Diplomacy stepped up, IMF in Egypt, Bahrain support

There has been a step-up in diplomatic efforts over the past week to avoid a renewed escalation of the Iran war. While Iran is enduring severe economic pain, regime hardliners may still be willing to risk a re-escalation to try to regain the initiative and focus on their military and geopolitical aims. Elsewhere, IMF officials landed in Cairo this week at the same time that the pound has come under pressure. A weaker currency presents some challenges, but should help Egypt's economy adjust to the terms of trade shock. Meanwhile, reports suggest that Bahrain is in talks with the UAE over a fresh financing package which, as we argued recently, is needed if Bahrain is to avoid a devaluation and sovereign default.