While Syria is itself not a major oil producer, any military strike by the United States on Syria in retaliation for the Assad regime’s suspected chemical attacks would likely increase oil prices worldwide.
The reason is that an American military intervention into the country’s civil war might disrupt oil deliveries in the Mideast, especially in the Suez Canal, through which close to three million barrels of total oil (crude oil and refined products) travel daily (according to the U.S. Energy Information Administration for 2012). The Iranian government has also suggested that an American attack could lead to a retaliatory strike on Israel, which is rushing to distribute gas masks to its population.
In a televised press conference early Friday afternoon, U.S. Secretary of State John Kerry said the evidence was “clear and compelling” that the regime of Syrian President Bashar al Assad had in fact used chemical weapons in an attack on Syrian opposition-controlled neighborhoods outside Damascus on Aug. 21. Calling Assad “a thug and a murderer,” Kerry said 1,429 Syrians, including many civilians and hundreds of children, were killed in that attack last Wednesday, and that the regime had used chemical weapons on its own people multiple times this year. (The government has made available a document relating its evidence of the attack.)
While Kerry did not say the U.S. would take military action, he said the U.S. would “make decisions on our own timeline,” and that the administration would consult with Congress on any potential action. He did say any response would be “limited and tailored,” would not involve “boots on the ground,” nor would it be “open ended” and that the U.S. would “not take responsibility for a civil war” that’s already under way. While he acknowledged that “the American people are tired of war,” he also said that “fatigue doesn’t absolve us of the need to take action.”
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President Barack Obama is scheduled to fly to St. Petersburg, Russia, for a meeting of the G20 on Tuesday, so speculation is already rife that any military action would take place before then.
As Kerry spoke, the markets responded quickly. As of 1:30 p.m. Eastern time, the S&P 500 was down slightly, the Dow fell and then rebounded, gold and silver fell and oil (WTI) was down slightly at $107.
The U.S. Energy Information Administration estimates that Syria produced 387,000 barrels of crude oil a day in 2010, and that it exported 109,000 barrels a day, more than 90% of which went to European countries like Germany, Italy, France and the Netherlands. While Syrian crude accounted for only 1.35% of European Union imports, according to the European Commission, those exports accounted for 30% of the Syrian government’s revenues in 2010.
The CIA World Factbook puts Syria’s proven oil reserves at 2.183 billion barrels as of January 2012, which puts the country’s reserves in 35th place (for comparison, the U.S. is ranked 15th and the U.K. is ranked 32nd).
Richard Barrington, a CFA and former executive committee member at Manning & Napier Advisors and now a personal finance expert for MoneyRates.com, wrote in a note today that “for a fragile economy, the Syrian conflict has the potential to be a very disruptive event.” That disruption, Barrington wrote, would come from inflation prompted by higher oil prices.
Oil prices have been steadily rising this year already. On Wednesday, West Texas Intermediate (WTI) reached a two-year high, while Brent oil reached a six-month high. Prices fell somewhat on Thursday as the British Parliament’s vote to not go alon with an American military strike seemed to temper fears of such a strike.