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Why The Syria Conflict Could Be Bearish For Oil Prices

War

The withdrawal of US troops from northern Syria has been the most thoroughly covered story in global news over the last week. In the oil patch, investors are watching the situation with a close eye looking for signs of further Middle East destabilization which could transmit upside risk into prices.

To that end, we’ve come across a steady stream of written pieces and interviews from energy pundits who think the market is seriously undervaluing the geopolitical risk created by the vacuum of the abrupt, unexpected US withdrawal. The practitioners, however, still seem to be more concerned with the downside risks associated with slowing global growth and the US/China trade war than they are with the upside potential of Middle East chaos. To that point, Brent crude has moved sideways near $59 this week while bullish headlines have swirled. Our view at the moment is that the Syria situation deserves respect and close attention, but we're with the practitioners in thinking the oil market’s upside risks are equally matched by its downside risks.

To back up for a moment, there's no question the escalating situation in Syria is a serious geopolitical issue which we should seek to understand. The removal of US troops creates opportunities for Turkish advances against the Kurds, for ISIS to regroup and expand and for Iran and Russia to take a larger role in settling territorial disputes. ISIS had a moderate impact on oil prices prior to the US shale boom and their…




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