EDITOR: | August 30th, 2013 | 2 Comments

The wider and market implications of a US strike against Syria

| August 30, 2013 | 2 Comments

backgammonIn the wider economic sphere, concerns over Syria in the past week have sent markets falling and oil prices up. This is good for commodities in general and fears that the United States could become embroiled in, and distracted by, another long term Middle East conflict, could result in higher rare earth prices, given the aforementioned effects on the Senkaku/Diayou Island dispute. Short of absolutely clear evidence that the chemical attack in Syria was not Asad’s responsibility (many doubts remain), the United States will attack Syria. Washington and Obama cannot afford to lose international face at this point and the attack will be less about changing the Syrian situation than to ensure continued credibility for the US in all international situations.

President Obama believes he can launch a missile strike, send a message, and demonstrate that his ‘red lines’ are not to be crossed, the theory being that nobody should doubt the United States’ resolve – a clear message to Iran, North Korea and certainly Russia and China. In the short term the main risks are a possible Iranian retaliation in the form of missile strikes from Hezbollah against Israel and possibly from Hezbollah against US warships off the coast of Syria. Iran could also decide to shut down the Strait of Hormuz to block naval traffic; nevertheless, given the inevitable rise in oil prices, the Iranian government, highly in need of foreign currency, will be hard pressed to take steps that would actually hurt its own ability to deliver oil. Ironically, Iran might actually push ahead with nuclear military capability as a consequence of the attack. North Korea is a regime worse than even Asad’s, but nobody dares launching a missile attack or threatening the regime’s survical becasue of a concern that Pyongyang would retaliate with atomic weapons.

Iran’s enemy, Saudi Arabia, meanwhile, would simply ship oil from its Red Sea ports. Russia would certainly be critical, as will China, while the Asad regime will be powerless to react and will probably try to contain US attacks to as few as possible in order to continue fighting the rebels. However, this is the ideal scenario and rarely do ideal scenarios play out.

The main risks of a US attack on Syria to the markets and to international security would become clearer should the US get sucked into a more protracted involvement. At that point the United States and its allies, within the Middle East and beyond, would become vulnerable to guerrilla or asymmetric warfare. Hezbollah could start slowly by resuming the kidnapping campaign that was a hallmark of the Lebanese civil war in the 1980’s. European cities may witness bombings or airliner hijackings while western interests would also be vulnerable to al-Qaida or other Sunni Muslim radicals, which will have gained a stronger footing in the region thanks to the weakening of the Asad regime – one of the main stalwarts against al-Qaida. In general, the US strike will act as a stimulus to increase the level of violence both in the short and the long term. As for the response of the capital markets, consider that most investors, fund managers, stock advisors and financial sector professionals do not understand Middle East or geopolitical matters very well, nor do they have the time to analyze the situation carefully and dispassionately, when they are trading and managing millions of their clients’ money, whether institutional or private.

The markets’ first response, apart from a spike in oil prices to levels unseen since the peaks of 2008, will be a flight away from equities to commodities such as gold, metals, possibly potash and phosphate (the highest prices for potash and food coincided with the highest prices for oil in 2007-2008) and currencies such as the US Dollar, the Euro or the British Pound. In the longer term, if the US manages to stay away, the markets will settle as the situation becomes clearer and the various international actors have ‘played their cards’. However, should the US become involved in Syria in the longer term, it will become embroiled in a quagmire of a vastly larger scale than Iraq at which point the market behavior will be less predictable. The quagmire is a risk to US credibility; there are few chances of success in Syria because, as the Chairman of the Joint Chiefs of Staff, Gen. Martin Dempsey has pointed out, the rebels are no more inclined to care for US interests than the Asad regime is; in fact, the rebels, dominated by al-Qaida affiliated militias, are actual bona-fide enemies of the United States. The resulting insecurity, potential for inter-regional and international involvement (Russia would certainly make Western Europe pay dearly for oil and gas – Germany relies more on Russia than Saudi Arabia now for its hydrocarbon supplies – putting pressure against an budding economic recovery in the Eurozone. A short and highly precise attack, targeting chemical weapons depots in Syria, avoiding civilian casualties (difficult given the risks of poisonous substances proliferating in the air) would be the ideal situation. Asad would be prevented from using them and he would still have the resources to continue to challenge rebel forces, which are in no way friends of the ‘International Community’.

