LONDON — Keir Starmer’s keeping Britain out of the war in Iran — but he can’t duck the conflict’s grave economic consequences. In a sign of growing fears about the impact of the war on Britain, the prime minister chaired a rare meeting of the government’s emergency COBRA committee Monday night, joined by senior ministers and Governor of the Bank of England Andrew Bailey. Starmer’s top finance minister, Rachel Reeves, will update the House of Commons on the economic picture Tuesday, as an already-unpopular administration worries that chaos in the Middle East is shredding plans to lower the cost of living and get the British economy growing. For Starmer’s government — headed for potentially brutal local elections in May — the crisis in the Gulf risks a nightmare combination of a rise in energy prices, interest rates, inflation and the cost of government borrowing that threatens to undermine everything he’s done since winning office. Economists are now warning that even if Donald Trump’s promise of a “complete and total resolution of hostilities” with Iran were to bear fruit, the effects on the British economy could still last for months. Already there are signs of a split within Starmer’s party over how to respond. Labour MPs want the government to think seriously about action to protect households — but Starmer and Reeves have long talked up the need for fiscal responsibility, and economics are warning that there’s little room for maneuver. Fuel prices displayed at a Shell garage in Southam, Warwickshire on March 23, 2026. | Jacob King/PA Images via Getty Images Jim O’Neill, a former Treasury minister who served as an adviser to Reeves, told POLITICO the government should “not get sucked into reacting to every external shock” and “concentrate on boosting our underlying growth trend.” WHY THE UK IS SO HARD HIT Just before the outbreak of war, there was reason for Starmer and Reeves to feel quietly optimistic about the long-stagnant British economy. The Bank of England had expected inflation to fall back sustainably toward its two percent target for the first time in five years, giving the central bank the space to carry on cutting interest rates.  With the Iran war in full flow, it was forced to rewrite those forecasts at the Monetary Policy Committee’s meeting last week — and now sees inflation at around 3.5 percent by the summer. The U.K. is a big net importer of energy and also needs constant imports of foreign capital to fund its budget and current account deficits. That’s made it one of first targets in the financial markets’ crosshairs. The government’s cost of borrowing has risen by more than half a percentage point over the last month. That threatens both the real economy and Reeves’ painstakingly-negotiated budget arithmetic. Higher inflation means higher interest rates and a higher bill for servicing the government’s debt: fiscal watchdog the Office for Budget Responsibility estimates a one-point increase in inflation would add £7.3 billion to debt servicing costs in 2026-2027 alone. The effect on businesses and home owners is also likely to be chilling. Britain’s banks are already repricing their most popular mortgages, which are tied to the two-year gilt rate. Hundreds of mortgage products were pulled in a hurry after the MPC meeting last week, something that will hit the housing market and depress Reeves’ intake from both stamp duty and capital gains. Duncan Weldon, an economist and author, said: “Even if this were to stop tomorrow, the inflation numbers and growth numbers are going to look materially worse throughout 2026. “If this continues for longer… it’s an awful lot more challenging and you end up with a much tougher budget this autumn than the government would have been hoping to unveil.” DECISION TIME The U.K.’s economic plight presents an acute political headache for Starmer, as he faces a mismatch between his own party’s expectations about the government’s ability to help people and his own scarce resources. Energy Secretary Ed Miliband has promised to keep looking at different options for some form of assistance to bill-payers hit by an energy price shock. A pain point is looming in July, when a regulated cap on energy costs is due to expire and bills could jump significantly. One left-leaning Labour MP, granted anonymity to speak frankly, said: “They [ministers] need to be treating this like a financial crisis. They need plans for multiple scenarios with clear triggers for government support.” A second MP from the 2024 intake said “it’s right that a Labour government steps in, particularly to help the most vulnerable.” Foreign Secretary Yvette Cooper and Chancellor of the Exchequer Rachel Reeves at the first cabinet meeting of the new year at No. 10 Downing St. on Jan. 6, 2026 in London, England. | Pool photo by Richard Pohle via Getty Images This demand for action is being felt in the upper echelons of the party too, as Culture Secretary Lisa Nandy recently argued Reeves’ fiscal rules — seen as crucial in the Treasury to reassure the markets — may need to be reconsidered if prices continue to rise and a major support package is needed.  One Labour official said there are clear disagreements with Labour over how to go about drawing up help and warned “the fiscal approach is going to be a massive dividing line at any leadership election.” The same official pointed to recent comments by former Starmer deputy — and likely leadership contender — Angela Rayner about the OBR, with Rayner accusing the watchdog of ignoring the “social benefit” of government spending. Despite the pressure, ministers have so far restricted themselves to criticizing petrol retailers for alleged profiteering, and have been flirting with new powers for markets watchdog the Competition and Markets Authority. The government said Reeves would on Tuesday set out steps to “help protect working people from unfair price rises,” including a new “anti-profiteering framework” to “root out price gouging.” But Starmer signaled strongly in an appearance before a Commons committee Monday evening that he was not about to unveil any wide-ranging bailout package, telling MPs he was “acutely aware” of what it had cost when then-Prime Minister Liz Truss launched her own universal energy price guarantee in 2022.  O’Neill backed this approach, saying: “I don’t think they should do much… They can’t afford it anyhow. The nation can’t keep shielding people from external shocks.” Weldon predicted, however, that as the May elections approach and the energy cap deadline draws nearer, the pressure will prove too much and ministers could be forced to step in. The furlough scheme rolled out during the pandemic to project jobs and Truss’s 2022 intervention helped create “the expectation that the government should be helping households,” he said. “But it’s incredibly difficult. Britain’s growth has been blown off-course an awful lot in the last 15 years by these sorts of shocks.” Geoffrey Smith, Dan Bloom, Andrew McDonald and Sam Francis contributed to this report.

