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A Dispute Over Opening Hormuz Drives a Wedge Into U.S.-Saudi Relations

Saudi Arabia blocked Trump’s first big effort to open the strategic waterway, triggering a widening diplomatic rift

DUBAI—More than 100 U.S. military aircraft were taking off from bases and warships across the Middle East as part of an effort to crack open the Strait of Hormuz this past spring when they hit a glitch: Saudi Arabia, whose bases and airspace were critical to the mission, was saying no.

The pushback forced the U.S. to abort Project Freedom, according to U.S. officials familiar with the matter, ending the military operation to guarantee safe passage for ships that President Trump had launched hours earlier.

Incensed, the White House threatened to hold back delivery of interceptors that Saudi Arabia needs to shoot down Iranian missiles and drones, if the kingdom didn’t reverse course, U.S. and Arab officials familiar with the discussions said. Saudi Arabia ultimately backed down, but U.S. officials said at the time that the damage wouldn’t easily be undone.

Now, the U.S. is considering reducing its military footprint in the kingdom, according to U.S. officials familiar with the planning process.

The U.S. threats, which haven’t been previously reported, marked the biggest rift in years in a relationship that has underpinned security arrangements in the Gulf for decades.

Secretary of State Marco Rubio traveled to the Gulf last week for meetings with senior officials in the region. He visited the United Arab Emirates, Kuwait and Bahrain, three of the countries hardest hit by Iran during the war, but didn’t travel to Saudi Arabia.

Saudi officials were displeased and interpreted Rubio’s decision not to visit Riyadh as a calculated snub, people familiar with the kingdom’s thinking said.

Trump administration officials denied that was the intention and said Rubio had positive conversations with Saudi Foreign Minister Faisal bin Farhan on the sidelines of a Gulf Cooperation Council meeting in Bahrain. The U.S. and all GCC members released a joint statement after the meetings that reaffirmed their “strong commitment” to their partnership.

The week before, Saudi Crown Prince Mohammed bin Salman turned down an invitation to attend the Group of Seven summit in France, protesting the U.S. handling of the war, the people familiar with the kingdom’s thinking said. The leaders of the U.A.E., Qatar and Egypt attended the gathering. The crown prince said in a letter to the French hosts that he couldn’t attend because of prior commitments, Saudi media reported at the time.

Riyadh didn’t respond to repeated requests for comment.

White House spokeswoman Anna Kelly said that Washington and Riyadh have a great relationship. “President Trump listens to a variety of opinions on any particular issue, and he takes seriously the input of our regional partners,” she said. “Ultimately, he makes all decisions based on what is best for the American people.”

The Pentagon declined to comment.

It isn’t clear how deeply the disagreements and slights might affect a relationship that has long been a cornerstone of U.S. security policy in the Middle East. Close U.S.-Saudi ties help assure the free flow of oil priced in dollars and balance the heavy U.S. commitment to Israel. The kingdom is a major customer for American arms and a source of investment capital, including for critical mineral supply chains, artificial intelligence and civil nuclear cooperation.

The U.S. military first secured basing rights in the kingdom in 1945 and expanded them during the wars with Iraq. During Trump’s first administration, the U.S. built up its presence at Saudi Arabia’s Prince Sultan Air Base largely as a bulwark against Iran.

The relationship has come under strain before, in the post 9/11 era. The U.S. had to scale back and even end its presence at Saudi bases at times over the years because of political considerations and the domestic fallout from having foreign troops in the country that hosts Islam’s holiest shrines. The first Trump administration pulled Patriot missile defense systems out of Saudi Arabia in 2020 following a dispute over the kingdom’s oil output, saying they were no longer needed for defense.

The crown prince bet heavily on his relationship with Trump in the president’s second term. The strategy paid off with a White House visit last fall where Trump praised the de facto Saudi leader and waved away concerns about the killing of columnist Jamal Khashoggi in 2018 in a Saudi consulate, which had alienated the crown prince from the U.S., including many members of Congress.

