A Syria Strike Won’t Spark an Oil Crisis

Experts explain why Saudi Arabia, North Dakota, and even Iran make a crisis “extremely unlikely.”

Oil pumps work at sunset Monday, Jan. 2, 2012, in the desert oil fields of Sakhir, Bahrain, in the Persian Gulf. Iran test-fired a surface-to-surface cruise missile Monday in a drill its navy chief said proved Tehran was in complete control of the strategic Strait of Hormuz, the passageway for one-sixth of the world's oil supply. 
National Journal
Patrick Reis
Sept. 5, 2013, 10:08 a.m.

It’s the night­mare scen­ario: The United States strikes Syr­ia, con­flict spreads throughout the Middle East, the re­gion’s oil ex­ports slow to a trickle and, soon enough, Amer­ic­ans are lin­ing up to buy $9-per-gal­lon gas as their eco­nomy slides back in­to re­ces­sion.

It’s a scen­ario that’s get­ting plenty of play as Con­gress weighs Pres­id­ent Obama’s re­quest for a strike on Syr­ia. Former Re­pub­lic­an pres­id­en­tial can­did­ate Newt Gin­grich pivoted from the pos­sib­il­ity of an en­ergy crisis to call on Con­gress to force ap­prov­al of the Key­stone XL pipeline, while crude-oil prices have crept up this week, in part be­cause of fears of Syr­ia-in­duced short­age.

But for all the talk of a re­gion­al crisis, few — if any — prom­in­ent voices are ex­plain­ing how mis­sile strikes against Bashar al-As­sad would trans­late in­to wide­spread oil shut­downs.

And that’s for good reas­on: Re­gion­al ex­perts agree that the Middle East’s ma­jor en­ergy powers — U.S. al­lies and en­emies alike — com­bine to make the night­mare scen­ario more of a spook story than any­thing else.

Here’s a look at those powers.

Syr­ia

If Syr­ia’s civil war hasn’t already sparked an en­ergy crisis, U.S. in­ter­ven­tion isn’t go­ing to make a dif­fer­ence, says Guy Caruso, George W. Bush’s chief of the U.S. En­ergy In­form­a­tion Ad­min­is­tra­tion.

It has been two years since Syr­ia has sup­plied oil to the glob­al mar­ket, be­cause in­ter­na­tion­al sanc­tions shut off the As­sad re­gime’s ex­ports shortly after the start of Syr­ia’s civil war.

And even when Syr­ia was send­ing sup­plies, it was hardly a ma­jor play­er, as it pro­duces only 0.4 per­cent of the world’s oil sup­ply, much of which was con­sumed in­tern­ally.

Any price ef­fects from Syr­i­an sup­plies are “already baked in­to the mar­ket,” Caruso said. “It’s al­most im­possible to as­sign any value to that.”

Ir­an

If there’s a wild card fol­low­ing a po­ten­tial U.S. strike on Syr­ia, it’s Ir­an.

Ir­an’s lead­er­ship has sup­por­ted As­sad throughout the civil war and has shown no signs of with­draw­ing that sup­port, even though the As­sad re­gime is fa­cing evid­ence-backed ac­cus­a­tions of us­ing sar­in gas to kill 1,400 of its own ci­vil­ians.

And al­though years of West­ern sanc­tions have crimped Ir­an’s oil ex­ports, it still ex­ports about 1.5 mil­lion bar­rels per day of crude oil. Much of that oil is con­sumed by China and In­dia — and none by the United States. But be­cause oil prices are based on glob­al sup­ply, if Ir­an shut off the spig­ot and its sup­plies went un­re­placed on the glob­al mar­ket, Amer­ic­ans would see pump prices climb.

There’s a dark­er scen­ario as well: Ir­an holds one shore of the Strait of Hor­muz, a mari­time choke point at the mouth of the Per­sian Gulf that, at its nar­row­est, is only 21 miles wide. If Ir­an could some­how block ex­ports from the strait, either with mines or dir­ect strikes, it could shut the path that about one-fifth of the world’s total oil con­sump­tion takes to the mar­ket.

But Ir­an is ex­tremely un­likely to shut off its own sup­plies, and even more un­likely to tamper with the strait, says Alireza Nader, a seni­or policy ana­lyst and Ir­an spe­cial­ist at Rand.

“I think Ir­an would only block the strait un­der very dire cir­cum­stances, such as a dir­ect at­tack on Ir­a­ni­an soil or a full em­bargo,” Nader said.

