Syrian oil output has long been shut down, but the mounting crisis could roil crude markets in other ways, largely because of Russia and Iran.
Oil prices rose Friday, and again Monday, as markets weighed the possibility of heightened U.S. involvement in the region.
It’s not the threat to oil supplies after the U.S. air strikes on Syria, where the civil war shut production of 380,000 barrels a day, said Helima Croft, Royal Bank of Canada’s global head of commodity strategy in New York.
Unless, of course, fighting escalates and spreads to nearby oil-producing countries. But that’s unlikely, Ms. Croft said. At play at this point, rather, are Russia’s relations in the Middle East and the coming presidential election in Iran.
“Given that President Trump had previously signalled deep disdain for humanitarian interventions and Middle Eastern military engagements, we are now in uncharted waters and we think that many of our earlier prevailing assumptions about the implications of the conflict in Syria may be upended,” Ms. Croft said in a report.
Oil prices are now being supported by a production-cap agreement among OPEC and non-OPEC countries, notably including Russia. And there’s talk of extending the pact for six months.
Ms. Croft wondered whether the latest developments could spark tension between Russia, which backs Syria’s Bashar al-Assad, and Sunni states that support the rebels.
“Up to this point, Russia has been able to maintain its support for Assad and warm relations with Iran, all while concluding arms deals and energy co-operation agreements with countries like Saudi Arabia,” Ms. Croft said.
“Therefore, Syria was not an intractable obstacle for Moscow in working with key Sunni states,” she added.
“However, it will be important to watch whether Syria does emerge as something of a deal-breaker in the wake of the conflict’s altered dynamics. The anti-Assad rebels may now believe they have a new lease on life and their foreign sponsors could up their aid, especially if Assad were to double down on brutal tactics in an effort to win the war. President Putin, for his part, shows no signs of pulling back support for his ally Assad and surrendering Russia’s main Middle East outpost of influence.”
Ms. Croft also raised the possibility of the air strikes altering the course of politics in Iran, where President Hassan Rouhani had been seen as winning a second term with the support of supreme leader Ayatollah Ali Khamenei, even amid criticism of the nuclear pact that led to the easing of Western sanctions.
“A key question now is whether Khamenei decides to tip the scales in favour of a more hardline candidate in light of Iran’s strong support for Assad, most notably the weapons and manpower provided by the Revolutionary Guard’s Quds Force to the Syrian strongman,” she said.
“The nuclear deal and the sanctions relief that enabled the return of Iranian oil exports would certainly be imperilled if Rouhani were defeated by a candidate with more hawkish/anti-American credentials.”
If the Trump administration holds its fire now, and makes no attempt to get rid of Assad, however, the fallout in oil markets would “remain negligible.”