Gas Prices: How War With Syria Will Slam You At the Pump
Whenever a conflict arises in oil-rich regions, mainly in the Middle East, a fear of an oil price increase always seems nearby. The war in Syria is no exception, as crude oil prices and gas futures are expected to remain high, and maybe even increase, should the U.S. brings its military diplomacy to the area.
But even without Uncle Sam's intervention, prices are bound to remain higher in the short run. For five years now, the two main indices for oil price, WTI and Brent, have been on the rise. A slow economic recovery everywhere surely has to do with it, but unrest in the Middle East doesn't help. Sectarian violence in Iraq has decreased the country's oil production by 10% since last May. Libya's oil production decreased to a fifth of what it was before Ghadafi was deposed in 2011, pushing many countries to draw from their strategic reserves.
However, another cause for the increase which is often neglected is the mere fear, imagined or real, that oil supplies would be disrupted. Egyptian unrest is amongst the biggest fears, as it could potentially stop or severely decrease oil shipment through the Suez Canal, where 10% of the Arab world's oil transits. Fears that the unrest will spread to neighboring countries makes investors nervous.
So why could a potential U.S. intervention in the Syrian conflict increase oil prices, even though its production is negligible with respect to world total and it isn't in the middle of important oil routes? For one thing, Assad is supported by Iran. Siding against Assad, which is likely considering his alleged used of chemical weapons, might push Iran to use its strategic position and disrupt oil shipments through the Straight of Hormuz, where 20% of all oil shipments pass by.
A foreign intervention is also likely to stir up support for Al-Qaeda through one of its affiliate, Islamic State in Iraq and Syria (ISIS). Thanks to its vast experience in other conflicts in Islamic regions, ISIS has been able to overcome rebel-led Free Syrian Army on key routes and resources. Should "infidels" point their nose to the country, then Syria could become, as some experts claim, the jihadist haven Al-Qaeda has been looking for.
Should such a group, whose hostility towards the West is obvious, get into power, then market volatility will go absolutely nuts. Already, countries in the area have had difficulties with their currency and/or their stock exchanges. With Al-Qaeda gaining influence in the area, there is likely to be a domino effect to emerging markets, whose uncertain return will be deemed even riskier. Investors would therefore seek safer havens like the U.S. dollar or gold.
In other words, a U.S. intervention is a terrible idea, at least from the perspective of oil prices . But should it happen, as it seems to be decided already, there could be some good coming out of that mess. Indeed, with oil shipments disruption in the Middle East, it would be yet another incentive for the construction of the Keystone pipeline, since oil shipments from Canada are pretty stable and also ethical.