The Foreign Office has condemned Israel’s latest military action which killed Lebanese soldiers, marking a dangerous escalation that pushes the region closer to a full-blown war. For investors, this is another reminder that geopolitical risk premiums are becoming a permanent fixture in sovereign debt pricing. The gilt market barely flinched at the news, but the real action is in the oil futures and defence stocks.
Every time a bomb drops, the cost of capital for peripheral economies rises. The UK’s moral outrage is predictable, but the market’s cold calculus is what really matters. How long before the Treasury has to price in a Middle Eastern conflict premium on our own borrowing costs?