U.S. regulators this week proposed easing capital rules on big U.S. banks in a package of proposals that departs from globally agreed-upon standards. Now, it’s sparking calls from European trade groups to loosen the EU’s own version of the rules. On Thursday, U.S. bank regulators released a number of potential rule changes intended to align U.S. policy with a 2017 global agreement known as Basel III. Its provisions imply a 2.4 percent decrease in capital held by the largest U.S. banks and bigger cuts for smaller banks. European regulators, anticipating the U.S. move, had already been discussing loosening their own requirements, which currently call for raising the capital that banks must have on hand by around 8 percent by 2033. But the breadth of the U.S. proposal has prompted trade groups in Europe to push officials to move faster. Taken together, the moves could weaken the global regulatory framework instituted on both sides of the Atlantic after the 2008 financial crisis. “The U.S. proposal appears to mark a clear shift toward easing capital constraints to support lending and growth, while Europe seems to continue moving in a different direction,” said Sébastien de Brouwer, deputy CEO of the European Banking Federation, a trade group. The United States’ pullback is “making it more urgent than ever to review the EU framework to preserve competitiveness and financing capacity of European banks,” he said. Over the past few months, European regulators had started to reevaluate the competitiveness of the bloc’s banking sector, especially as major European economies have struggled to keep pace with U.S. growth. EU heads of government called Thursday night, in a statement agreed upon before the release of the U.S. proposal, for the European Commission “to propose targeted amendments to the prudential framework in order to enhance the capacity of the banking sector to finance the European economy.” The Commission is also authoring a report on the competitiveness of its banking sector, due after the summer, which will pave the way for legislative proposals. This is set to be a wide-ranging report that could relate to bank capital requirements or other policies. The European Central Bank has already made recommendations for simplifying the bloc’s banking rules ahead of the report, including calling for lighter Basel rules for small banks and for capital buffers to be merged. None of its recommendations were as sweeping as what the U.S. has proposed, however. The U.S. proposal departs from the intent of the original Basel accords, a long process in which global regulators worked to address the root causes of the global financial crisis, critics say. Regulators in 2017 reached an agreement around the framework for jurisdictions to mitigate risks. “This definitely goes against not just the ethos but the intent, spirit and goal of Basel III,” said Dennis Kelleher, CEO of Better Markets, an advocacy group that supports stronger financial regulation. “This proposal when finalized will inevitably ignite another global race to the regulatory bottom” One of the biggest departures relates to the unwinding of the “output floor,” which sets a minimum capital threshold for banks’ trading activities. The new proposal uses a new risk-weighting approach that would do away with the threshold. “This will encourage other jurisdictions to do the same, undermining a key reform and cornerstone of the Basel III agreement,” Federal Reserve board member Michael Barr said Thursday. In the 2017 international talks, the U.S. had argued in favor of a restrictive output floor. Major European banks argued that would hike their capital requirements above and beyond those of the U.S., given the makeup of European banks’ trading books, stymieing lending to the real economy. The threshold was ultimately set at a lower rate than what American negotiators wanted. European regulators had recently moved to delay implementation of the Fundamental Review of the Trading Book, the portion of Basel focused specifically on so-called market risk, or rules governing how to capitalize banks’ trading activities. “Removing the output floor for market risk is a divergence from international standards, and we will carefully assess the impact on internationally active banks, in particular, with respect to the ongoing discussions on EU FRTB implementation and banking competitiveness in Europe,” said Caroline Liesegang, head of prudential regulation and research at the Association for Financial Markets in Europe, which represents large banks. In the past, U.S. regulators had tended to “gold plate” the country’s rules for big banks, meaning they put in provisions above and beyond what Basel requires in order to acknowledge the United State’s central role in the global financial system and push for stricter global standards. In 2023, U.S. regulators failed to pass a capital proposal that would have raised aggregate capital by 16 percent and would have adhered more strictly to the international framework. On Thursday, U.S. regulators said the international standards should not be an unnecessary barrier to the needs of the U.S. financial system. “We should not seek to punish U.S. consumers and businesses by imposing higher costs of credit, or forcing credit availability outside of the banking system, particularly if this is done only to show greater alignment with Basel or any other international standard,” said Federal Reserve Vice Chair for Supervision Michelle Bowman, who led the U.S. central bank’s crafting of the proposal. The dilution of the agreement and its pullback on capital “will make it more challenging for the U.S. to use Basel, as it so often has, to further its own agenda,” said Kathryn Judge, professor at Columbia Law School. In the U.K., which has since left the bloc, the capital rules are expected to have less of an impact on banks than EU peers. A spokesperson for the Prudential Regulation Authority, the U.K.’s main banking regulator, said that the thinking remains the same as in its final rules, which will see the market risk rules apply from 2028. The European Commission declined to comment. The Basel Committee said it doesn’t comment on individual jurisdictions. The Federal Reserve declined to comment. Bjarke Smith-Meyer and Elliot Gulliver-Needham contributed to this report.