But Saudi Arabia and the U.S. were never really on the same page over the war against Iran, dubbed Epic Fury by the Trump administration. The kingdom and other Gulf powers lobbied the administration for weeks early this year to find a diplomatic solution after the U.S. built up forces in the region and told its allies to be ready for a major attack.

Saudi officials told the White House that any attempt to topple the Iranian regime would close the Strait of Hormuz, rattle oil markets, and hurt the U.S. economy, as well as damage their and the region’s stability, the Arab officials said. The kingdom and other Gulf states said publicly they wouldn’t allow their bases or airspace to be used to attack Iran.

The U.S. started the war alongside Israel anyway, exacerbating Saudi concerns that its investment in the relationship wasn’t paying off in actual influence, according to the Arab officials. Iran responded by launching missile and drone attacks against Gulf population centers, energy infrastructure and airports in an effort to raise the economic and political costs of the conflict.

Despite their initial reluctance, the kingdom and other Gulf states quickly allowed the U.S. to use their bases and airspace for attacks. Some—including Saudi Arabia—eventually took a more active role, launching a number of strikes on targets that included Iranian drone and missile sites, U.S. officials and a Gulf official said. The kingdom hasn’t publicly acknowledged those strikes.

But Iran absorbed the punishing air campaign and rattled the Gulf by hitting important energy infrastructure like Qatar’s Ras Laffan natural gas project, the U.A.E.’s Fujairah oil hub and the Saudi petroleum complex at Ras Tanura. Its hard-line leadership dominated by the Islamic Revolutionary Guard Corps consolidated power and showed more appetite for risk throughout the war.

With Saudi officials fearing more Iranian attacks on its energy exports including from the Iranian-backed Houthis in the Red Sea, where the kingdom had routed most of its oil, the crown prince shifted gears and started working to de-escalate tensions.

Saudi Arabia complained to the U.S. that U.A.E. attacks on Iran, which began in the early days of the war and continued through the day after the April ceasefire was announced, were raising the risk that regional energy facilities could come under fire from Iran, some of the people familiar with the matter said.

The Saudis wanted the U.S. to pressure the U.A.E. to stop the retaliatory attacks and join diplomatic efforts by regional countries, they said.

Saudi Arabia also pressed the U.S. to drop its blockade of Iran’s ports and return to the negotiating table, fearing Trump’s move to choke off Iranian commerce could lead its leadership to escalate and disrupt other important shipping routes, the Arab officials said.

Trump kept the blockade in place, and in early May, he caught Gulf nations, including Saudi Arabia, by surprise when he took to social media to announce Project Freedom, a military effort to shield oil tankers and other commercial ships moving through the Strait of Hormuz.

Within hours of his post, American warships sailed into the Persian Gulf to help defend vessels. Jet fighters, attack helicopters and drones were launched to provide cover overhead. And undersea drones monitored the waterway.

The Saudis, whose bases and airspace were needed by the U.S., were alarmed by the operation. After consulting with his advisers, the Saudi crown prince told Trump that the effort was going to antagonize Iran and that it should be reconsidered, according to people familiar with the conversations.

As the U.S. guided two American vessels through the Strait, Iran launched a barrage of missiles and drones at commercial ships, the U.S. Navy and a U.A.E. oil transit hub, which was set ablaze. The fighting was the most serious escalation of the conflict since Trump declared a ceasefire in the war in April.

Saudi Arabia blocked access to its bases and airspace for Project Freedom after Trump played down the Iranian attacks, The Wall Street Journal has reported.

U.S. officials were stunned by the move that effectively shut down Project Freedom.

The about-face on basing also put the biggest strain on Saudi-American military relations in recent years and triggered a spate of tense phone calls between Trump and the Saudi crown prince.

