The markets barely flinched when the news broke. A coordinated assault on an airport in Niger has left 35 dead, and Whitehall has already signalled its backing for a French-led counterterrorism escalation in the Sahel. But the real question for investors is not the body count, it is the cost.
This is the kind of geopolitical shock that usually sends gold spiking and bond yields gapping. Yet the initial moves in London this morning were muted. The FTSE 100 drifted lower, but the real action was in gilt yields, which edged up on the expectation that the Treasury will soon be asked to write another cheque for an overseas military commitment.
Let us be clear: the Sahel is becoming the new graveyard of fiscal discipline. France has been haemorrhaging billions in Operation Barkhane. Now, with the UK formally backing an expanded mission, we are looking at a fresh injection of taxpayer money into a region where success has been elusive at best.
The attack itself was brutally efficient. Heavily armed militants struck the airport in Niamey, targeting both military and civilian aircraft. The death toll includes at least 12 passengers and 23 security personnel. Responsibility has been claimed by an affiliate of the Islamic State, though the precise group remains disputed among intelligence agencies.
From a capital markets perspective, the key variable is duration. How long will this mission last? The French have been in the Sahel for nearly a decade. The UK's involvement, framed as a 'support' role, could easily metastasise into a long-term commitment. That means more defence spending, more borrowing, and ultimately, a higher tax burden.
The Bank of England will be watching closely. Any sustained increase in military expenditure without corresponding cuts elsewhere will put upward pressure on inflation. The MPC has already been struggling to tame price growth, and a fiscal expansion of this nature could force their hand on rate hikes.
There is also the capital flight risk. North Africa and the Sahel are becoming increasingly unstable, and institutional investors are already rotating out of frontier markets. Niger's sovereign debt, already trading at distressed levels, could see further downgrades. The contagion to neighbouring countries like Mali and Burkina Faso is a real concern.
The government's statement was predictably resolute. 'The UK stands with our French allies in the fight against terrorism. We will provide logistical and intelligence support.' But the market is asking: at what price? And who will pay?
The cynical view, which I share, is that this is another blank cheque for the military-industrial complex. Defence contractors will see their order books swell, but the average British taxpayer will foot the bill through higher taxes and reduced public services.
For investors, the immediate play is to reduce exposure to frontier market debt and increase holdings of hard assets. Gold has already broken through its resistance level this morning. I would not be surprised to see further gains as the conflict deepens.
Let us not forget the human cost. Thirty-five families are grieving today. But in the cold calculus of the markets, it is the fiscal and monetary implications that will drive returns. The UK's backing of this mission is a bet on stability in a region that has known little of it. History suggests such bets rarely pay off.
For now, keep an eye on gilts. If the yield curve steepens further, it will signal that the market expects more borrowing. And more borrowing means more pain for the pound.
In the end, this is not about terrorism or security. It is about the bottom line. And the bottom line is that someone will have to pay for all this. It is usually you.
