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Iran could emerge from the war stronger and more dangerous

The Islamic republic aims to set up a toll booth on the Strait of Hormuz. It may succeed

Donald Trump has a perverse genius for driving American adversaries to discover new forms of leverage over the US. His trade war with China persuaded Beijing to exploit its domination of rare earths and critical minerals, forcing the US to reduce its tariffs.

In a similar fashion, Iran has now finally carried through on a longstanding threat and in effect closed the Strait of Hormuz. Tehran, like Beijing, will have been delighted to discover how quickly it can inflict economic pain on the west.

Iran’s exploitation of its control over the strait means that the Islamic republic can now aspire to do far more than merely survive the US-Israeli assault. It has a real prospect of emerging from the war in a strengthened international position.

There is no doubt that Iran has suffered some savage blows. The country’s leader and many of his most senior advisers were killed on the first day of the conflict. Its ships, missile launchers and command centres have been struck repeatedly. The Iranian economy is in deep trouble and inflation is rampant.

But Iran is not merely fighting on. It has demonstrated that it can inflict real damage on its Gulf neighbours, such as Saudi Arabia and the UAE — placing big question marks over their long-term futures. Crucially, the Strait of Hormuz also provides the Islamic republic with a significant potential future revenue stream that could prove extremely valuable.

Iran has charged a reported $2mn each to allow ships safe passage through the strait. In normal times, about 140 ships a day make the journey. So a crude calculation suggests that, if Iran succeeds in setting up a toll booth on the strait, it could add billions of dollars a month to the state coffers.

Marco Rubio warned last week of the danger that Iran will seek to charge ships passing through the strait. The US secretary of state said that this would be illegal and unacceptable. He is right on both counts. The question is: what can the US do about it?

The discouraging answer is that there may be no military solution to this problem, short of regime change in Tehran. The US is currently dispatching ground troops to the region. But the seizure of Kharg Island, which Trump has floated in a recent interview with the FT, would not necessarily solve the strait problem.

In fact, western military planners are very pessimistic about the chances of reopening the strait by military means alone. The geography of the area and the technology available to Iran — including drones that can be operated many miles from the shoreline — mean that even naval escorts cannot guarantee the safety of commercial traffic.

That leaves a negotiated agreement with Iran as the most realistic option. But Iran is likely to demand a very high price. The Iranian regime has its eye on potentially game-changing future revenues — as well as a means of dispensing favours or punishments to countries all over the world.

Trump, the self-styled master negotiator, is floundering. He recently admitted that he finds the Iranian negotiating style very “strange”. The previous week the US president had suggested that “me and the ayatollah” might jointly manage the strait — which some have interpreted as a bid to split potential tolls with Tehran. But the Iranians seem uninterested.

Iran’s neighbours are horrified at the idea of Tehran emerging from the war with practical control over Gulf energy exports as well as a new stream of income. There is much speculation that the UAE and Saudi Arabia could join the conflict rather than accept that outcome. But those countries are also well aware that Iranian strikes on their oil installations or desalination plants could wreak long-term havoc on their economies and societies. They may ultimately decide that paying protection money to Iran is a better option than escalation.

Asian nations — which are the main markets for Gulf energy exports and are not in Iran’s line of fire — may also consider paying up. US allies, such as Japan and the EU, will know that paying off Iran would provoke American wrath. But European relations with the Trump administration are already so bad — and the president so erratic — that the Europeans might risk it, rather than accepting permanently higher energy prices or going back to buying Russian oil and gas.

Of course, there are still many “known unknowns”, to quote Donald Rumsfeld, an architect of the invasion of Iraq in 2003. The intervention of US land forces would be a dramatic escalation. It is possible that the social and economic pressures within Iran will eventually cause the regime to implode. But, so far, it looks remarkably resilient.

Some of those who detest Trump, Israel or Saudi Arabia will enjoy the sight of the Islamic republic turning the tables on its enemies. But that is very short-sighted. The Iranian regime has sponsored violent Islamist groups across the Middle East and massacred its own people in the streets — as well as providing vital support for Russia in its war on Ukraine. If it emerges from this war embittered and emboldened, that will be bad news for global security, the world economy — and the Iranian people themselves. Unfortunately, that currently looks like a plausible outcome.

Sirius Real Estate strikes Germany deal as it targets €1bn in defence investments

FTSE 250 group to acquire site mostly let to Rheinmetall for almost €100mn

Sirius Real Estate is acquiring a business park in Germany for close to €100mn, as part of a plan to increase its bet on the booming defence sector to about €1bn over the next 18 months.

The FTSE 250 company is buying a Kiel property that is mostly let to Rheinmetall, the German defence group, and others across the defence, infrastructure, testing and automation sectors, for €93.6mn. It is buying the site from Union Investment, one of Germany’s largest asset managers.