President Donald Trump is demanding that the Federal Reserve immediately lower borrowing costs. But the war in the Middle East has now made any interest rate cuts much less likely in 2026 — not just in the U.S. but around the world. With oil prices surging past $100 a barrel and Gulf shipping routes disrupted by Iran, governments and investors are bracing for a repeat of the 2022 energy shock from Russia’s invasion of Ukraine. And from Washington to Frankfurt, and London to Tokyo, the world’s central banks are likely to strike a more wary tone on inflation while assessing the fallout during a flurry of policy meetings taking place this week. The effective closure of the Strait of Hormuz, a channel through which roughly a fifth of global oil passes, is pushing up costs not only for energy and transportation, but also for other key goods that are shipped through the waterway. The result could be a toxic mix for central banks: higher prices and lower employment, two problems they’re not equipped to address simultaneously. “My best guess, but spoken with no conviction at all, is that this gets sorted out somehow in the next few weeks, and by the middle of the year, oil prices have come back down a fair amount,” said William English, a former top staffer at the Fed who is now a professor at Yale University. “But there’s a real risk, of course, that things go on for longer and are more damaging. And in that case, all bets are off.” The specter of a prolonged global energy crunch could dash the hopes of consumers, businesses and investors worldwide for rate cuts this year — and in some cases, throw those plans in reverse. No immediate moves are likely except in Australia, which raised its target rate by a quarter-point on Tuesday. But markets have already repriced their bets on what comes next from monetary policymakers. Indeed, if the Fed does cut rates later this year, it might be one of the few major central banks that does so, given that other economies like Europe are more exposed to higher energy costs than the U.S. Before the war, investors saw a chance of cuts from the Fed, the European Central Bank and the Bank of England. Now they’re pricing in an altogether tighter policy stance: at least one ECB rate hike this year, a 60 percent chance of a BoE increase, fewer and later cuts from the Fed and more urgency in raising rates from the Bank of Japan. Central bankers will prefer to wait until they get a better gauge of the economic repercussions from the conflict because “the shock could turn out to be negligible or very large,” said EFG chief economist Stefan Gerlach. But few doubt the need for strong messaging as central banks are wary of repeating 2022, when energy price shocks combined with the after-effects from Covid and fiscal stimulus to morph into the worst inflation spike in half a century. “There will be a significant contingent worrying about upside inflation risks in light of the 2022 experience,” J.P. Morgan economist Greg Fuzesi said ahead of the ECB’s policy-making council’s meeting on Thursday. The Iran conflict is further complicating efforts by Trump to demonstrate to voters that the GOP is addressing cost-of-living concerns before this year’s midterm elections. Already, the war has caused a surge in politically salient gas prices and erased some of the progress toward more affordable mortgage rates. And it’s further muddied the picture for a central bank that the president has been pressing hard to take decisive action toward rate cuts. Now, when Chair Jerome Powell and other Fed officials meet on Wednesday, they’re expected to be more open to the idea of rate increases later this year, though that’s still not the likeliest outcome. As Yale’s English pointed out, higher costs might ultimately increase the case for rate cuts if they slow the economy significantly. “With the higher oil prices and the shock to the global economy, the likelihood of overheating seems reduced now, so that’s one of the reasons you might be comfortable waiting through some period of higher inflation,” rather than hiking rates in response, English said. “This might be enough to push the economy into real weakness, and in that case, they might well have to cut.” But if households and businesses start to worry about a new acceleration in inflation and start expecting higher prices, that dynamic can be self-fulfilling and might call for rate hikes. Hawkish policymakers are already signaling the ECB won’t hesitate this time. “A reaction by the ECB is potentially closer than many people think,” Peter Kažimír, Slovakia’s central bank governor, told Bloomberg last week. “We will be ready to act if needed.” President Christine Lagarde pledged to ensure that consumers “don’t suffer the same inflation increases like those we saw in 2022 and 2023.” Back then, the ECB was slow to react, helping inflation surge past 10 percent. Economists say today’s backdrop looks very different: In 2022, rates were near or below zero, balance sheets were bloated and fiscal policy was highly expansionary. “When inflation rose, it did so in an environment of strong demand supported by both fiscal and monetary stimulus,” said Gerlach. Now, tighter monetary and fiscal policy should limit the risk of energy shocks spilling through the economy into second-round effects. Still, Barclays analyst Silvia Ardagna says that if medium-term inflation expectations “deteriorate significantly,” she expects “the ECB to act more swiftly than in 2022, but to tighten policy gradually.” Nick Kounis, of Dutch bank ABN AMRO, also sees a more hawkish tone. “Uncertainty on the conflict is high, but if the current situation persists through to the April meeting, a hike becomes a distinct possibility,” he said. Many analysts say the first obvious central bank casualty of the war is likely to be the Bank of England, which was widely expected to cut this week but is now seen firmly on hold. That’s because the U.K. still hasn’t quite gotten on top of the inflation that was unleashed four years ago. Andrew Benito, an economist with hedge fund Point72 in London, reckons that the inevitable increase in fuel prices and household energy bills alone will add a full percentage point to headline inflation by summer, with “second-round” impacts on other prices pushing it even further away from the BoE’s target. That, says Deutsche Bank’s Sanjay Raja, will force the bank into some “uncomfortable trade-offs”: The U.K. economy has already slowed over the last year due to global trade uncertainty and various government tax hikes to close the budget deficit. Hiking rates when the economy is already struggling could risk needlessly making things worse. But any sign of complacency could be disproportionately punished by the markets, given that the BoE performed worse than any other major central bank during the last inflation shock (the headline rate peaked at over 11 percent). Raja expects BoE Governor Andrew Bailey to highlight the differences with 2022 — when inflation was accelerating rather than slowing — as one reason not to overreact to today’s price spike. However, he expects that Bailey, like the ECB and others, will talk tough about not letting business and households develop an inflationary mindset again. More important will be the Bank of Japan’s decisions and press conference on Thursday, due to the outsized influence of Japanese interest rates on global financial markets. For decades, Japan kept interest rates low and printed money furiously to escape deflation. As long as it did so, Japanese and foreign investors borrowed yen cheaply to throw at higher-yielding markets such as the U.S. Now, however, the BoJ’s concerns have finally switched from deflation to inflation, and BoJ Governor Kazuo Ueda is now in a hurry to “normalize” policy. Its key interest rate, at 0.75 percent, is the lowest in the developed world outside Switzerland. But Japan, too, faces a big headwind from higher energy prices because of its dependence on imports, and Gregor Hirt, chief investment officer for Multi Asset at Allianz Global Investors, argues that the BoJ will hesitate before raising rates again. The trouble with waiting and seeing is that the yen has already lurched lower, prompting alarm in Washington and sparking rumors of possible intervention to support it. “In order to stop further weakness, the BoJ may have to move up a rate hike to stabilize the currency,” Hirt said. Meanwhile, the war has presented the Swiss National Bank, which has kept interest rates at zero since June 2025, with a different kind of conundrum. One risk is that a global “flight to safety” drives the Swiss franc to even greater heights against the euro and others. That could make so many imports cheaper that the overall inflation rate could turn negative. Alternatively, the boost in energy prices could have the same malign impact on inflation as it will elsewhere. “The SNB will probably prefer to wait and see which of the two effects will have the greater impact on inflation prospects before acting in one direction or the other,” said ING economist Charlotte de Montpellier, who expects the Swiss central bank to stay on hold. That response, shot through with varying degrees of nervousness, looks likely to be the dominant one this week. But things will look very different if the war situation hasn’t improved by the next round of meetings.

