Obama’s ‘red line’ bluff over Syria scares the markets
Obama has decided. In the next few days or possibly weeks, if wiser minds should fail, the United States will launch a series of tactical strikes against Syrian regime installations – barring exceptional events. The alleged Syrian government use of chemical weapons against civilians in a rebel-controlled area of Damascus has provided the occasion and opportunity for the attack. France’s President Hollande and Britain’s Prime Minister David Cameron, along with Saudi Arabia and its allies among the Gulf petro-monarchies have all clamored for action, expressing all but certainty that the chemical attacks were ordered by Syrian dictator Bashir al-Asad. President Obama has put on a string show and asked his Secretary of State, John Kerry, to deliver a strongly worded message to the American people, clearly aimed toward building support for military action. For the record, the Chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey, has advised the US Congress against backing the Syrian rebellion, while his famous predecessor, Gen. Colin Powell, has advised the US avoid launching any kind of attack against Syria.
Most Americans, in fact, are opposed to US military intervention in Syria, whether or not chemical weapons were used. Indeed, American troops have just withdrawn from Iraq and they are preparing to withdraw from Afghanistan. Even if the attacks will be limited to Tomahawk missile launches from warships deployed 100 miles from the Syrian coast, Americans are not likely to welcome the idea of yet another Middle Eastern military campaign. However, months ago, Obama thought he could stay away from Syria by marking a ‘red line’ beyond which he would authorize military intervention. The red line, in this case, was the use of chemical weapons. In effect, Obama was playing a poker game and he believed that he could pull this bluff, based on the fact that for all of the violence in Syria, the Asad regime acted rationally and that, as such, it would not resort or even need to resort to the use of chemical weapons. Now, somebody clearly appears to have used some kind of poison gas. Exactly what kind and who did it remains unclear, especially considering that the chemical weapons were deployed just as Asad was welcoming a team of UN chemical weapons inspectors in Damascus. But Obama cannot back out from his bluff. If he does, he would be seen as compromising US power and US security in the face of other potential foes, such as Iran or North Korea.
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Obama is probably even more reluctant to get involved in Syria than the most concerned of his citizens, but someone has called his bluff. That someone is probably not Asad, but it does not matter; there are other forces pushing for intervention. Saudi Arabia has been working tirelessly behind the scenes, helping the rebels in the expectation that the collapse of the Alawite Asad regime would weaken Iran and curb the Shiite influence in the Middle East. The US and Israel hope to weaken Hezbollah in Lebanon. However, Russia continues to back Asad and has expressed strong opposition to any attack. Russia has a naval base in Syria and also considers Syria part of its sphere of influence, given that it is located less than 1000 km from its southern borders, the very areas where Russia has been fighting its own war against Islamists (remember the Boston Marathon bombers?).
This makes the intervention proposition much more complex and risky than Libya, which enjoyed a modicum of Russian support. Nevertheless, if Obama’s campaign, which will probably be launched without UN approval, limits itself to rocket launches and aerial strikes, it will have limited or no strategic effect in stopping the civil war. That is when chemical weapons might start to have a real appeal for Asad. He could threaten to get Israel involved, which would in turn draw Iran, and certainly Lebanon, into the picture and what a monstrous picture it would be. At that point the US would find it impossible not to extend its involvement into what will have become a far messier affair than Iraq with ground troops. At that point who could guarantee that chemical weapons will not be used – and in far more vicious manner? More importantly, then, the question the world should ask now is, who can provide the actual proof that the gas deployed last week in Damascus was used on Asad’s orders rather than those of the rebels (whom, Carla Del Ponte, a member of the UN Independent Commission of Inquiry on Syria, blamed the rebels for use of sarin gas rather than the government last May, when the chemical weapons claims first started to surface).
On the economic and business fronts the prospect of US and NATO involvement in the Syrian civil war, which will no doubt have grave international diplomatic repercussions, given the deep rift in relations between the U.S. and Russia and which would certainly worsen between the US and China, have certainly raised concerns for economic recovery. Today, the Tokyo exchange set the mood, closing at -0.69% but experiencing a reversal of ‘Abenomics’, marked by a strengthening of the yen on fears of the fallout from intervention in Syria and especially the outbreak of political tensions between the Washington-London-Paris and the Moscow-Tehran-Beijing axis. From here it is easy to deduce the potential implications for the markets as being marked by an overall risk aversion due to the economic uncertainty and the risk to the ever popular commodity of oil from the Middle East.
When people think Middle East crisis they also think higher commodity and oil prices – even if Syria is not producing significant quantities. The risk here is posed more by Syria’s main ally, Iran and the various oil-route logistics. Indeed, Iran could decide to block the Strait of Hormuz to prevent exports from the Gulf States and some parts of Saudi Arabia, which only add to the uncertainties from Egypt and the Suez Canal. In short, Obama has decided to play poker and the consequences are difficult to calculate. For now, oil prices have started to rise as have prices for commodities and gold. The goals and extent of Obama’s military intervention have not been clearly defined yet, but the will to attack is as clear as the alleged use of chemical weapons by the Asad regime represent the proverbial pretext to launch the attack and what folly it is.