The kingdom’s shift also frustrated Israel and Gulf neighbor U.A.E. Emirati President Sheikh Mohamed bin Zayed had already been upset when the crown prince refused to participate in coordinated military actions against Iran at the very start of the war, the Journal has reported.

The tensions worsened a growing divide between the two Gulf powers. The U.A.E. pulled out of OPEC in April, leaving the Saudi-led cartel of oil producers and pledging to double down on security ties with the U.S. and Israel.

Saudi Arabia has stuck to its guns. It reached out to Iran and has brought in troops from Pakistan, which has a new defense alliance with the kingdom and which was leading the efforts to negotiate an end to the war.

“When Iran and others tried to drag the Kingdom into the furnace of destruction, our leadership chose to endure the pains caused by a neighbor in order to protect the lives and property of its citizens,” Prince Turki al-Faisal, a senior Saudi royal who led the kingdom’s intelligence service for over two decades, wrote in the Saudi-owned Arab News in May.

Saudi Arabia lifted its basing and airspace restrictions after U.S. officials warned the kingdom it wouldn’t be on its priority list for receiving defensive weapons if it didn’t back down, the Arab officials said.

“The crown prince’s understanding with Iran reached via Pakistani coordination has already delivered results, which means that most Saudi infrastructure remains safe and not a target, allowing the kingdom to move away from the U.S. general policy,” said Umer Karim, an analyst of Saudi foreign policy and geopolitics with the King Faisal Center for Research and Islamic Studies. “A bigger rift with the U.S. obviously will open a huge Pandora’s box and both sides will try to avoid it.”

The U.S. didn’t relaunch Project Freedom, which dedicated a huge number of military assets to ensuring the protection of ships. Instead, it quietly coordinated with ships to move them out of the Gulf in the dark of night and with their transponders switched off.

The U.S. is now considering reducing its presence in Saudi Arabia and focusing its forces in countries that were more supportive during the war, including Israel and Jordan, according to people familiar with the matter. The officials cautioned that the planning was in the early stages and that no decisions had been made.

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Alcoa strikes $4.8bn deal for South32’s alumina and bauxite assets

US aluminium group expands as disruptions in Middle East push up grey metal prices

Alcoa has struck a $4.8bn deal to buy Australian miner South32’s aluminium, bauxite and alumina assets, expanding its global footprint at a time when prices for the grey metal have been driven higher by the war in the Middle East.

Bill Oplinger, chief executive of the US aluminium manufacturer, told the FT he expected the market for the metal to “get tighter” as a result of the conflict, and that it would take as long as 12 months for global aluminium production to return to prewar levels.

“We entered 2026 in aluminium deficit, that led to higher prices — and then the conflict exacerbated the high prices,” the Alcoa chief executive said.

Prices for the metal hit a four-year high of more than $3,787 a tonne on June 2, although they have pulled back since the US and Iran struck a tentative peace deal two weeks ago.

The Middle East accounts for about one-tenth of global aluminium production.

The total value of the deal could hit $5.6bn comprising $3.1bn in cash, $1bn in Alcoa shares, $750mn of debt to be assumed by Alcoa and $750mn of future cash payments contingent on aluminium prices, South32 said.

The aluminium sector has previously seen acquisitions made at the top of the cycle go poorly. Rio Tinto’s $44bn purchase of Alcan in 2007 — as commodity prices soared on the eve of the financial crisis — has been cited as one of the most value-destructive deals in mining by executives who were involved in the deal.

Alcoa, however, said the deal would boost its alumina production by more than 50 per cent and its smelting capacity by more than a third.

To produce aluminium, bauxite mined from the ground is first refined into alumina, which is then smelted to make the grey metal.

The US company expects about $900mn in synergies from the assets, which span from South Africa to Australia to Brazil. Two of the projects — the Alumar refinery and the Brazil Aluminium smelter — are already operated by Alcoa.  