A federal judge has quashed the Justice Department’s criminal probe into Federal Reserve Chair Jerome Powell’s Senate testimony regarding the central bank’s headquarters renovation, writing that the grand jury subpoenas were a “mere pretext” to pressure the Fed. “There is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the President or to resign and make way for a Fed Chair who will,” Chief U.S. District Judge James Boasberg wrote. “The Government has offered no evidence whatsoever that Powell committed any crime other than displeasing the President.” U.S. Attorney for D.C. Jeanine Pirro, whose office led the investigation, said in a press conference afterward that she would appeal the decision. She sharply criticized Boasberg, saying he “put himself at the entrance door to the grand jury, slamming that door shut, irrespective of the legal process, and thus preventing the grand jury from doing the work that it does.” “This process has been arbitrarily undermined by an activist judge,” she said. Pirro’s plan to appeal the decision could further delay the confirmation process of President Donald Trump’s pick to replace Powell, former Fed Gov. Kevin Warsh. Warsh’s nomination has been blocked by outgoing Sen. Thom Tillis until the investigation into Powell is resolved. The North Carolina Republican warned the administration on Friday afternoon against appealing the decision. “We all know how this is going to end, and the D.C. U.S. Attorney’s Office should save itself further embarrassment and move on,” Tillis posted on X. “Appealing the ruling will only delay the confirmation of Kevin Warsh as the next Fed Chair.” The White House did not immediately respond to a request for comment. Trump has severely criticized Powell for more than a year for his reluctance to lower interest rates, with the president accusing him of holding back the economy. Powell has said the subpoenas were part of Trump’s pressure campaign to force him to cut borrowing costs. The investigation into Powell’s testimony on the status of a costly renovation of the central bank’s headquarters kicked off a firestorm that threatens Trump’s aims to stack the Fed board with appointees who share his views on lowering short-term borrowing costs. Powell’s term as chair expires in May, and Pirro’s vow to appeal the decision could prolong a legal clash that will keep the Fed’s future leadership up in the air. Tillis, who has vowed to block any Fed picks until the Powell probe is publicly dropped, sits on the Senate Banking Committee, which has jurisdiction over Fed nominations. Republicans have a 13-11 majority on the committee, meaning that Tillis’s vote is needed to advance any nominee to the Senate floor if every Banking Committee Democrat votes against them. In a hearing before the committee last June, the panel’s chair, Tim Scott (R-SC), asked Powell about the status of the Fed’s renovations after a New York Post article characterized them as akin to the “Palace of Versailles.” Powell told senators that “there’s no new marble. There are no special elevators. There are no new water features. There’s no beehives, and there’s no roof terrace gardens.” That caught the eye of Federal Housing Finance Agency Director Bill Pulte, who urged lawmakers to look into the matter, and the White House launched its own probe into the project last summer. Several Senate Banking Republicans — including Scott — have said they do not believe Powell committed a crime with his testimony. Sen. Cynthia Lummis (R-Wyo.), a Powell critic, said in a statement that the Fed chief “was wildly underprepared for his testimony, but, as I have said before, I’m not sure it rose to the criminal level.” Wall Street executives and top lawmakers have repeatedly cautioned Trump against actions that might undermine the central bank’s ability to independently set interest rates, which bolsters its credibility and is viewed as a stabilizing force for global markets. Trump has also tried to fire Fed Gov. Lisa Cook over unsubstantiated allegations of mortgage fraud — her fate will be determined by the Supreme Court — and the president has flirted numerous times with attempting to dismiss Powell. In January, Powell posted an extraordinary two-minute video to the central bank’s website claiming that the DOJ’s subpoenas represented a politically motivated attempt to pressure the central bank into lowering interest rates. The threat of criminal charges was a “consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” he said. The move was unusual because Powell has steadfastly refused to respond to Trump’s blizzard of insults since he returned to the White House. The president has publicly questioned Powell’s intelligence and competence, and has said his monetary policy decisions are driven by politics. In her combative press conference, Pirro called the judge’s decision on Friday “outrageous.” She cited a Supreme Court precedent that grand juries can investigate mere rumors. And she dismissed suggestions that she should look skeptically at allegations that may be politically motivated. “I’ll take a case from the devil if you can give me information that will lead me to possibly find a crime,” she said. “It doesn’t matter where the case comes from.” While Pirro suggested it is exceptional for a judge to block a grand jury subpoena, federal court rules allow them to do so if they believe a subpoena is “unreasonable or oppressive.” In his ruling, issued Wednesday and unsealed on Friday, Boasberg noted that numerous court precedents authorize judges to quash a subpoena when its “sole or dominant” purpose is improper. Boasberg, an appointee of President Barack Obama, conceded that the subpoenas issued to the Fed were relevant to a criminal investigation. But he said their obvious connection to attempts to exert unlawful pressure on Powell and other members of the Fed’s Board of Governors rendered the subpoenas unenforceable. “The President spent years essentially asking if no one will rid him of this troublesome Fed Chair. He then suggested a specific line of investigation into him,” the judge wrote. “The President’s appointed prosecutor promptly complied.” Boasberg’s rejection of the subpoenas to the Fed is just the latest clash between the chief judge of the federal district court in the capital and the Trump administration. The judge’s earlier rulings in a dispute over Trump’s drive to rapidly deport alleged gang members under a two-century-old wartime authority led Trump to call for Boasberg’s impeachment. Some House members embarked on that effort last year, but it has not progressed. Pirro said that in addition to an appeal, which would go to the D.C. Circuit Court of Appeals, prosecutors intend to ask Boasberg to reconsider his ruling because it included some inaccurate dates. That could delay any appeal because judges typically cannot alter rulings while they are under appeal.

