U.S. Navy Deploys Nimitz For Possible Strike On Syria

Global benchmark oil prices crept up to two-year highs over the past week or so as tensions in the Middle East and North Africa flare. US intervention in Syria currently awaits a congressional vote, so what will that decision likely mean for near-term price trajectory?

It appears the geopolitical risk premium is mostly factored in at this point – this “fear factor” being the main driving force behind recent upward price pressure – so whatever the US decides with regard to Syria may impact prices less than some might think.

As many analysts and media outlets point out, Syria is not a major oil exporter. In fact, the country’s crude oil production steadily declined over the past decade, falling to 327,000 barrels per day in 2011 before civil war slashed output roughly in half to 164,000 b/d in 2012. A majority of Syria’s crude production is consumed domestically and Opec data show the country did not export significant volumes of oil in 2012.

So potentially escalating Syrian domestic conflict is not a global supply concern, it’s more a fear of regional conflagration impacting proximate suppliers that has the market’s attention. Oil prices actually fell after the 2011 NATO action in Libya, which produces and exports more oil than Syria.

Global oil prices may experience an initial upward blip on news of western-led air strikes in Syria, but it would appear the bulk of any upward geopolitical price pressure is already baked into Brent and WTI crude futures contracts. If the conflict spills beyond Syrian borders, however, a much more serious price spike could follow.