The dangerous escalation of rhetoric between the Syrian government and the West sent crude prices to a five-week high Tuesday, as heightened geopolitical tensions resulting from last week’s alleged gas-attack outside of Damascus continue to roil markets.
Despite the still-pending UN investigation into an apparent chemical weapons attack last week outside of the Syrian capital, US officials, including Secretary of State John Kerry, have claimed that the responsibility unequivocally lies with Ba’athist regime of Bashar al-Assad. The Obama administration last year stated that the use of chemical weapons in Syria constitutes a red-line that, if crossed, would prompt the US and other Western powers such as the UK and France to act.
On Tuesday, Syria’s foreign minister Walid al-Muallem, who served as the country’s US ambassador during the 1990’s, threatened that the regime's capacity to defend itself would shock Western nations, who have claimed on numerous occasions over the last 3 years that the al-Assad clan was just a push away from collapse.
The exchange of threats sent prices up over 3 percent, as West Texas Intermediate slated for October delivery climbed over $3 per barrel to $108.99 on the New York Mercantile Exchange, just shy of the July 19 high of $109.32. Meanwhile, Brent for October delivery was up $3.30 to $114.03 on the ICE Futures Europe exchange.
A Bloomberg interview with UBS Securities global energy markets strategist Julius Walker earlier on Tuesday summed up the market perspective rather succinctly, saying “It’s not the question of if they are going to intervene, but just when and how,” and whether such a move would cause other foreign participants in the conflict to increase their involvement. Indeed, the Syrian civil war has become, like its Lebanese predecessor, a cold-war battleground for the rivalry between the West and the petro-monarchies of the Gulf on the one hand, and the Russians, Iranians, and Syrians on the other.
Prices also rose on heavier trading; volume on the ICE Futures exchange was around 70 percent above the 100-day average. As has been the case of late, Syria was not the only regional crisis to push oil higher. The ongoing fallout from last month’s military coup in Egypt, as well as sporadic refinery shut-downs in Libya, are significant factors on their own.
As John Kerry essentially dismissed the United Nations fact-finding mission that is currently seeking to gather evidence and testimony from the site of the alleged attack in an attempt to bolster the case for “limited” or “surgical” strikes against regime forces in Syria, the current troubles in Libya in particular should be kept in mind. The country’s recent oil production woes are a direct result of US/UK/French intervention in that country’s effort to overthrow its own longstanding dictator, Muammar Ghaddafi two years ago. Ghaddafi’s removal has flooded Northern Africa with weapons, and empowered a militia culture in Libya that is currently attempting to hold the country’s oil industry hostage as a form of leverage against politicians and the political process as a whole.
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