Ir­an’s eco­nomy is in dis­ar­ray, and what little help it is get­ting comes in ex­change for the coun­try’s already crimped ex­ports. Shut­ting those ex­ports off com­pletely could put the coun­try in eco­nom­ic free fall. Bey­ond ex­ports, the strait is also the coun­try’s main source of im­ports, in­clud­ing the con­sumer goods the cit­izens of Ir­an are clam­or­ing for.

For new Ir­a­ni­an Pres­id­ent Has­san Rouh­ani — who thus far has sought to set a more mod­er­ate tone to­ward the West than his pre­de­cessor — send­ing his own people deep­er in­to poverty would be polit­ic­ally per­il­ous in the ex­treme.

And tam­per­ing with ex­ports through the Strait of Hor­muz would set Ir­an up for a mil­it­ary struggle with the West — as well as with a host of Ar­ab states des­per­ate to reap the rev­en­ue of their own ex­ports — that the Per­sian na­tion could not win.

“Ul­ti­mately, Ir­an would be the loser in any mil­it­ary struggle,” Nader said. “I just don’t think a strike on Ir­an is go­ing to pre­cip­it­ate that.”

Ir­aq

A sec­ond­ary threat comes from Ir­aq, whose oil ex­ports — a dec­ade after the U.S.-led in­va­sion — are, at about 2 mil­lion bar­rels a day, again an im­port­ant part of the glob­al sup­ply..

But those sup­plies are con­stantly threatened by the Ir­aq’s hair-trig­ger in­tern­al ten­sions between Sunni and Shiite Muslims, who — along with a host of oth­er fac­tions — have been con­stantly grap­pling for power since the 2003 U.S.-led top­pling of Sad­dam Hus­sein.

A U.S. strike against As­sad’s re­gime could in­flame those ten­sions, spark­ing con­flict in which any num­ber of groups might seek to dam­age the wells and pipelines that take Ir­aq’s oil to mar­ket, Caruso said.

But the im­pacts of sec­tari­an vi­ol­ence in Ir­aq would have lim­ited im­pact on the world mar­ket, said Caruso, who now works as a seni­or ad­viser at the Cen­ter for Stra­tegic and In­ter­na­tion­al Stud­ies.

“Pipelines get re­paired pretty quickly,” he said. “How much they could do is ques­tion­able.”

And in the event of a small, short-term dis­rup­tion such as the Ir­aqi scen­ario, there’s reas­on to be­lieve that an­oth­er coun­try — one that leads the world in oil ex­ports — could make up the dif­fer­ence.

Saudi Ar­a­bia

In a time of rising oil de­mand and tight sup­plies, few coun­tries have ca­pa­city to spare. Saudi Ar­a­bia is the ex­cep­tion.

The world’s largest oil ex­port­er, Saudi Ar­a­bia’s total pro­duc­tion has hovered around 9 mil­lion or 10 mil­lion bar­rels per day over the past year, Caruso said. And though there’s no con­sensus fig­ure, ana­lysts widely be­lieve Saudi Ar­a­bia could ramp up pro­duc­tion to about 12 mil­lion bar­rels per day should its rulers choose to.

That ad­di­tion­al 2 mil­lion to 3 mil­lion bar­rels could off­set a com­plete shut­down of Ir­aqi ex­ports, and even go a long way to­ward keep­ing crude prices stable in the event of a shut­down from both Ir­an and Ir­aq — a scen­ario that, again, the ex­perts see as an ex­treme long shot.

Fur­ther­more, the rul­ing Saudi re­gime is no friend to As­sad. The coun­try’s for­eign min­is­ter this week­end said Saudi Ar­a­bia would back a U.S. strike against the As­sad re­gime.

And there’s re­cent pre­ced­ent for Saudi Ar­a­bia filling glob­al sup­ply gaps, such as when the king­dom ramped up pro­duc­tion to off­set fall­ing ex­ports from Libya dur­ing the civil war that ul­ti­mately toppled Muam­mar el-Qad­dafi.

North Dakota

The oil-pro­duc­tion boom in North Dakota and oth­er states has gone a long way to­ward in­ocu­lat­ing the United States against for­eign oil shocks, Caruso said.

Those tech­no­lo­gies in­clude new meth­ods for get­ting us­able oil from shale, as well as from drilling new meth­ods of loc­at­ing re­serves and new tech­no­lo­gies to drill down to them.

“We’re up about 2.5 mil­lion bar­rels per day than we were two years ago,” he said. “That’s not in re­sponse to the Middle East, it’s in re­sponse to new tech­no­logy here. If U.S. and Ca­na­dian pro­duc­tion from these new tech­no­lo­gies had not been there, we’d see a much high­er price right now.”