“We are acquiring assets that are in our sweet spot,” said Oplinger, adding that he was “very excited” about the deal.

Graham Kerr, the outgoing chief executive of South32, said: “This transaction will unlock significant value for shareholders and repositions South32 as a leading upstream base metals-focused company with high-margin assets and transformational growth.”

Kerr has led South32 since the business was spun out of BHP in 2015. He will now hand over to former Anglo American executive Matthew Daley who was announced as the Australian company’s new leader last year.

While the war in the Middle East has bolstered aluminium prices, it has simultaneously pulled down prices for alumina because several large smelters in the region have halted or reduced their purchases of the feedstock.

Alcoa’s chief financial officer Molly Beerman said on June 10 that the alumina segment “as a whole will be underwater” this quarter, causing the company’s share price to drop nearly 10 per cent that day.

The deal to acquire South32’s stakes in certain bauxite, alumina and aluminium assets will include $3.1bn in cash and $1bn in Alcoa shares. The total enterprise value includes net debt primarily related to leases associated with the assets.

An additional payment of up to $750mn will be made by Alcoa if certain commodity price thresholds are met over the next four years.  

South32, which has a primary listing in Sydney with secondary listings in London and Johannesburg, was spun out of BHP in 2015 and is a key producer of copper, zinc and silver.

Italian oil major and Swiss trading house aim to secure large profits that have been notched up by some rivals

Italian oil major Eni is to form a partnership with Swiss trading house Mercuria to jointly trade global energy commodities.

The companies will announce details of their joint venture, which will trade oil, gas, liquefied natural gas and biofuels, on Wednesday, according to people with knowledge of the plans.

The partnership, to be equally owned by Eni and Mercuria, will draw on both companies’ international footprints but will operate on a standalone basis.

The joint venture will allow Eni to quickly expand its oil and gas trading business, after rivals BP, Shell and TotalEnergies reaped huge returns from energy price volatility.

Some traders made enormous profits as the US-Israeli war against Iran roiled energy markets this year. They made even bigger gains from whipsawing energy prices following Russia’s full-scale invasion of Ukraine in 2022.

Eni chief executive Claudio Descalzi told the FT in February that the oil company was in talks with Mercuria and other businesses about a potential partnership that would revive its trading operations after a seven-year hiatus.

Trading “is not in our DNA”, he said. “So I thought to become commercial we have to have a partnership to understand the business.”

Representatives of Eni and Mercuria declined to comment on the joint-venture plans.

Mercuria will gain important data from Eni’s oil and gas production business through the partnership.

The trading units at Europe’s three biggest oil companies — Shell, BP and TotalEnergies — earned as much as $4.75bn from the turmoil in global energy markets in the first quarter of this year, according to estimates by analysts.

Energy prices were buffeted by the US intervention in Venezuela in January, and then the US-Israeli war against Iran that began at the end of February.

Shell, BP and TotalEnergies, which trade derivatives such as futures and options as well as physical oil and gas, have a significant competitive advantage over some rivals.

But independent commodities traders have also reaped high profits. Trafigura this month reported net profit of $4.1bn for the six months to March 31 — more than double what it recorded in the same period one year ago.

Energy traders tend to perform best during volatile periods, when they can profit from buying and selling oil and refined products at different prices across markets. More of their customers seek to hedge against price moves in these circumstances. 

Chinese carmakers’ hunger for chips boosts national self-reliance drive

EV makers such as global leader BYD are rushing to increase use of locally developed semiconductors

Chinese carmakers are rushing to cut their dependence on foreign chips in an echo of how their dominance of battery technology gave them an upper hand in making electric vehicles.

Underlining the Chinese ambitions, BYD, the Shenzhen-based world’s biggest EV producer, in May unveiled the Xuanji A3, the first autonomous-driving chip designed by its 7,000-strong semiconductor research team.

