Oil Prices - August 27

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Syria driving oil prices

By Dominick Chirichella - Tue 27 Aug 2013 07:19:41 CT (Dominick is the top oil & gas analysts for CME Group)

As the rhetoric ratchets up around Syria the geopolitical risk premium in the price of oil is once again widening. Yesterday US Secretary of State John Kerry emphatically stated that the use of chemical weapons on Syrian citizens was undeniable. The move toward military action seems to be increasing as leaders from the around the west continue to discuss the next act for Syria. The US President still seems to be undecided as the US and others continue to review the potential responses. If something is going to happen it is likely to happen over the next week or so.

The response is not a given as the polls in both the US and Europe are not overwhelmingly in favor of a military intervention in Syria. As such any action is likely to be airstrikes and not involve ground troops at this point in time. What happens beyond a limited air strike is obviously the big unknown. Russia is an ally of Syria and has been very aggressive in stating their objection to military action in Syria by the US and the West. In addition Iran is a supporter of Syria and what Iran does in reaction to a US involvement in Syria is also a big unknown.

Military action in Syria could result in a spreading of the chaos to the oil producing areas of the Middle East as well as to some of the key shipping routes for crude oil. Retaliation could spread to the Suez Canal and Sumed pipeline which are in a country that is also on the verge of a civil war. With Turkey being a key proponent of military intervention into Syria if could have an impact on its main oil export port of Iskenderun which is an export area of Iraqi's Kirkuk crude oil and Azerbaijan's Azeri Light oil. With Libyan oil exports still restricted due to strikes and further interruption in oil flow could result in a surge in oil prices at a time when the global economy is finally starting to slowly grow.

[dan_s]

Brent crude rose above $111 a barrel to trade near its highest in five months as rising tensions over a suspected chemical weapons attack in Syria raised the prospect of more military action in the Middle East.