First, returning to the arty in The Financial Times, entitled in a somewhat dated context, Lebanese currency 'remains stable' despite damage to the economy:

Building off of the desperate spin by Lebanon's Central Bank Governor, Riad Salameh (who seems to be doing a yoeman job in the face of disastrous circumstances, the article notes an emerging (as of one week ago) dollar shortage and attempts to keep the psychology in play by noting US protection:

"The dollars are going to be brought in by sea with international agreement, under US protection," said Mr Salameh.

The governor played down reports of pressure on the Lebanese pound, saying the central bank, which has about $13bn (£7bn, €10bn) in foreign exchange reserves, was committed to the currency's stability and would maintain the confidenceof the markets. Lebanese nationals tend to dump the Lebanese pound and shift into dollars during political crises.

It should be noted that Lebanon's banking system is already heavily dollarised (it is not common in region to be able to withdraw foreign currency from ATMs, as one can in Leb Land), and doubtless part of the shortage was (and is) because of the Israeli blockade, as well as panic dumping of Lebanse livres.

More interesting, however, are the seat of the pants figures cited here:

The central bank does not disclose the amount of money that it has used to prop up the Lebanese Pound. The English language Daily Star newspaper quoted a trader as saying $500m on the first day of the fighting and thereafter gradually less. Foreign reserves may have been depleted by$1bn-$2bn.

The time frame for the USD 1 billion is not clear, but let's say first week cost CB Lebanon USD 1 billion, second week almost that. Assume downward pressure will resume with the collapse of ceasefire talk and the open hostility between the Lebanese government - well the whole world really - and the US over its increasingly irrational position. One billion a week is obviously not sustainable, unless of course the Gulf comes to the rescue - which is very, very possible but obviously has its own costs.

Sad note to add:

The outbreak of the fighting found Lebanon in a relatively strong economic and monetary position, with a "historically high level of foreign reserves and foreign holdings", said the governor. The balance of payments surplus is estimated atabout $1.8bn.

Rather obviously the past month has not helped that.

As to this claim:

He also said the government had enough funds to cover servicing the highpublic debt, of about $40bn, for this year.

I expect this is pure bollocks, if one is thinking of actual revenues, but that the government can count on the interim generosity of the Khaliji governments.

However, I was quite amused by this:

Although some products are becoming more expensive as a result of the fighting, Mr Salameh maintained the inflation forecast for this year at 4 per cent.

Well that is some optimism, even in the context of last week.

If the fighting goes on, risk premiums alone will add four percent.

Now, tying this into the larger picture, it is hard to judge the real impact at the moment due to the summer doldrums that rather tend to cause financial and other markets in region to go to sleep end July to early September. Regardless, for the moment one can't say anything stands out.

I rather suspect that the ongoing violence in Iraq coupled with the Israeli-Lebanese war will have an effect of scaring petro-capital away from the US to an extent; risk aversion inverted so to speak as the all-encompassing American narrative on terrorism, a href="http://www.ft.com/cms/s/c8d85c88-12cb-11db-aecf-0000779e2340.html">the Nat West example (even if unfair as claimed), and the like will continue to make some important percentage of petro-capital holders reluctant to have too great an exposure to the US for both moral and practical (asset siezures) reasons.

On the flip side of the coin, despite American efforts to increase non-hydrocarbon trading ties, US-MENA economic exchanges -or more clearly, investment- will certainly tend to freeze up. That being said, this under-noticed news that Carlyle group has put together a USD 1 billion private equity and public shares fund does indicate that investors with experience, a taste for risk, connections and an open mind regarding emerging markets are beginning to take liberalising reforms seriously. And rightly so, although to be frank I suspect that Carlyle group fund might profitably be renamed "The Hydrocarbons Infrastructure and Related Placements Fund" for all that it claims to be thinking of regional invesments.

Before commenting on that specifically, a word on this comment in the article: "Carlyle Group, the US buy-out fund, is planning an investment push into the Middle East with a dedicated fund of up to $1bn, in spite of the mounting spiral of violence there."

Typical of contagion thinking.

Violence in Lebanon is not violence in North Africa, and indeed the violence in many way is profitable for the oil economies (although a huge tax on the emerging economies).

This kind of thinking and analysis is going to be behind the fall-off in Western investment in region, in the short run, although groups like Carlyle may pave the way for a post-conflict reprise.

However, the very violence deplored is going to make more capital available in region as a larger percentage stays home, as evidenced by announcements such as Bahrain group’s funds top $10bn.

With respect to the Carlyle plans for the USD $1 billion push into Mideast, well, I have a hard time believing that this is actually a terribly good idea ( a hybrid private equity fund that would also allow it to put money into listed securities in the Middle East as well as fledgling companies and taking controlling stakes in more mature enterprises largely in the six-nation Gulf Co-operation Council).

Given the massive over-liquidity in the Gulf area, and the issues of being dumb foreign money in such an environement.... Better to look even in Egypt than in Gulf for attractively priced assets that one can actually look to sell in five years.

International private equity groups have been keen to invest in the region to expand their opportunities to gain access to the huge sums pouring into the Gulf because of record oil prices.

The sharp correction of the region’s equity markets in February, which saw valuations fall dramatically after triple-digit percentage growth in the previous 18 months, has also made it more attractive to private equity.

Until recently private equity funds operating out of the oil-rich Gulf states tended to target firms in Europe or the US.

But in June a consortium of US groups including Citigroup and Capital International agreed to buy a 93 per cent stake in Egypt’s Amoun pharmaceuticals for about $451m.

Although in many ways, I think the sudden interest and attention driven by the Gulf liquidity rather stupid, and not particularly driven by fore-sighted interestin opportunities (follow-the-leader & follow-the-cash thinking), but I nevertheless hope that more positive forward-looking capital will succeed and not be overwhelmed by 'stupid liquidity.' I should also hope that it does not lead to rather dirty players like Abraaj taking over fairly well-respected ones, as this article suggests, with respect to Abraaj's play for EFG Hermes. Wouldn't be the first time Naqvi's group has sucked in a more respected team with his dirty money.

I should note that contra the journo's phrasing, Citigroup has been doing that kind of operation for several years now.

Finally, with respect to the Unmentioned Player: Israel. Like all the non-oil producers, it is going to take a real hit from increased oil costs, this combined with the economic cost of mobilising a good portion of its population. This is going to be hard to sustain without substantial outside help. However, like Lebanon supra, it has its shadow resources (in its case, an American government that has lost even the merest acquitance with critical policy thinking, and a gullible rube like habit of writing bank checques).