“BYD is now capable of supplying all the key chips required for intelligent vehicles,” said BYD founder Wang Chuanfu at an event where he plucked the AI chip from his breast pocket and held it aloft. “Whatever computing power we need in the future, we will be able to provide it ourselves.”

Chinese companies rely on Taiwan Semiconductor Manufacturing Company, South Korea’s Samsung and Germany’s Infineon to fabricate almost all the high-end AI chips they use, analysts say. But the progress being made in designing semiconductors for the car sector is a step towards the chip self-sufficiency that has for years been a core goal of Beijing’s industrial policy.

BYD, which manufactures its own lower-end semiconductors, is part of a growing list of Chinese carmakers designing chips with AI functions that includes Nio, Xpeng, SAIC, Changan, Great Wall Motor, Li Auto and Geely.

Carmakers are also entering more partnerships with local chip developers including Huawei, Horizon Robotics, Black Sesame and Oritek, posing a long-term threat to the hefty revenues that US, European and Japanese chip designers generate from China’s automotive sector.

More than 50mn EVs, including battery-only cars and plug-in hybrids, are on China’s roads and despite slowing growth another 14mn are forecast to join them this year. New EVs in China typically contain nearly twice as many chips as cars with internal combustion engines, according to analysts, and their value per vehicle can be as high as $2,000.

Jimmy Yu, a technology analyst at UBS, said he expected car applications to be a crucial growth driver for the Chinese semiconductor design industry over the next three to five years.

While Beijing was not forcing carmakers to use Chinese-made chips, the “potential risks” of being denied access to foreign semiconductors in the future were motivating the industry, Yu said. He cited concerns BYD could be hit with restrictions on access to US technology similar to those imposed on Huawei.

Highlighting that risk, the Pentagon last month reinstated BYD to a blacklist of Chinese companies deemed to pose a national security risk to the US because of alleged connections to the People’s Liberation Army. BYD denies the allegation.

According to UBS data, the ratio of domestically developed “power discrete” semiconductors used to manage electrical power use in Chinese EVs ranges from 20 per cent to more than 40 per cent, depending on the type of chip.

“The Chinese are a huge issue,” said one Japanese semiconductor executive, who asked not to be named. “On automobiles, they’re twice as fast . . . they’re still behind [on power chips] but it’s only a matter of time.”

For “analogue” chips, which convert real-world signals into electronic ones, the UBS data puts the ratio of Chinese-developed supply at about 15 per cent.

US, European and Japanese designers and manufacturers dominate supply of the most sophisticated chips, including those used for AI. Executives say most Chinese EV makers that are deploying AI functions for driverless cars rely on Nvidia-designed chips. But as the carmakers move to mass-production, they want specialised chips that will work better with their in-house software and be cheaper.

For example, BYD claims Xuanji A3 achieves 20 per cent lower power consumption for the same level of computing performance as peer products including Nvidia’s. Nio has said using the company’s in-house AI chip could save the EV company about Rmb10,000 ($1,480) per vehicle.

“These chips from Nvidia . . . there’s lots of stuff on there you cannot use, but you have to pay for it,” said a European auto executive who works closely with Chinese chip developers.

BYD’s vertical integration of its supply chain from batteries to electric motors and now chips for autonomous driving has been a central feature of its rapid ascent to the world’s largest EV maker, allowing it to bring down costs and develop vehicles faster than western rivals.

But an engineer at Horizon Robotics, a Shanghai auto chip design group that has partnered with Volkswagen, said that while many EV makers were trying to develop chips in-house, it was likely that only a “small number of companies” would be able to end their reliance on external suppliers.

The engineer, who asked to be identified only by his surname Luo, said the auto sector might ultimately follow the evolution of the smartphone industry, with most brands depending on chips designed and fabricated by others.

Some Chinese carmakers, including mass-market EV maker Leapmotor, say the high cost of research and development, software integration and meeting safety requirements meant chips, like batteries, should be left to their suppliers.