WARSAW — President Karol Nawrocki said Thursday evening he intends to veto government legislation that lays out the how Poland should spend its €43.7 billion allocation under the EU’s loans-for-weapons scheme known as SAFE. Prime Minister Donald Tusk’s government lacks the necessary votes in the country’s parliament to override the veto. The standoff will inevitably escalate the political feud between Tusk and the president over Poland’s political orientation. Nawrocki, like the nationalist-populist opposition Law and Justice (PiS) party that supports him, views Brussels with skepticism, unlike the pro-EU Tusk administration. Poland is the only country where SAFE has become a political issue. European Commission President Ursula von der Leyen said in December that EU countries had already gobbled up the whole €150 billion from SAFE and were clamoring for more. “The President has lost the chance to act like a patriot. Shame!” Tusk posted on X shortly after Nawrocki announced his decision. The PM said the government will convene for an extraordinary session Friday morning to prepare a response. GOVERNMENT ALLEGES “NATIONAL TREASON” The EU program provides low-interest, long-term loans with a 10-year grace period for principal repayments. The funds are raised by Brussels on capital markets and offer significant savings compared to national borrowing — a crucial issue for Poland, which plans to devote 4.8 percent of its GDP to defense this year. Following Nawrocki’s veto decision, Poland’s SAFE allocation will remain guaranteed, but the rules for spending it will likely be less flexible than they would have been under the legislation Nawrocki blocked. The government had planned to use the money to boost financing for the Border Guard and the police or to upgrade infrastructure. Foreign Minister Radosław Sikorski said before the decision: “If the President vetoes SAFE and we still implement it … I will propose that a plaque with the inscription be placed on every rifle, tank, gun, drone, and anti-drone: ‘Dear soldier of the Polish Army, [President] Nawrocki did not want to give you this.’” Key figures in the Tusk government hammered Nawrocki in the media and online following the decision, calling it “national treason.” The veto also defies the military, whose top brass have spoken out in favor of the SAFE loans. Chief of the General Staff Wiesław Kukuła in February described SAFE as a “game changer” for the military. PRESIDENT RAISES SPECTER OF “MASSIVE FOREIGN LOANS” In his speech, Nawrocki reiterated the arguments he has been rolling out against SAFE for weeks now, claiming the Security Action for Europe loans would saddle Poland with long-term debt and expose the country to exchange-rate risks.  “The SAFE mechanism is a massive foreign loan taken out for 45 years in a foreign currency, with interest costs that could reach as much as PLN180 billion [€42 billion]. Poland would therefore have to repay an amount roughly equal to the value of the loan itself in interest, with Western banks and financial institutions standing to profit from it,” Nawrocki said. The president also argued the scheme could allow Brussels to attach political conditions to Poland’s defense financing and would benefit foreign arms-makers disproportionately.  “SAFE is a mechanism under which Brussels, through the so-called conditionality principle, could arbitrarily suspend financing while Poland would still have to continue repaying the debt. That’s why it must be said clearly: Security subject to conditions is not security. Poland’s security cannot depend on decisions taken elsewhere,” Nawrocki declared. “I have decided that I will not sign the law that would allow Poland to take out a SAFE loan. I will never sign legislation that strikes at our sovereignty, independence, and economic and military security.” Instead, Nawrocki renewed his proposal for a domestic alternative to SAFE that would mobilize money to finance arms purchases without loans or interest payments — by involving the National Bank of Poland’s vast gold reserves. With 550 tons of gold stored in domestic and foreign vaults, the NBP is one of Europe’s top gold hoarders. Central bank chief Adam Glapiński said last week that the NBP holds around 197 billion złoty in “unrealized gains resulting from the increase in the value of the bank’s gold reserves,” and is considering using part of that to support defense spending. The operations would involve transferring the profits generated by the NBP to a dedicated vehicle, the Polish Defense Investment Fund. Glapiński also said the gains would be realized by transactions reducing the share of gold in the bank’s portfolio. 2027 ELECTIONS ON HORIZON Tusk and his ministers have lambasted the gold idea as highly speculative and said it was inconsistent with the central bank’s role as the guardian of Poland’s financial stability. The government has also said that nearly all of Poland’s SAFE money will go to domestic manufacturers, creating jobs and stimulating economic growth. The clash over SAFE comes as Poland prepares for a parliamentary election next year in which PiS hopes to defeat Tusk’s pro-EU coalition. Polls suggest that Tusk’s party, the liberal Civic Coalition, might come first but could lack the votes to form a majority.  The PiS, meanwhile, could secure a majority if it allies with the far-right Confederation party and with the even-more-extreme, antisemitic Confederation of the Polish Crown.

