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This Week in Energy: Oil Price Predictions and a Potential U.S. Strike on Syria

By James Stafford | Fri, 06 September 2013 18:54 | 0

Our take on oil price predictions and the anxiety over a potential US strike on Syria …

The specter of a US strike on Syria continues to haunt us, as talking heads debate whether the Obama administration is attempting to delay by asking for Congress’ permission, or whether it’s just hoping to have someone with whom to share the blame for an eventual strike.

As it stands, lawmakers aren’t giving the idea much support. The public opposition is too high, and enough lawmakers seem to feel that supporting a strike on Syria would be tantamount to ending their careers.

Throughout all of this, there is plenty of debate on what a strike on Syria would mean for oil prices, and for the economy in general.

It depends who you ask—a Syrian strike could either lead to a major spike in oil prices, or the reverse.

According to Forbes, “the flight of the tomahawks threatens to tank equities further, but if history is any indicator, declines should be short-lived and more of a buying opportunity than anything else. The one big thing to watch though is oil prices, which could spike and derail the tepid global economic recovery.”

What would cause a spike would not be what happens in Syria, directly; rather the potential snowball effect. If Iraq—which is already the second frontline in this conflict—sees its oil infrastructure attacked, for instance, this could cause a major spike in oil prices.

Something like this, though, is extremely difficult to predict. Iraq’s involvement in the Syrian conflict is in the form of a connection between Sunni jihadists who are operating in both conflict theaters. This cross-border activity has now sparked a similar cross-border exchange among Shi’ites in Iraq who are helping to boost Hezbollah forces fighting alongside the Assad regime in Syria. This is leading to a major increase in sectarian violence among Sunnis and Shi’ites in Iraq. Each month the death toll is higher as the violence increases in tandem with what is going on in Syria—and the bodies coming back home to Iraq for burial. An attack on Iraq’s oil infrastructure would have to come from the Sunni support base—not the Shi’ites, who control the country and who have a vested interest in Iraqi oil. In turn, a Sunni attack on Iraq’s oil infrastructure would be one way of retaliation for an Assad victory in Syria. It would be a strike against the Iraqi Shi’ite leadership and their nominal Iranian supporters. But it would be in no-one’s clear interest at this time, not Tehran’s and not Washington’s.  

Another factor that would contribute to a spike in oil prices would be Iran’s response to a US strike on Syria. Iran holds the Strait of Hormuz card. This key oil transit point could be closed off by Iran, theoretically, which would be economically devastating to the US. But remember that there is a new president in Iran, and if he can maintain control over the situation, this will not happen. Iran’s new president and his new oil minister are desperately seeking to get back into the global oil and gas game, and closing the strait would kill these ambitions.  

We are inclined to disagree with the talking heads expressing themselves through Forbes. It is more the run-up to a potential military intervention that sends oil prices soaring, not the intervention itself, which has historically had the opposite effect. Why? Because almost every military intervention is pinned on opening up more oil opportunities, and the vultures descend. For Syria, the prospects are some lucrative pipeline routes and the potential offshore, where Israel has already made some big finds and Lebanon will eventually start exploring once it is unburdened by the violence and political chaos spilling over from Syria. The grand finale of the Syrian conflict might even see the Syrian Kurdish north become the next Iraqi Kurdistan in terms of oil and gas exploration.

Remember what happened in Libya? The pre-intervention nerves were on edge, leading to rising oil prices, but once the tomahawks were in the air and all that Libyan oil was becoming a reality in the minds of the eager, oil prices dropped.

We will continue to follow the events in Syria over the coming weeks, both in our regular publications and more in-depth in our weekly premium newsletter, Oil & Energy Insider.

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That’s it from us this week.

James Stafford
Editor, Oilprice.com

About the author

Contributor
James Stafford
Company: Oilprice.com
Position: Editor

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