So, What Will Hap­pen?

If Amer­ic­ans shouldn’t start lin­ing up at the gas sta­tion now, what ef­fects on gas prices should they ex­pect in the event of a U.S. strike on Syr­ia?

Not noth­ing, but not too much, says Mo­hammed Akacem, an eco­nom­ics pro­fess­or at the Met­ro­pol­it­an State Uni­versity of Den­ver.

For Akacem, the most plaus­ible scen­ario is one in which prices might rise sharply as traders hedge against the pos­sib­il­ity of a crisis, however re­mote it may be, but he says any in­creases will quickly dis­ap­pear after a strike.

That was the case in 1991, dur­ing the first war in Ir­aq, Akacem said. Prices spiked briefly as Sad­dam burned oil wells in an ef­fort to de­ter the U.S. mil­it­ary, but Saudi Ar­a­bia stepped in and prices were back down even be­fore the war ended, Akacem said.

“I think you might see a small spike,” he said. “But then, when the world real­izes ‘Gee, everything is still there,’ then we go back to busi­ness as usu­al.”

What We're Following See More »
TAKING A LONG VIEW TO SOUTHERN STATES
In Dropout Speech, Santorum Endorses Rubio
1 days ago
THE DETAILS

As expected after earlier reports on Wednesday, Rick Santorum ended his presidential bid. But less expected: he threw his support to Marco Rubio. After noting he spoke with Rubio the day before for an hour, he said, “Someone who has a real understanding of the threat of ISIS, real understanding of the threat of fundamentalist Islam, and has experience, one of the things I wanted was someone who has experience in this area, and that’s why we decided to support Marco Rubio.” It doesn’t figure to help Rubio much in New Hampshire, but the Santorum nod could pay dividends down the road in southern states.

Source:
‘PITTING PEOPLE AGAINST EACH OTHER’
Rubio, Trump Question Obama’s Mosque Visit
1 days ago
WHY WE CARE

President Obama’s decision to visit a mosque in Baltimore today was never going to be completely uncontroversial. And Donald Trump and Marco Rubio proved it. “Maybe he feels comfortable there,” Trump told interviewer Greta van Susteren on Fox News. “There are a lot of places he can go, and he chose a mosque.” And in New Hampshire, Rubio said of Obama, “Always pitting people against each other. Always. Look at today – he gave a speech at a mosque. Oh, you know, basically implying that America is discriminating against Muslims.”

Source:
THE TIME IS NOW, TED
Cruz Must Max Out on Evangelical Support through Early March
1 days ago
WHY WE CARE

For Ted Cruz, a strong showing in New Hampshire would be nice, but not necessary. That’s because evangelical voters only make up 21% of the Granite State’s population. “But from the February 20 South Carolina primary through March 15, there are nine states (South Carolina, Alabama, Arkansas, Georgia, Oklahoma, Tennessee, Kentucky, Mississippi, and North Carolina) with an estimated white-Evangelical percentage of the GOP electorate over 60 percent, and another four (Texas, Kansas, Louisiana, and Missouri) that come in over 50 percent.” But after that, he better be in the catbird’s seat, because only four smaller states remain with evangelical voter majorities.

Source:
CHRISTIE, BUSH TRYING TO TAKE HIM DOWN
Rubio Now Winning the ‘Endorsement Primary’
1 days ago
WHY WE CARE

Since his strong third-place finish in Iowa, Marco Rubio has won endorsement by two sitting senators and two congressmen, putting him in the lead for the first time of FiveThirtyEight‘s Endorsement Tracker. “Some politicians had put early support behind Jeb Bush — he had led [their] list since August — but since January the only new endorsement he has received was from former presidential candidate Sen. Lindsey Graham.” Meanwhile, the New York Times reports that fueled by resentment, “members of the Bush and Christie campaigns have communicated about their mutual desire to halt … Rubio’s rise in the polls.”

Source:
ARE YOU THE GATEKEEPER?
Sanders: Obama Is a Progressive
1 days ago
THE LATEST

“Do I think President Obama is a progressive? Yeah, I do,” said Bernie Sanders, in response to a direct question in tonight’s debate. “I think they’ve done a great job.” But Hillary Clinton wasn’t content to sit out the latest chapter in the great debate over the definition of progressivism. “In your definition, with you being the gatekeeper of progressivism, I don’t think anyone else fits that definition,” she told Sanders.

×