Hungarian opposition leader Péter Magyar is accusing the Kremlin of supporting the election campaign of Prime Minister Viktor Orbán with a new barrage of disinformation videos that are supposed to appear on Thursday. Orbán is the EU leader closest to Russian President Vladimir Putin — and a persistent obstacle to Brussels’ support for Ukraine — but he now faces the toughest fight of his political career in Hungary’s April 12 election, where polls put him about 10 points behind Magyar.   Magyar — a former member of Orbán’s Fidesz party, who understands its playbook — said on Tuesday he’d received information that the attack would take the form of “14 AI-generated smear videos,” and complained that the disinformation campaign had been produced “with the help of Russian intelligence services.” People in Magyar’s Tisza party and analysts in Budapest have long expected the race to get dirty as it enters the final stretch. Magyar’s tactic is to sound the alarm on the alleged impending smear attacks against Tisza before they land, hoping to blunt their impact. That’s the same strategy he adopted in mid-February, when faced with the prospect that his opponents could release a sex tape featuring him. He went public and accused Fidesz of planning to release a tape “recorded with secret service equipment and possibly faked, in which my then-girlfriend and I are seen having intimate intercourse.”   For now, that intervention seems to have worked, and such a video has not yet been released. BLOWING THE WHISTLE On Thursday, just as Magyar arrives to campaign in a constituency on the Danube close to Budapest, his team expects Fidesz to target the local candidate and her family with AI-generated videos which will be promoted via fake accounts. Magyar announced his concerns on social media, and called on Orbán “to immediately halt the planned election fraud and order Russian agents out of Hungary.” “By advancing what’s going to happen, we hope to neutralize it … whenever we had any information, [Magyar] made it public right away,” Zoltan Tarr, Tisza’s No. 2 and a long-time Magyar confidant, told POLITICO. “The system is not 100 percent waterproof or leakproof. And we always get some hints of what will be Fidesz’s next move,” he added. It’s too early to assess whether this strategy of going public will be successful for the sex tape and future smear campaigns, said Péter Krekó, executive director of Political Capital, an independent policy research consultancy. But he added that anticipating Fidesz’s moves had worked “really well” to build Magyar’s “Teflon image” because no scandals had yet “burnt” him. Tisza has also raised the specter of foreign interference, openly accusing Orbán of inviting Russian spies to meddle in the election, following reports by independent media VSquare and journalist Szabolcs Panyi. Fidesz denies the allegations. “The left-wing allegation linked to journalist Szabolcs Panyi, claiming Russian interference in the elections, is false,” the Hungarian government’s international communications office told POLITICO in a statement. “No information supports the presence or activities in Hungary of the specific individuals named by Szabolcs Panyi, or of any other persons allegedly engaged in such activities. Other countries’ intelligence services also have no concrete information regarding this matter.” Fidesz members insist Magyar is financed by Ukraine with the aim of installing a puppet government that will be loyal to Kyiv and Brussels. They accuse Ukrainian President Volodymyr Zelenskyy of interfering in the election by blocking Russian oil imports via the Druzhba pipeline and threatening the life of Orbán. The latter allegation came after the Ukrainian leader insinuated he would refer Orbán to Ukrainian troops for a direct talk “in their own language.” The leading Fidesz lawmaker in the European Parliament, Tamás Deutsch, turned the tables and accused Tisza of spreading false information. “As part of this serious interference, the pro-Ukrainian and pro-Brussels Tisza party is spreading disinformation through sympathetic media outlets in Brussels and Hungary,” he told POLITICO. “Hungary and its government will not accept pressure or interference in its democratic processes and will do their utmost to stand up for the interests of the Hungarian people.” FORCING RESIGNATIONS Because the deadline to register candidates for the April 12 vote has passed, the names on the party lists can’t be changed. For this reason, analysts say, Fidesz may now try to dig up dirt on Tisza candidates in the 106 constituencies to knock them out of the race with no hope of replacement. “There are some people who have had certain issues in their lives in the past. Nothing criminal, but perhaps they had a company that had to be closed down, or they went through a divorce, or something similar. These things then can be used as hooks to try to infiltrate the psyche of the candidate, creating false narratives around them,” said Tisza’s Tarr. The campaign that Magyar alleges will be launched on Thursday targets a candidate for the fifth district in Pest, Orsolya Miskolczi. He has not given further details, but Kontroll, a media platform close to Tisza whose publisher is Magyar’s brother, suggested in an article that Fidesz will try to link Miskolczi to a high-level corruption scandal in the Hungarian National Bank, where her husband worked as a legal advisor. The Financial Times on Wednesday reported the Kremlin had endorsed a plan by a communications agency under western sanctions to support Fidesz in the election, including by targeting controversial Tisza candidates. The objective of such smear campaigns “is to push us as far as possible and break us, or force us to give up,” Tarr said, adding the muckraking also targets family members and takes a psychological toll. “They are singling out some of us in the hope that one might resign,” he added.

Russian President Vladimir Putin entered the new year facing a painful choice — limit his so-called special military operation in Ukraine or risk serious damage to his economy. Almost overnight, U.S. President Donald Trump handed him the solution. U.S.-Israeli strikes on Iran have sent oil prices soaring, boosting the Kremlin’s main source of revenue and making it easier for Putin to sustain his war effort. After Israel bombed Iranian oil facilities this weekend, benchmark crude prices soared to above $100 per barrel, hitting their highest mark since the summer of 2022, when markets spiked following Russia’s full-scale invasion of Ukraine. For Russia, the surge in oil prices amounts to an economic windfall at a crucial moment, as the cost of four years of war in Ukraine threatened to spill over into a domestic economic crisis. The assault on Iran may undermine Moscow’s claim to stand by its allies, but it is already benefiting Russia’s economy and, by extension, its war against Ukraine — leaving the Kremlin well placed to emerge as one of the main beneficiaries of the expanding conflict in the Middle East. ECONOMIC TURNAROUND Only several weeks ago, the mood among Russia’s economic elite was grim. The Russian finance ministry’s budget plan for this year assumed a baseline benchmark of $59 per barrel of Urals crude, the country’s main export blend. But in January, energy revenues plunged to their lowest level since 2020, compounding a disappointing tax haul. As Western sanctions, high interest rates and labor shortages strained the economy, tension between the finance ministry and the central bank on how to mitigate the damage became increasingly visible. “It was far from a collapse,” said Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center. “But the government was facing tough choices, had to cut its spending and raise taxes and even consider some reduction in military expenditure.” Stopping the war in Ukraine was never on the table, Vakulenko added, but it was becoming clear that even on that front, Russia would have to “economize a bit.” Then Israel and the U.S. attacked Iran. As Tehran retaliated and the conflict spilled over into a regional war, shipping through the Strait of Hormuz has stalled, sending oil prices soaring. “Suddenly, Moscow received this gift,” said Vladimir Milov, a former deputy energy minister turned Kremlin critic in exile. “They had their lifeline.” These days, he said, Russian officials are “very, very happy.” ‘STRATEGIC MISTAKE’ Instead of selling at a discount because of Western sanctions, Russian crude may now fetch premium prices as its main buyers — India and China — scramble to secure supplies. What’s more, they’ll have Washington’s blessing.  Last Friday, the U.S. Treasury issued a 30-day waiver allowing India to buy Russian crude to “enable oil to keep flowing into the global market.” A day later, Treasury Secretary Scott Bessent said the United States could “unsanction other Russian oil,” a sharp reversal from last year’s policy of penalizing countries for buying Russian energy. Unsurprisingly, the Kremlin is using the moment to maximum advantage.  “Russia was and continues to be a reliable supplier of both oil and gas,” Putin’s spokesperson Dmitry Peskov told reporters on Friday in what sounded like a sales pitch, adding that demand for Russian energy products had increased. Meanwhile, Kremlin aide Kirill Dmitriev gloated in a series of posts on X that “the oil shock tsunami is just beginning,” criticizing Europe’s decision to cut itself off from Russian energy as “a strategic mistake.”  On Monday, pro-Kremlin commentators circulated a Wall Street Journal article predicting oil prices could skyrocket to $215. LONG GAME Energy experts warn it is too soon for Moscow to claim victory. Whether the Iran crisis proves a cure for Russia’s economy depends directly on how long it lasts. Milov, the former deputy energy minister, said that, to make a meaningful difference for the economy, Russia would need oil prices to remain at current levels for roughly a year. “One or two months of high prices would certainly help, but it won’t save it,” he said. A brief spike in prices will only “help to postpone the difficult decisions,” added Vakulenko, the analyst at the Carnegie Russia Eurasia Center.  There’s another reason why Moscow will be hoping the war drags on: With every day of fighting, the U.S. is depleting the weapon stocks Ukraine is relying upon to defend itself.  According to media reports, Russia has been providing Iran with intelligence to help it target U.S. warships and aircraft.  The assassination of Iran’s leader Ali Khamenei in a U.S.-Israeli airstrike may have dealt a blow to Russia’s promise to defend its allies, but Putin may ultimately decide it was a price worth paying.

