A strike by U.S. military forces in Syria could serve to escalate the nation's conflict, as well as drive up oil prices.
A strike by U.S. military forces in Syria could serve to escalate the nation’s conflict, as well as drive up oil prices.

In the early morning hours of April 7, the United States armed forces launched a missile attack on an air base in Syria. The strike was the first against the de facto government of Syria, which the U.S. has been hostile toward since the beginning of the Syrian Civil War. The missile strike served to escalate a war that’s already grown extremely complicated. Somewhat surprisingly, the attack seemed to exert a good deal of influence on global oil prices.

According to Bloomberg, the market price of West Texas Intermediate crude oil shot up as much as 2.4 percent after news of the U.S. strike broke. In doing so, the market’s reaction to the attack did more to influence oil prices than recent concerted efforts from OPEC have accomplished, although for more alarming reasons.

“The market’s focused not just on the direct implications of this missile attack but the wider risk to the region,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, told Bloomberg. “There’s been a flight to quality in other markets; the dollar’s up and so is gold. Oil isn’t alone in trying to evaluate what this will mean.”

The missile strike itself was an act of retaliation by the U.S. in response to reports that Syrian troops had used chemical weapons to target civilians days earlier. The U.S. and other nations have strongly condemned all purported use of chemical weapons in the recent past, including a previous attack in Syria. However, U.S. involvement in that country’s civil war up to this point had been primarily focused on attacking areas held by the Islamic State, which is also embroiled in the conflict.

Oil risks multiply after US strike

The entrance of the U.S. as a combatant against the Syrian state invites a host of new risks for the oil industry. Although Syria’s oil output amounts to only 0.04 percent of the world’s crude supplies, it serves as a key transfer point between Middle Eastern oil hubs like Saudi Arabia and Iraq. The drawn-out Syrian Civil War has already destabilized the region in a number of ways, but any escalation of the conflict will only further enflame risks.

More troubling are the deeper political connotations of greater U.S. involvement in Syria. The conflict pits the legal government of Syria, led by President Basshar al-Assad, against numerous rebel factions who wish to overthrow his rule. Al-Assad is aided by Russia, who has been providing close military support against rebel fighters. And all sides are also dealing with ISIS, which maintains a stronghold throughout much of the war-torn country.

While the U.S. has and still does support the Syrian rebels and has condemned Al-Assad and ISIS, it has also taken every precaution to avoid direct conflict with Russia. Until April 7, this also meant showing extreme restraint regarding military operations.

Oil investors worry that further involvement against the Syrian government could worsen the political situation not only in Syria but around the Middle East region. The conflict could spread further into Iraq, for example, putting increased upward pressure on oil prices.

“As long as the military action in Syria is well-contained (not spreading into Iraq), and Syria is no longer a significant oil producer, any big spikes in oil prices could prove temporary,” Gordon Kwan, a Hong-Kong based analyst at Nomura Holdings Inc., told Bloomberg.