Syria, whose two and a half year brutal civil war has generally favored government or pro-Asad forces, is on the brink of an international and electronically controlled rocket attack. Certain world powers including the United States, France and Turkey (which has the largest NATO force outside of the USA) will be on the frontlines of this remotely controlled (for now) onslaught. British Prime Minister, David Cameron, who has been one of the leading proponents of intervention, was saved from making a big mistake by British MP’s, who have become rather weary of such actions in view of US/UK intelligence failures of Iraq and voted against attacking Syria.

The interventionists have decided, before even hearing what the Chemical weapon inspectors have to say after their investigation of the chemical attack site, that it was President Asad himself who ordered the attack and that therefore his government must be punished. Meanwhile, the United Nations has not accepted that the case against Syria has been proven. Indeed, the Security Council is highly divided. Russia and China vehemently oppose an attack, while the United nations as a whole is bound to be very reluctant to authorize international military action, having learned their lesson from the Iraq invasion, prompted by spurious notions of having to eliminate weapons of mass destruction (WMD) that have yet to be found. The fact that, ten years after being invaded, Iraq has seen some of the worse internecine violence since the 2003 invasion, will only serve to strengthen the resolve of those arguing against an attack on Syria.

The attack, given that even interventionists have agreed that there are no actual ‘good guys’ fighting in Syria, has been sold as being ‘proportionate’ and that it will not be intense enough to overthrow the Syrian government. Surely, an attack would weaken Syria militarily just as government forces had started to regain control over most of the country, now controlling 13 out of 14 provinces. In order to ensure the collapse of the government, given the size and training of the armed forces and highly effective counterattack capabilities (Russia will definitely equip Syria with the SS 300 air defense system), NATO forces would have to become more involved, either by heavily arming and training the rebels (a sorted group the strongest of which are radicals associated with al-Qaida) or in a more direct manner, enforcing a Libya style no-fly zone that would effectively prevent the government from being able to regain territory from the air.

A campaign based on this scenario, given the differences between Libya and Syria and the much stronger level of international support and cohesion for the Libyan campaign, would take much longer than 6-7 months. It would also have significant side effects. Russia and the United States, already in a cold war like relationship, would see tensions rise to the most intense degree since the peak of the Cold War in the early 1980’s. The US would also suffer a loss of influence in Asian matters, because China opposes any attack on Syria and could take advantage of the Washington’s distraction to raise tensions in the East China Sea and South China Sea trying to score points in its territorial struggles with various South East Asian Nations and with Japan. The potential for oil deposits in the East China Sea and in the waters surrounding the – now – Japanese controlled Senkaku/Diayou Islands have raised tensions significantly over the past year. The Philippines has asked for greater US presence the country having grown weary of Chinese attempts to gain sway in its region over the fishing rights and the ownership of oil/gas exploration rights. Therefore, in order to avoid getting distracted from a wide range of global issues and problems, the United States would be well advised to avoid a confrontation in Syria. Should Obama decide that it is absolutely vital for Asad to be punished, the US should intervene in a strictly limited scope and duration. The United States have no allies inside Syria to shoulder the responsibility of rebuilding the Syrian government should the Asad regime collapse. While, Saudi Arabia and Qatar and other Gulf States have been cheerleaders for intervention, none are willing to help Washington on the ground with actual troops. Turkey’s intervention, given its tensions with the Kurds, would not be welcome by Syrian Kurds and Syrians in general, fearing Turkey’s ambitions to absorb Syrian territory.




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  • M.Martin

    Someone once said… “The great rule of conduct for us in regard to foreign nations is, in extending our commercial relations to have with them as little political connection as possible. So far as we have already formed engagements let them be fulfilled with perfect good faith. Here let us stop.” … sounds perfectly logical to me.

    August 31, 2013 - 2:39 PM

  • Jackson

    US strike against Syria will result in increase price in Rare Earths. A revival in the rare earth stocks.

    August 31, 2013 - 10:13 PM

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