As the U.S. administration continues its efforts to drum up support in Congress for a limited intervention in Syria — and as European leaders look to Washington to take the lead — a key question we need to consider is the actual economic impact such a strike would have on the region.
General conflict in the Middle East, whether it’s an attack in Syria or an Israeli invasion of Gaza, tends to be automatically and often irrationally linked to potential oil disruptions. Syria is a marginal oil producer, producing some 100,000 barrels per day compared to the 400,000 barrels per day it was producing a couple years ago, with most of its current production divided between the regime and competing rebel factions in the north and east. Moreover, Syria does not sit on a strategic choke point in the region, like the Suez Canal or the Strait of Hormuz. Syria simply doesn’t have much of a direct impact on the markets beyond speculation.
But we also need to place in context the indirect fallout from a limited, punitive strike:
Lebanon is intrinsically tied to the Syrian conflict and is already showing signs of descending into a familiar state of civil war as Sunni provocations against Hezbollah escalate and threaten to draw the Shiite militant group’s attention back home. Lebanon’s main port at Beirut will see a relative boost in traffic for goods that usually travel through Syria’s Alawite-dominated coastal ports at Tartus and Latakia. However, Lebanon is facing growing limitations in its role as an eastern Mediterranean transit corridor for the Levant and the Arabian Peninsula, so any goods moving beyond Lebanon will still have to transit Syria, where trucks face an array of threats on roads weaving through rebel-held and regime-held territory. Most shipping traffic in the eastern Mediterranean will continue to be rerouted through Mersin port on the southern Turkish coast.
Turkey, like Jordan, is highly susceptible to retaliatory attacks by Syria and Iran for suspected collaboration in a military operation, and it's preparing its defenses accordingly. Turkey’s burgeoning current account deficit, significant outflows of portfolio investment along with investor skittishness over the stability of the government following the Gezi Park demonstrations have already applied significant strain on the Turkish economy. Any militant attacks, particularly ones that are capable of reaching beyond the Syrian-Turkish border into major urban areas in Turkey, will only further undermine investor confidence in this once-celebrated emerging market.
Iran may try to activate militant proxies in other parts of the region, but its efforts are unlikely to have much of a meaningful impact. We will be watching closely for militant efforts to disrupt traffic through the Suez Canal, through which some 3 million barrels per day of crude passes through the canal and underwater pipeline. Even relatively minor attempted attacks, like on Aug. 31 when gunmen using light weapons tried targeting a Chinese-owned and Panamanian-flagged container ship, have the potential to spook markets and raise insurance rates. However, the groups operating in this area have not demonstrated the capability to launch more sophisticated operations, such as trying to ram an explosives-laden speedboat into a vessel or hijacking a vessel in these heavily patrolled waters.
Iran has so far refrained from highlighting its threat to close the Strait of Hormuz, and will likely reserve that threat for a much more critical situation down the line — a limited attack on Syria, after all, that aims to preserve the regime does not hold the same weight as a credible military threat against Iran, and Iran needs to preserve that prong of its deterrence strategy.
Iraq, like Lebanon, is tied into the wider sectarian conflict currently being fueled by the Syrian civil war. Jihadist attempts in Iraq to exploit major shifts on the Syrian battlefield can be expected, though the energy infrastructure most susceptible to these attacks, like the Kirkuk-Ceyhan pipeline through the north, is already operating well below capacity due to frequent sabotage attacks. Jihadists are more limited in southern Iraq, and Iran has no interest in destabilizing energy production in its extended Shiite sphere of influence.
Rather than waging a major retaliatory campaign, Iran is actually more inclined to exercise restraint in responding to a limited strike that aims to preserve the regime anyway. Overall, a more careful examination of the likely impact of a strike reveals that market reactions over Syria will tend to be overblown.