

whereas there's not that much doing. But one company that has come up so far is DeepSeek. You know, the way that DeepSeek came out with that large language model that so many American companies have also come up with, but they've done it much more cheaply, much more efficiently. That's certainly made a lot of people wake up and pay attention. That was Surinjana Towari reporting.

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And you're with World Business Report from the BBC World Service. Let's turn to Uganda now, a country that has one of the lowest electrification rates in Africa. According to a 2020 report, just one in 10 of rural Ugandans have access to electricity. For many, getting connected is far more expensive than it is in the cities because extending the grid to remote communities is costly and complicated.

In Waiode District in northern Uganda, around 300 kilometres from the capital Kampala, social enterprise Mandoulas Energy is connecting rural homes to electricity, most for the first time and transforming lives by turning agricultural waste into clean, renewable energy. The BBC's Ngoje Mugai reports. Catherine Lamuaka is removing cow peas from their pods using a stick so that she can prepare a meal for her family.

She's a farmer from Gotungur village in northern Uganda, where renewable energy is impacting lives for the better. I got my battery for electricity. Then I have a stove, which I'm using for cooking. Time also we go and get those by-gases for planting our maize. Catherine is one of the 112 residents whose lives have changed thanks to electricity generated by this plant.

Mandulis operates in multiple hybrid renewables to deliver clean energy. That's Peter Nyeko, an aerospace engineer and co-founder of Mandulis Energy. He explains how they use farm waste to generate electricity. We begin with agricultural waste. Rice husks, maize cobs, groundless shells and coffee husks. Because you have a lot of that in rural Uganda.

And when we take that dry waste, we bake it at a high temperature and it breaks down into hydrogen and methane, which is rock fuel. And in that process, those gases, when taken through a gas engine, generates electricity. The by-product from the gasification of the crop waste to generate electricity is also useful. But what's left behind is a biochar, pure carbon. And that biochar is useful because

for making green concrete, it's also useful for making organic fertilizers into the ground. So that's a cycle of how we produce most of our energy. But we also utilize solar as a low-cost additive during daylight hours, thereby reducing our reliance on battery storage. And what happens as well is our excess

Agriculture waste is converted into pellets and those pellets are useful not just as a store for the energy but can also be used for cooking by the communities. So we also make a smaller gasifier stove that we distribute amongst the communities and they use that to cook.

And once they finish cooking, they sell back to us their biochar waste, in effect earning as they cook. The 50-kilowatt hybrid power plant has transformed the local community. The electricity, it has improved my life. Right now I'm getting light. My children now, they read their book in time. The electricity powers several economic activities in Gotunguru.

both on the grid and off-grid, using batteries. Some farmers have some crops to make. Robert, who works at the power plant, explains. On the agricultural processing side, we have rice milling and peanut butter milling. On the clean cooking side, we have machines for making briquettes, non-carbonized briquettes, still also using feedstock from agricultural mills.

We also have water pumping to provide clean water to households. The water pumps are also purified using the power generated from here. We also have electric tricycles that are used for sourcing biomass from the community.

and also to invest itself because there are some households that are not directly connected to the grid. They are off-grid and they are factory. Mandolis Energy wants to replicate this model across Africa and empower more rural communities to take advantage of what they already have to better their living standards. The future is very, very, very bright. As long as we have rural areas where people are farming,

As long as there's agricultural waste that is not being valued, there's an opportunity to connect these dots. That was the BBC's Njerogi Mugai reporting from northern Uganda. Now, Google, the global search engine giant, well, it could be forced to change the way we search for things online, in the UK at least.

UK's competition watchdog says it might have to tweak how it runs its search engine and advertising side of its business to make sure competition is fair. It's all because of this new law that gives regulators more power to rein in tech giants if they're found to hold too much control in the market. Sarah Cordell, the chief executive of the CMA, spoke to the BBC earlier about what they're proposing.

And we're looking at interventions like making sure that consumers have access to choice screens so that they can choose to use a different search provider, including importantly, potentially, the new AI assistance that we're coming through into the market. We want to improve the fair ranking principles that Google applies so that businesses know that they're being treated fairly when their businesses are listed on Google search results.

And joining us is the CBC's technology journalist, Takara Small. Hello. Hello. What's the problem here? Why does the UK regulator think Google has too much power?

I mean, Google has managed to dominate the search space for decades. It owns roughly 90% of the search market. So if you are doing a search, you're most likely using Google. And what I think most people don't recognize is that domination has actually come through exclusive partnerships. So it's paid a lot of money to giants like Apple and Mozilla to make sure that it is the default search.

So I think opening up to competition is the goal because people realize that if nothing changes, Google will continue. Maybe that 90% will slowly become 100%. I think one of the big issues as well is it says that people might be paying more for things online because there isn't enough competition. Now, for a lot of people, that might be simple economics, but a lot of people, they might say, well, how does that work? How would that affect how we see or what we spend?

Well, part of it ties into how people pay for search engines. First of all, if you go into Google and not just that engine, but many others, you will see that oftentimes there are paid options. Many people don't understand and will click and often find preference with that. The other thing is that obviously Google will sometimes kind of veer...

kind of veer users towards certain websites, certain applications, and that can lead to less competition and perhaps not bring down prices for small businesses that honestly would appreciate it the most. I'm just wondering, though, Google's been the go-to search engine for so many years. I mean, is it even possible to challenge that kind of dominance, even from a big UK regulator?

