International

Syria 'powder keg' could provoke oil crisis

Market analysts say spillover from any military action could present a formidable risk to international oil supply

Syrian President Bashar al-Assad said in an interview published by the French newspaper Le Figaro that the conflict could break out into regional chaos.
AFP/ Getty Images

Americans may take a hit at the gas pump in the event of a U.S. military strike against Syria, analysts say, after the country's President Bashar al-Assad warned in an interview with the French newspaper Le Figaro that Syria is "a powder keg" and that strikes on his country would trigger regional conflagrations -- even as the chances of a protracted offensive appear slim.

The U.S. Senate's draft legislation would restrict the proposed action to a maximum of 90 days, and would bar ground combat. That limit, coupled with an international outcry against the action, likely means there is a "low probability" any strikes would erupt into a regional conflict that would cripple oil exports of chief regional producers like Saudi Arabia and Iran, according to John Kilduff, an energy analyst and founding partner of Again Capital.

Still, "it's a risk that has to be observed," Kilduff told Al Jazeera about a potential blow to the international oil supply.

Kilduff cited sharp fluctuations in oil prices over the past week, amid teetering rhetoric on a potential strike from international heads of state.   

The cost of West Texas Intermediate (WTI) oil, a benchmark in U.S. oil prices, rose to a two-year high last week, settling above $112 per barrel for the first time since May 2011, with tensions mounting over prospective military action in Syria.

As international support for the action slowly died down and President Barack Obama announced he would seek congressional approval for military action, the price of WTI dropped. Bloomberg reported that futures fell by a whopping 0.8 percent.

Syria isn't a major oil producer, and oil shipments don't move through Syrian territory, as they do in Egypt.

"What is being priced in is bellicose rhetoric, and Iran, with their threats on Israel," said energy market analyst Stephen Schork, who is president of the Schork Group.

Late last week, Iran's military threatened retaliation against Israel in the event of an offensive against its allies in Damascus.

Schork said there are factors that would mitigate a pending oil shortage that would drive up prices. In two weeks, he noted, suppliers will "roll into winter-grade gas, which is cheaper."

"Any short-term spike in price should be mitigated by the rollover," he added.

Kilduff disagreed. "If crude prices were to spike up to $125 a barrel, it's going to take even winter gas with it, and we'll hit $4 national average," he said.

Schork noted that OPEC countries were well poised to roll out more barrels per day to meet the demand provoked by a sudden regional shortage, but Kilduff said he doubts the amount that countries like Saudi Arabia have produced and put into reserve is sufficient to solve an international crisis.

If the U.S. does strike Syria and the region is as vulnerable as Assad believes, the outcome for the oil industry -- which fuels everything from cars to economies -- would be at stake.

"If we do see disruption, we'll see a repeat of what we saw in 2011 because of disruption in Libyan oil," Schork said, referring to the February 2011 closure of Libyan production plants amid the violence that eventually saw the overthrow of longtime ruler Muammar Gaddafi.  

But in the Libyan conflict, "production ramped back up pretty quickly after" opposition fighters, aided by support from a multinational coalition, defeated Gaddafi's forces.

Still, two years after Gaddafi was deposed, Libyan oil production remains shaky -- as factory workers strike for better wages in the restive post-revolutionary state.

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Bashar al-Assad

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Related

Places
Syria
Topics
Oil, Syria's War
People
Bashar al-Assad

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