Syria: Considering Crude
02 Oct, 2013
On August 21st 2013, a chemical weapons attack was carried out on civilians in the Syrian capital of Damascus. With the number of casualties exceeding 1,000, both the United States and France have expressed the belief that President Assad was behind the attack. As of now, France is pushing for military action, and 23 US Senators have approved military backing for action in Syria. Amidst the countless areas of political and social turbulence, the possibility of launching a military strike has already begun to take effect in the oil market.
Oil prices are starting to rise as the US deliberates taking action in Syria. A barrel of crude oil jumped to a six-month high in August, at over $117 USD. Bank of America Merrill Lynch has forecasted that number to soon reach a figure between $120 and $150.
Syria only produces about 50,000 barrels a day, which is negligible compared to the 10 million per day produced in Saudi Arabia. However, with the question of Western involvement looming, the possibility of conflict spreading to surrounding countries has some analysts nervous.
The neighboring country of Iraq, which is known to have extremist Al-Qaeda groups working in Northern Syria, could prove a particularly disastrous region. If these groups begin to work with the Syrian rebels, it would not only enable continued brutality between Syrians, but could potentially allow the extremist views of Islamic law to creep their way into the country, further destabilizing the region.
Libya has also been lagging in its oil production. Oil production has severely decreased due to security protests prior to the 2011 war that ended with the death of Moammar Gadhafi, causing oil prices to steadily rise. The US role in Libya proved effective in removing Gadhafi and thereby transferring the responsibilities to NATO. However, these actions may have proven inappropriate in terms of specific aspects of Western interest, namely the security of oil exports.
Meanwhile, farther east, Iran has shown support for the Assad regime and it is unknown how the country will react under military strikes. In the past, Iran has provided military and financial support in the region, but the current president of Iran has emphasized efforts to develop stronger diplomatic ties with the West.
If Iran decides to respond to these attacks, it will first do so by blocking the Strait of Hormuz. This body of water, which separates Iran from the United Arab Emirates, is a daily passageway for oil tankers. Blocking this area off will severely impede oil exports, causing sharp increases in oil prices.
Michael Wittner, an oil industry observer from Société Générale SA, suggested that military strikes could cause Brent crude oil to rise to as high as $150 USD a barrel. “The concern is that an attack on Syria will reverberate through the region, increasing the spillover into other countries and possibly resulting in a larger supply disruption elsewhere,” Wittner noted. However, the spike will be temporary, as high prices will be coupled with lowered demand, therefore causing prices to decrease.
While the possibility of US involvement continues to develop, many will look to whatever action is taken as a sign of where the West places oil as a component of its interests in the region. Oil prices are certainly not the most pressing issue in Syria, but they are nonetheless a significant point of consideration for the US.