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.”

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