But increasingly those suppliers are Chinese design companies and car parts makers that are also keen to expand overseas.

Analysts from S&P Global’s automotive industry intelligence unit said last year the Chinese automotive industry’s drive for chip independence could “significantly reshape the global automotive electronics supply chain”.

Kyle Chan, a technology expert at the John L Thornton China Center at US think-tank Brookings, said that while developing custom chips offered potential cost and performance benefits to carmakers, Beijing’s drive for tech autonomy had been crucial in persuading them to do so.

“Many Chinese EV makers were previously reluctant to switch away from foreign auto chips,” Chan said. “They had to be prodded along by Chinese policymakers.”

The two French houses have appointed star designers to revive sales in tough market

Designer Matthieu Blazy’s debut collection for Chanel brought some sorely needed buzz back to the luxury industry.

Social media was flooded with videos of enthusiasts “unboxing” their €1,300-plus slingback pumps and €9,000 grained calfskin tote bags when the eagerly anticipated range was released in March.

But the “Blazy mania” that spurred shoppers to queue outside Chanel’s New York and Paris boutiques may increase pressure on rival brands — none more so than Dior, the LVMH house going through its own reboot under new creative director Jonathan Anderson.

After industry growth dried up after years of steep price rises, luxury brands are having to fight hard to generate sales. The tough backdrop has left some industry analysts and experts questioning whether Blazy’s early success will come at the expense of Dior’s in luxury’s new zero-sum game.

The two French luxury houses, which trade on the reputations of their eponymous founders, have tasked Blazy and Anderson with revitalising client interest after one of the sharpest slowdowns since the financial crisis.

Chanel told the FT that sales were growing by a high single-digit percentage in 2026. That compares with expected industry growth of 2.5 per cent for the year, according to Morgan Stanley.

The new range, which uses bolder shapes and textures than the collections of Blazy’s predecessor Virginie Viard, has only been in stores since March, but Chanel chief executive Leena Nair said “the indicators are strong”.

Chanel reported revenues of $19.3bn last year. If Blazy mania helps the company grow sales 10 per cent in 2026, Morgan Stanley estimates it could capture about 30 per cent of the entire growth in the luxury fashion and leather goods industry.

“The bears — where our own view is currently tilted — would argue that in the context of anaemic industry growth, Chanel’s revival has to come at the expense of peers” such as Dior, Morgan Stanley analysts wrote in a research note. 

While Chanel’s reboot has delivered immediate results, Dior says it is playing the long game.

“It’s a huge transformation every time we change artistic directors, which is why we try to have our creatives stay for as long as possible . . . [it] requires time,” said Dior chief executive Delphine Arnault.

“All of Jonathan’s collections are working very, very well . . . he has revitalised the women’s bag category among others,” she added.

Sales at LVMH’s fashion and leather goods division, which houses Dior, contracted 2 per cent on a like-for-like basis in the first quarter, confounding hopes for a stronger bounceback after two years of declines.

Berenberg analyst Nick Anderson said luxury buyers were attributing the slower than expected pick-up in Dior’s sales to “the extraordinary success of Chanel”.

Analysts at HSBC, who estimate Dior is LVMH’s second-largest brand by sales and profits, said they expected the brand’s growth to improve in the second quarter as more of Anderson’s products land in stores.

Dior is especially cherished by LVMH chief executive Bernard Arnault, father of Delphine, who bought the brand out of the wreckage of a bankruptcy some four decades ago and used it as the cornerstone to build the world’s largest luxury empire, valued at €241bn.

Chanel “is Bernard Arnault’s absolute benchmark for Dior”, said one luxury industry adviser.

Anderson last year became the first person since Christian Dior to be given creative responsibility for the house’s men’s, women’s and couture collections. Delphine Arnault characterised this as a “huge opportunity” as it allows Dior to take a more co-ordinated approach to its products and communications.

