In the commodities world, oil is undeniably one of the most important resources on the globe. Its price movements are closely tied to nearly every economic factor, as well as both domestic and international conflicts. In recent weeks, the escalating violence in Syria has put significant upward pressure on oil, pushing the fuel over $110 a barrel. While the country itself is not a major oil producer, its close geographic proximity to key sea routes and pipelines has investors understandably concerned over the immediate future of the commodity.
Another cause for concern is whether or not the U.S., or other major economies, will intervene in the country’s conflict. More than likely, any type of intervention would significantly escalate the Syrian conflict and could potentially cause violence to spill over into other countries in the region where roughly one-third of the world’s crude is produced.
Syria’s Conflict Comes to a Boiling Point
Though recent events have brought this country’s conflicts back to the forefront, Syria’s civil war has been raging for more than two years. Most mark the official start of the war in February of 2011, when authorities arrested 15 school children for painting anti-government graffiti on walls of a school. News of the arrests spread quickly throughout the country, fueling massive and violent protests in Syria and sparking a national movement. Armed rebels quickly came to the public’s defense, standing against President Bashar al-Assad and his government.
Two years later, the country’s fighting has claimed more than 100,000 lives, but now officials believe the conflict has “crossed the line,” forcing governments like the U.S. to assess whether or not an intervention is needed. According to President Obama and other leaders in Europe and the Middle East, Syria’s civil war warranted international attention after the Syrian regime launched a chemical attack on its own people.
Shortly following the attack, investors quickly responded, pushing oil prices to 18-month highs.
Syria’s Link to Crude
As mentioned before, Syria is not a major oil producer, but its proximity to crucial sea routes and pipelines has caused significant cause for concern. If violence were to spill over into neighboring regions, which produce approximately 30% of the world’s oil, there could be significant disruptions to the flow of oil through the Suez Canal in Egypt, as well as other pipelines in the area (pictured below).
According the the Energy Information Administration
, 4.5 million barrels flow through Egypt along every day, which accounts for roughly 5% of global oil supply. Though some experts believe a U.S. intervention would not lead to a major disruption in supply, investors should certainly keep a close eye on the conflict, as tensions and violence could certainly make a turn for the worse on the drop of a dime.
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Editor's note: This article by Daniela Pylypczak was originally published on Commodity HQ.
No positions in stocks mentioned.