It is possible. And I will say it's coming at a very interesting time if you look at it internationally and take into accord geopolitics. You have startups that now may be able to tap into the search market. You may have consumers who are eager for homegrown options. And last but definitely not least, AI has evolved.

change the landscape. There may be startups that are able to compete at a much cheaper, more affordable level. To play devil's advocate, because we don't have anyone from Google here, sadly. But, you know, Google says that cracking down too hard on it could stop it bringing new products or updates to the UK. And in fairness, I think there are a lot of regular users on its platform. Small businesses use it as well. Could they possibly lose out if there was too much of a hard crackdown? I think it'll...

It's too early to tell whether a crackdown would impede Google from introducing new products. I think what's the most interesting part of the report that was issued is that they recognize Google as a gateway for information that has been incredibly successful, has been incredibly helpful to UK users, but more competition would improve the landscape. So whether that hurts Google introducing new products, we'll have to wait and see. But, you know, I think at the

And if you look at Silicon Valley, where this company originated, competition is seen as a boon, as a positive. So how that could impede them from growing or introducing new work, I mean, I would see that competition as honestly necessity to be that much better. Now, other questions.

government-type bodies, well, the EU has been quite harsh, maybe some might say, on the likes of big tech companies. And I see the EU is coming under a lot of pressure from Donald Trump to be flexible on its digital regulations, which in the past it said, no, we're not moving on that because they're obviously in talks about tariffs. I mean, could there be a domino effect if the EU caves into the White House and they say, OK, yeah, we will be flexible in the end?

I think there could be a domino effect that will impact not just the EU and perhaps the UK, but also other countries. I mean, as you mentioned, I'm in technology journals at CBC, and we are in the midst of right now very delicate issues.

negotiations regarding our own digital service tax, which it would hit U.S. tech giants as well. So I think, you know, what happens in the EU and whatever resulting decisions are made can influence how we react. And I must say that Canada is very different than the EU because the majority of our trade is with the U.S.

We have been hit quite hard by tariffs, and yet you still have the Canadian government standing firm on this digital service tax. But again, who knows what may come and what the EU may do may influence it. Now, still here is Fiona Sincotta, Senior Markets Analyst at Citi Index. Fiona, my question to you is, we have a lot of these stories a lot of the time. Does that ever hurt these big tech companies, particularly on the markets?

I mean, yes, it does, but it depends as well because obviously I think investors have become a little bit numb to hearing about sort of illegal and antitrust cases held against big tech because they are –

sort of they come about on a regular basis. Sometimes there are huge fines. I mean, for example, as we talked about the European Union's top court last week recommended it actually dismissed Google's appeal for a record 4.1 billion euro fine. So,

These things, they're not having a direct impact on the share price day to day. But I do think it's something that if we see big changes that are inflicted on these companies, then yes, then that would have a big impact on the share price. But up to now, it doesn't really seem to be moving the needle too much. Yeah, and I was quite interested to hear from Takara that there's newer, smaller platforms posed to step in. I'll have to keep an eye out for them. Both Takara Small and Fiona Sincotta, thank you so much.

OK, Oman is making headlines with a historic shift. It's set to become the first country in the oil-rich Gulf to introduce personal income tax. Like its neighbours in the Gulf Cooperation Council, Oman has long relied on oil revenue, but the government says this new tax is part of a bigger plan to diversify the economy. Let's bring in our reporter, BC Ida Bio. BC, what's going on here?

Well, Leanna, Oman has unveiled plans to introduce a 5% income tax starting in 2028. And that's quite historic because no other Gulf country has such a tax. And it's not just a blanket measure, however, because it will only apply to individuals earning 42,000 Omani rials or more a year, which is about $109,000. So essentially, it targets only the top

1% of income earners in the country. And according to the economy ministry, this is designed to be a progressive step that won't burden the wider population. This is quite a big move for the region though, isn't it? So what's the government's justification for this move? Well, the government is saying that this is all about reducing Oman's dependence on oil, which has historically been the backbone of its economy. And the Minister of Economy, Sayyid bin Mohammed Al-Assad,

Al-Sakhri made it clear that the new tax is part of a broader effort to diversify public revenue sources. So importantly, he also emphasised that social spending won't be compromised. And basically, the idea is to create a more balanced and sustainable fiscal model without necessarily shifting the burden to lower or middle income households. Has there been any reaction from other Gulf countries to this? Because it could set a precedent, couldn't it?

Absolutely.

Absolutely, Rihanna. It's been watched closely, definitely. But none of the six Gulf Cooperation Council countries, otherwise known as the GCC countries, including big players like Saudi Arabia, the UAE and Qatar, have personal income tax. And that's long been a major attraction for foreign professionals and investors who are looking to live and work in the region. But this move by Oman marks a potential

shift in thinking and some believe that this move could actually open the door to similar conversations in other Gulf capitals, especially as governments across the region are looking for new ways to future-proof their economies in a world that's gradually moving away from fossil fuels. And GCC countries, they have strong public finances already, don't they? Oh yes, to a large extent they do, Leanna, but most of them are currently in a strong fiscal position and

And only Saudi Arabia and Bahrain are projected to run in deficits this year. OK, thank you so much, B.C. Adebayo, for your reporting on that story. And that's it from World Business Report from the BBC World Service. Have a great day and thanks so much for listening.