The Northern Irishman’s first collections — which featured a lower-cut version of Dior’s signature bar jacket and eye-catching balloon-shaped dresses — garnered praise for meshing the house’s heritage with his own playful sensibilities.

A person with knowledge of the situation said Dior’s handbag sales rose strongly in May and June as new designs gained traction and permanent collections received renewed interest. The brand’s sales in China had also accelerated, the person added.

Anderson has pleaded for patience in his new role, telling the FT’s Business of Luxury conference in May that “the ‘internet world’ wants you to turn the business around and create a perfect collection tomorrow. [But] things need time. A designer needs time.”

Jonathan Siboni at consultancy Luxurynsight said while Anderson was taking his time to refine Dior’s look and the concept behind it, Blazy had “prioritised immediate desire and product clarity”.

“One [approach] creates more conversation, while the other drives more immediate traffic to boutiques,” he said.

Both houses are still raising prices on new products even as they attempt to win back shoppers. Chanel’s latest leather goods range was priced 10 per cent higher on average than its previous collection, according to Luxurynsight data.

Dior has increased prices at a sharper rate than Chanel, according to the Luxurynsight data, which showed prices of products in its new leather goods collection are up an average of 19 per cent, driven by bags which were up 23 per cent.

Years of price rises partly explain the paucity of growth in the luxury industry that’s left Dior and Chanel operating in a much tougher competitive environment than a few years ago.

“The new paradigm is conquest,” said Jean Revis, of luxury consultancy MAD. “Before you could bring in clients without treading on your neighbour. Now with much slower growth, you have to go poach from the one next door.”

Debate over the On sportswear company raises questions about what should be labelled as a national product

A few years ago, Switzerland found itself in an oddly heated argument about a running shoe. The New York-listed sportswear company On had grown from a Zurich start-up to global challenger to Nike and Adidas and wanted to put the Swiss cross on its shoes manufactured in Asia. 

Critics argued that a symbol so closely associated with Swiss manufacturing did not belong on products made thousands of miles away. Worth an estimated SFr7bn a year to Swiss industry, it is also one of the world’s most copied and fiercely defended brands.

Swissness Enforcement, a group that campaigns to protect Swiss origin labels, said consumers seeing the cross would naturally assume the shoes were Swiss-made. The organisation spent years challenging On’s use of the symbol and, in 2025, filed a complaint in China over whether the branding complied with local rules.

On countered that the value was created in Zurich, where the slightly quirky shoes — which have soles filled with holes — were designed, developed and engineered. In March this year, Switzerland’s intellectual property office clarified that companies can, under certain conditions, use the Swiss cross to signal Swiss engineering even when products are made abroad.

The dispute became associated with a broader question: is a product Swiss because it is made in Switzerland, or because it was invented there? And, how important is it that products are made entirely in Switzerland? Today, the issue has a resonance far beyond its borders. After decades in which companies chased efficiency and global supply chains, US tariffs and an onslaught of Chinese competition have prompted countries to once again ask what should be produced at home.

For On, the expertise, suppliers and production networks required to manufacture its running shoes sit largely in Asia. Making them in Switzerland would be extraordinarily expensive. It is difficult to argue that every pair of On trainers should be assembled in the shadow of the Alps.

But Switzerland has long attached particular importance to the connection between national identity and high-quality production. It has spent decades turning a white cross on a red background into one of the world’s most valuable commercial symbols. It appears on watches, chocolate and pocket knives, helping manufacturers command premiums that competitors can only envy. For a luxury watch, physical production in Switzerland is part of the appeal. A Rolex made elsewhere would not be a Rolex in quite the same sense.

Consider Toblerone as an example of how strongly the Swiss feel about the issue. When owner Mondelez shifted part of its production to Slovakia, the company had to remove the Matterhorn from the packaging.