WARSAW — Polish President Karol Nawrocki proposed Wednesday that the country’s military build-up be financed with the help of the National Bank of Poland instead of tapping the EU’s €150 billion Security Action for Europe loans-for-weapons program. The move comes amid a standoff with Prime Minister Donald Tusk’s pro-EU government over nearly €44 billion in SAFE loans earmarked for modernizing Poland’s armed forces, repayable by 2070.  “We have a concrete, Polish, safe and sovereign alternative to the SAFE program that will not involve any financial interest,” Nawrocki said, speaking alongside NBP President Adam Glapiński. The idea would be to work with the central bank to secure 185 billion złoty — equivalent to the amount Poland plans to borrow under SAFE. The president, and the opposition nationalist Law and Justice party which backs him, have both criticized SAFE, arguing it saddles Poland with decades of debt, creates an exchange rate risk because the loan is denominated in euros and not Polish złoty, and could see Brussels imposing political conditions. They also warn that contracts funded by SAFE could disproportionately benefit Western European defense firms rather than domestic producers — something the government rejects, insisting 80 percent of the cash will stay in Poland. There is also concern over angering the United States, Poland’s main ally and arms supplier, which has expressed displeasure at SAFE’s provisions limiting participation of non-EU countries. “The war in Iran and recent U.S. operations also show … above all, the effectiveness of American equipment,” Nawrocki said. Nawrocki’s announcement follows parliamentary approval of a law detailing how SAFE funds would be spent. If president vetoes the legislation, Tusk’s coalition doesn’t have enough votes in parliament to override him. However, the government insists that even with a Nawrocki veto, it would still be able to access the EU cash. But Nawrocki stressed that the SAFE money comes with strings attached. His idea, he says would mean “a concrete and secure alternative for SAFE that will not involve any interest … without credit, without changing Poland’s situation in the EU, and with the flexibility our armed forces need in selecting equipment.” Glapiński hinted that the central bank would step in with its annual profit for the purpose. Any central bank profits are channeled to state coffers, although that hasn’t happened in recent years. The NBP has also amassed 550 tons of gold, with plans to boost that to 700 tons. However, Polish law limits the ability of the central bank to finance budget expenditures. Adam Glapiński hinted that the central bank would step in with its annual profit for the purpose. | Mateusz Wlodarczyk/NurPhoto via Getty Images “We cannot use any part of the reserves in the sense that a portion would be transferred, because that would be against the law,” Glapiński said. Nawrocki said he would present further details, which would include new legislation for the parliament to work on, to Tusk and Defense Minister Władysław Kosiniak-Kamysz as soon as Wednesday. Kosiniak-Kamysz pushed back, saying on X: “The SAFE program provides the fastest and most concrete funding for modernizing the Polish army, which is why the military, the defense industry, and all those committed to strengthening our armed forces are calling for the president to sign the [SAFE] law.” “If additional financing instruments for the army appear, the Polish Armed Forces will only benefit — not as an alternative to SAFE, but as extra resources enhancing security,” Kosiniak-Kamysz added.

