The news from Beirut this morning is stark. Israeli forces have obliterated what they describe as 'Nazi-style Hezbollah targets' in the heart of the Lebanese capital. The language is deliberately provocative, designed to frame the operation in the starkest moral terms.
But for those of us who watch the markets, the immediate question is not about the morality of war; it is about the cost of instability. The West has given its backing, at least tacitly, to this operation. That means we can expect a short-term spike in oil prices, a flight to safe-haven assets like gold and the dollar, and a sell-off in emerging market debt.
The long-term inflationary implications are less clear, but they are not benign. The City is watching the gilt yield curve with a hawkish eye. Any sign that this conflict is drawing in Iran or other regional powers will send yields soaring as investors demand a risk premium for holding UK debt.
The operation itself may be 'surgical' in military terms, but its economic fallout will be anything but precise. Markets hate uncertainty, and the Middle East is the factory of uncertainty.