Victorinox, maker of the Swiss Army knife, faces a similar tension. The company has had to navigate a soaring franc and the threat of tariffs while protecting a brand built around local craftsmanship. Faced with higher US tariffs, it explored moving some final processing steps, such as cleaning and packaging, to America. 

On’s claim is that Swissness resides not in the factory but in the knowhow: the designers, engineers and researchers who create the product. The majority of its research, development and design team, roughly 400 people, is in Zurich.

Last year, On unveiled LightSpray, a technology that uses a robotic arm to spray a shoe upper directly on to a mould of a foot, replacing a process that normally requires dozens of separate pieces to be stitched together. Developed at On’s labs in Zurich, the process can create a shoe upper in about three minutes. The technology was developed in Switzerland and the first shoes made using it were produced there.

The volumes are tiny compared with On’s mainstream footwear business. But the choice is revealing. When the company wanted to make conventional running shoes, it went where the supply chains and manufacturing expertise already existed. When it wanted to invent a new way of making them, it stayed at home.

That feels like a more useful lesson than the older debate about whether every Swiss-labelled product should be made in Switzerland. The country is unlikely to compete on the mass production of trainers. The more important question is what capabilities — and more importantly what innovation — Swiss companies, including On, want to remain on home turf. For much of Switzerland’s history, the Swiss cross signified products made in Switzerland. Increasingly, it may come to stand for products imagined and designed there.

KKR plots entry into UK and European pension buyouts

Private capital rivals have piled into lucrative pension risk-transfer business

KKR is exploring entry into the UK and European pension risk transfer markets, as competition heats up between the world’s biggest private capital groups to seize ground in the European insurance sector. 

The US firm, which manages more than $700bn in assets, has held talks with insurance companies across the continent to expand the reach of its own insurer Global Atlantic, according to people familiar with the matter.

KKR is exploring potential partnerships under which it and an insurer would deploy capital into investments sourced by KKR, one of the people said.

The New York group was not exploring buying a European insurer outright, that person said, in an approach that would differ from competitors. But the tie-ups could involve KKR investing from its own balance sheet in the partner to help it grow, the person added.

Any move by KKR would mark the latest foray by US private capital into the European retirement markets, where long-dated liabilities give firms access to capital to deploy into credit or other yield-generating deals. 

One insurance executive said KKR had been holding talks in recent months with some of the UK’s largest insurers, apparently with “big” ambitions for the market. They said KKR would look to build up its presence over time. 

The executive said KKR had held talks with them and the largest players in the UK life insurance market, including over a partnership.

KKR declined to invest in a pension risk transfer business that is being set up by UK insurer Standard Life, set to receive backing from CVC, partly because the entity was too small, according to a person familiar with the matter.

However, the private capital group could seek to enter the market using a similar joint venture, according to another person familiar with KKR’s thinking.

Another executive said “KKR has looked at everyone” in the UK in the pension risk transfer market, and that it could seek to set up an external partnership with an insurer similar to the one L&G had struck with Blackstone.

“KKR needs to decide if they are one thing or the other. At the moment they look like they want to go the partnership route,” the executive said.

KKR bought a majority stake in US insurer Global Atlantic in 2021 and later took full ownership. The company is not seen as a major player in Europe, unlike competitor Apollo Global Management’s minority-owned insurer Athora, which struck a landmark deal in UK pension risk transfer last year.

KKR has, however, deployed Global Atlantic capital into some notable European investments, such as a complex deal earlier this year to lend €1.4bn to Global Sports Group, created by private equity group CVC to house its holdings in football and other leagues.

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Partnership deals would save KKR from the full regulatory burden of owning a European insurance company and would allow it to focus on sourcing deals, one of the people said.

Athora doubled in size after its £5.7bn purchase last year of UK retirement savings group Pension Insurance Corporation, which had £50bn in assets.

Brookfield’s insurance arm also announced a £2.4bn acquisition last year of Just Group, another group specialising in pension risk transfers, or buyouts of pension policies. 

KKR declined to comment.