LONDON — Days into the U.S. war with Iran, the U.K. government is retooling to cope with a crisis that is already squeezing British defense capabilities and driving up energy prices. Teams of officials are being redeployed around Whitehall, including at the Ministry of Defence, Foreign, Commonwealth and Development Office (FCDO) and departments covering energy, transport and trade, in order to cope with fresh demands. Two people working in the civil service, granted anonymity because they like others in this piece were not authorized to speak publicly, said reassignments had been made on a three-to-four-month basis. A third person said internal government assessments are not necessarily that specific — but that they expect to be dealing with the war on Iran and its fallout “for the long haul.”  The government’s central assumption is that the direct, kinetic phase of the conflict will last weeks but its tail could be much longer. While the U.K. is straining to keep out of the conflict — granting only limited use of its military bases to the U.S. — ministers accept there will be a huge knock-on effect from the Middle East crisis. That includes on hot-button cost-of-living issues that are central to embattled Prime Minister Keir Starmer’s chances of political survival. MILITARY RESPONSE The Ministry of Defence is focused on the immediate task of trying to protect U.K. military assets and personnel, while the government’s other top concerns were highlighted Wednesday by Chancellor Rachel Reeves’ audience with oil and gas sector representatives and Treasury Minister Lucy Rigby’s meeting with insurers. “I don’t think anyone’s expecting this thing to be over quickly,” said one British diplomat.  The U.K. has been preparing for potential U.S. strikes on Iran since the beginning of the year, according to four officials, including by surging fighter planes to the region. The MoD moved to a higher level of force protection — measures designed to safeguard military personnel and facilities — in response to mass unrest in Iran and the U.S. bolstering its presence in the Gulf.  Treasury Minister James Murray alluded publicly to these operations, telling Times Radio: “I’m not going to get into exactly the details of what happened. But what I’m clear about is the defensive capability that we’ve been building up in recent weeks.” Nevertheless, two government officials said the eventual action by the U.S. and Israel was beyond what they had expected, as was Iran’s response — which they described as “haphazard.” The U.K. had some foresight of the U.S. intention to move, said one of these officials, but they had far less indication of where Iranian retaliation would fall, which partly explained the apparent slowness of British warship HMS Dragon and helicopters going to the aid of the U.K.’s Royal Air Force base on Cyprus. Jacob Parakilas, research leader at the RAND Europe think tank, said: “RAF Akrotiri was certainly a conceivable target in the event of hostilities but it’s neither the easiest nor the most significant target for Iran.” A Western official said the decision to send the warship to the Mediterranean only landed on U.K. Chief of Defence Staff Rich Knighton’s desk at 9.30 a.m. on Tuesday, and was approved soon afterwards. The MoD is one of the ministries which has redeployed staff internally to work on Iran, with high priority attached to ensuring that the U.K.’s changing posture does not damage existing NATO commitments or sap energy from efforts to support Ukraine. Starmer has already sought to link the Middle East conflict to the war in Ukraine, saying Ukrainian experts will help shoot down Iranian drones, and his government is expected to call on industry to help meet the need for stronger air and missile defenses. Parakilas predicted the conflict would not require a massive outlay of further British defense capabilities, since the U.K.’s naval base in Bahrain is heavily defended and can meet the threat of occasional attacks by Shahed-style drones.  But, he warned: “That should not be cause for complacency.” In this instance, Parakilas said, the U.K. and most of its facilities are at the edge of Iran’s reach — “but that will not necessarily be the case in future conflicts.” TERROR RISK Elsewhere, the Home Office and security services are monitoring for a heightened risk of domestic threats. On Monday the National Cyber Security Centre — part of the GCHQ digital intelligence agency — issued a fresh alert in response to the situation in the Middle East, calling on organizations to review their cybersecurity. It noted that although it views there to be “no current significant change” in the direct cyber threat from Iran to the U.K. this may change due to the “fast-evolving nature of the conflict.” The FCDO is meanwhile leading repatriation efforts described as “unprecedented,” by Foreign Secretary Yvette Cooper with hundreds of thousands of Britons currently stranded in the Gulf. Above all, civil servants are scrambling to deal with potential implications for the energy sector and international trade — two areas that risk upending the unpopular Starmer government’s bid to slash the cost of living. Households could see more than £500 added to their energy bills this summer if hostilities continue, the Resolution Foundation think tank calculated earlier this week. Keir Starmer Starmer told MPs that “the question of energy supply right now is a serious one.” | Wiktor Szymanowicz/Future Publishing via Getty Images Starmer told MPs at prime minister’s questions Wednesday that “the question of energy supply right now is a serious one” and “we are doing all we can, with allies, to make sure that it is preserved. It is vital that we keep trade flowing through the Strait of Hormuz.” The U.K. is currently considering options for protecting commercial ships in the Strait of Hormuz, including sending naval escorts, according to Western officials.  Energy Secretary Ed Miliband has held talks with representatives from Qatar and Saudi Arabia, as well as energy giants BP and Shell about global energy markets in recent days. A third government official said the hope is that consumers are protected for a while because Britain’s energy price cap — a limit on the amount suppliers can charge for each unit of gas and electricity — is locked in for the next three months. But they acknowledged there would be pressure to replicate several support schemes drawn up after Russia’s invasion of Ukraine, even as they cautioned that the need for such a move is a long way off. Treasury Minister Lucy Rigby met insurance firm Lloyds of London Wednesday to discuss how the sector is being affected. A fourth Whitehall official said that while commercial insurance remains available, additional premiums may be needed for vessels transiting these areas. A jump in energy prices could, in turn, hold back the Bank of England from continuing on its path to reducing interest rates, economists have warned – something that would represent a significant blow to Reeves and the government’s wider battle with inflation. The National Institute of Economic and Social Research think tank has carried out analysis which finds that if the shock to energy prices is more than just temporary, the U.K.’s central bank may have to go in the other direction — raising the all-important Bank Rate from its current 3.75 percent rate to back above 4 percent. “The Bank of England will have to contend with a shock to global energy prices, with the question of persistence hanging over their heads. This will cause problems for Rachel Reeves as financing costs increase, putting further pressure on an already precarious fiscal outlook,”  said the NIESR’s Ed Cornforth. Mason Boycott-Owen and Charlie Cooper contributed reporting.

The Bank of Russia is suing the European Union for keeping its state assets frozen “for an indefinite period” to serve as collateral against a €90 billion loan to Ukraine. The lawsuit will test rare emergency powers that the European Commission used last year to keep Russian state assets across the bloc, worth some €210 billion, on ice through a qualified majority. The legal loophole nullified vetoes that Kremlin-friendly countries in the EU, such as Hungary, would otherwise have had. EU leaders agreed in mid-December to raise common debt without Hungary, Slovakia and Czechia to finance Kyiv’s defense against Russian forces. Ukraine will only have to pay back the loan once Moscow ends the conflict and pays war reparations. If the Kremlin refuses, EU leaders reserve the right to tap the cash value of the frozen assets to pay itself back. In a statement Tuesday, the Bank of Russia blasted the EU’s “unlawful actions against the Bank of Russia’s sovereign assets,” saying the regulation violates “the basic and inalienable rights to access justice” and the “principle of sovereign immunity of states and their central banks.” The central bank also argued the Council of the EU committed “serious violations” of its own procedures by adopting the measure by qualified majority rather than unanimity. The Commission plans to issue a statement in response to the lawsuit, which the central bank filed at the EU’s General Court in Luxembourg. Russia’s central bank filed a separate lawsuit in Moscow last year against Brussels-based financial depository Euroclear, where the bulk of its assets lie immobilized under EU sanctions after Moscow invaded Ukraine in 2022.