The acquisition comes as some real estate companies seek to capitalise on a sector that has mushroomed in recent years as European states bolster their defence spending.

The industry “has dire needs for property”, said Andrew Coombs, Sirius’s chief executive, adding it “makes more sense to sell the real estate to us” so companies can continue investing in their operations.

Including the Kiel property, Sirius has spent more than €170mn over the past year on defence-related acquisitions in the UK and Germany and planned to boost that figure to €1bn over the next 12 to 18 months, Coombs said.

Rheinmetall researches and develops electrical systems for land vehicles at the Kiel site while the tenant at the UK business park in Bedford makes parts for ejector seats in military jets.

Coombs said Sirius, which has a market capitalisation of £1.4bn and also owns offices and industrial developments, was on the hunt for sites specialising in manufacturing and research, except for explosive materials or bombs. “If it goes ‘bang’ it’s not us,” he said.

He is focused on the UK and Germany as well as companies whose factories can’t easily be located elsewhere, due to the experience of the local workforce or being located near similar businesses.

Rheinmetall has been investing heavily across technologies and geographies in its quest to emulate big US defence contractors, the FT has reported.

Its order backlog — an important measure of future income for defence contractors — reached a new high of almost €64bn, it was recently reported, and the company said that sales were forecast to increase at least 40 per cent this year to about €14bn.

Anticipating a rise in demand from defence companies, Sirius last year appointed a retired major general in the British Army as a strategic adviser. Its £77mn fundraising in February was four times oversubscribed, Coombs said. He added that institutional investors such as pension groups had become more comfortable investing in Sirius.

In light of the wars with Russia and Iran, “the climate has shifted, people want to defend our way of life”, he said. “There’s a return of Germany as the backbone of European defence.”

In recent weeks, he said he had fielded calls from US private equity groups asking how to become involved in the sector, while demand has been rising among potential tenants.

Coombs called on the UK to invest more in defence, such as issuing “defence innovation bonds”, which would be similar to those issued during the second world war.

Talks with Chinese owner Jingye continue while losses mount

The UK government is on the verge of fully nationalising British Steel, almost a year on from using emergency legislation to take control of the business, three people close to the situation said.

Last year a special measures bill granted the government emergency powers to take control of the business and safeguard jobs amid fears that Chinese owner Jingye was running down the site after halting coke imports.

But British Steel is heavily lossmaking and the government spent £377mn between April and the end of January to keep it afloat. The National Audit Office has warned that this could hit £615mn by June and £1.5bn by 2028 if current spending continues.

Jingye still has economic control of British Steel, meaning the government is legally unable to sell all or part of the business or make decisions about its strategy. One person familiar with the situation said that nationalisation was a “necessary step” for British Steel’s future.

The government is now considering how to use legislation to take legal control of the business. The person familiar with the situation said the government’s recent move to designate steel as a “strategic national asset” could pave the way for the government to use national security laws to force through nationalisation.

Jingye rejected a £100mn offer for British Steel from the government last month and had originally demanded more than £1bn in compensation.

A senior UK government official said negotiations with Jingye were still active and taking place in good faith: “There is clearly a defined timeline, they cannot go on forever.” British Steel declined to comment.

A government spokesperson said: “We have been clear that safeguarding UK steelmaking is our priority. We continue to engage with the owner to find a solution that protects workers, production and the national interest, and we will not comment further while discussions are ongoing.”

Gareth Stace, director-general at industry group UK Steel, said the industry would “strongly welcome” the full nationalisation of British Steel. “This would provide vital certainty for the workforce, the company’s customers and the wider supply chain at a critical moment.”

British Steel’s Scunthorpe site is home to Britain’s last two operating blast furnaces and produces 95 per cent of the steel used on UK rail tracks. The government favours a shift to greener electric arc furnaces but this transition would cost thousands of jobs.

Britain’s other major steelmaker, Tata Steel, has announced plans to shift to electric arc furnaces at its Port Talbot site in Wales but at the cost of £1.25bn and thousands of jobs. The government has already provided a £500mn grant to Tata Steel to fund the transition as part of a wider £2.5bn package of support for the UK steel sector.

Against a volatile backdrop of US tariffs and the UK’s high energy costs, the government this month announced its much delayed steel strategy, focused on reworking trade quotas designed to protect steelmakers from a glut of Chinese imports.

Michael Flacks, a Manchester-born turnaround investor, has expressed an interest in acquiring British Steel and combining it with other European steel operations. Bankers have also been sounding out interest from other strategic partners, but people close to the situation said that it was a moot point until the government had the legal ability to actually sell the business.

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