When the conflict in the Middle East broke out, UK Treasury Secretary Rachel Reeves spent the entire weekend at the ministry. She would have done so anyway, as she was set to deliver a statement to Parliament, but her aides say '90%' of her time was dedicated to preparing for the economic shocks from the conflict. She told her team: 'Right now, this is a conflict between states, and it will soon become an economic issue.' The price of a barrel of crude oil surpassed the $100 mark for the first time since 2022, and this week the Office for Budget Responsibility forecast that the oil price shock would push inflation back up to 3%. However, Treasury officials insist that this currently represents a 'temporary disruption in current supplies' rather than a 'permanent disruption,' as occurred when Russia's war on Ukraine began. One insider warns: 'If this is a long-term, permanent disruption, there will be consequences.' Reeves has established a response committee within the Treasury, including Chancellor of the Exchequer Spencer Leavermore, head of her economic advisors' council Neil Smith, and minister James Buller, along with several Permanent Secretaries from the Treasury. The government's immediate response has focused on preventing profiteering, assessing the impact on households reliant on heating fuel, and working with the G7 to stabilize supplies. While she is correct in stating that oil, not gas, is set by international markets, Reeves will be grateful for the revenues generated from selling both. In a statement to the House of Commons, Reeves said: 'I recognize the role that oil and gas in the North Sea will play in our economy for years to come.' The third issue is the campaign by UK Energy Security and Net Zero Secretary Ed Miliband to reach net zero, which has increased pressure on the cost of living—the biggest domestic problem facing the Prime Minister. Yet, UK ministers also believe the conflict has created an opportunity to forge a deeper economic deal with the European Union, a deal that Prime Minister and lead negotiator Nick Simmonds plans to begin work on next week. A leak of discussions held at a National Security Council meeting on Friday, February 27, on the eve of the Iran war, revealed that Starmer initially failed to convince his ministers to allow the US to use the 'Diego Garcia and Ray Fireford' airbases to strike Iranian missile sites. It can now also be revealed that a rift also opened at the same government meeting. Shadow Energy Secretary Claire Coutinho said: 'Ed Miliband has made three big bets: that we don't need our own oil and gas production. As a man in the Royal Air Force, he is seen as underestimating the Royal Navy's ability to be present and reassure allies.' A senior security source revealed that in another high-level meeting at the end of last week, Poll and others were saying: 'Should we put a range of options on the table for the Prime Minister to consider?'. Budgetary planning Others point out that Naughton, who has not fought in any war and has served abroad only once in Italy, was only given this post to arrange the Ministry of Defence's budget, a task he failed to accomplish before the Iran war began. A Labour MP, contemplating the problems UK Prime Minister Keir Starmer is facing over the Middle East conflict this week, said: 'Starmer was right, but things are still going wrong.' He meant that Starmer kept the UK out of US-Israeli air strikes, a position popular with both the Labour Party and voters. However, the fallout from that conflict has exposed three deep problems within the British state. The first was a rift in Starmer's relations with UK Defence Chief Marshal Richard Naughton, while the second is the fragility of the economy to energy price shocks. The third is a lack of money in the government. Cutting energy bills There are doubts about UK Energy Security and Net Zero Secretary Ed Miliband in the upper corridors of government, according to sources familiar with discussions in the UK Cabinet. Prime Minister Keir Starmer, Work and Pensions Secretary Pat McFadden, and former Prime Minister's Office director Morgan McSweeney were all skeptical of Miliband's approach. One source said: 'The Cabinet realized last summer that none of this would lead to energy bill cuts', after Miliband promised to cut energy bills by £300. The source added: 'He had no idea how to achieve it'. The government may also need to intervene when setting the energy price cap in July, as that will determine costs in the autumn when people turn their heating back on. Escalating tensions Meanwhile, tensions are mounting between the Treasury and Miliband over the drive to achieve 'net zero'; Miliband has overseen the ending of new oil and gas production in the North Sea, making the UK increasingly reliant on foreign supplies. National Security Advisor Jonathan Poll asked UK Defence Chief if the UK should send warships to the eastern Mediterranean, saying: 'What about the aircraft carrier?', referring to the 'Prince of Wales'. Naughton replied: 'We don't need an aircraft carrier'. The decision not to send a warship proved to be a political disaster, angering several Middle Eastern countries. One source said: 'Warships are part of the diplomatic stage. They are symbols as much as weapons'. Lack of experience Starmer's inexperience in military matters did not help Naughton. One old defense hand said: 'The Prime Minister doesn't know the questions he needs to ask to get the answers he needs to make all the decisions he might want to make'. Naughton only took up his post in September, but there is already speculation he will not see out the usual four-year term. If the military rift is the most acute problem, the most acute is the lack of money in the government. One source said: 'Nobody told the Prime Minister any of this', leading to what may be a catastrophic collapse in confidence in Marshal Naughton. Last week, after meeting with oil and gas industry executives, she hinted she wanted to scrap the windfall tax on the energy sector, which is pushing up prices. She said clean electricity is more important than cheap electricity, and renewable energy is a better bet than nuclear to free you from gas prices. She said: 'He has caused electricity prices to rise, they have gone up by £200 on his watch'.
