The Syrian civil war, for those of you who were living in a pineapple under the sea and don't know, is probably one of the most intense, bloodiest ongoing conflicts in the Middle East.
The unrest began in the early spring of 2011 within the context of the Arab Spring protests, with nationwide protests against President Bashar al-Assad's government, whose forces responded with violent crackdowns. The conflict gradually morphed from mass protests to an armed rebellion after months of military sieges. Due to foreign involvement, the conflict had been called a proxy war between the regional Sunni and Shia powers, most prominently as a proxy conflict between Saudi Arabia and Iran.
The Russian military intervention in the Syrian Civil War began on September 30th 2015, following a formal request by the Syrian government for military help against rebel and jihadist groups. The activities consisted of air strikes primarily in north-western Syria against militant groups opposed to the Syrian government.
Now, you may or may not like the Russian involvement in the war - some may call it amoral or even evil, with Russian airstrikes leading to a multitude of civilian casualties and fortifying Al-Assad's oppressive regime.
Fortunately, we as traders don't have to make moral judgments. All we need to do, from a fundamental analysis perspective, is pay close attention to ongoing world events, utilize rational cognitive processes to assess the effects these events will have, and deduce a conclusion.
In reality, at least regarding the Syrian predicament, we are asking two questions:
1. What will be the outcome of the conflict? or, more specifically, how will the Russian intervention affect it?
2. How will world markets respond?
In the latest issue of the Journal of Strategic Studies, an article named “‘Death Solves All Problems’: The Authoritarian Model of Counterinsurgency” (by Daniel Byman) has an interesting take on the subject.
Scholars and policymakers often wrongly assume authoritarian states will fail to defeat insurgents unless they reform and neglect the distinct ways they wage counterinsurgency. However, in his brilliant analysis, Byman shows that oppressive regimes have a very good record of defeating popular uprising, especially when using excessive force.
To quote political theorist and scholar J. D. Barak -
"The liberal hegemony became too infatuated with the idea of democracy as the only sustainable form of government, that we've forgotten the lessons learned by our ancestors eons ago - fear and power can be equally effective in obtaining obedience, and even more so in dissipating unrest".
Russia's intervention already shows results - in early February 2016, intensive Russian strikes contributed to the success of the army and allied fighters′ offensive operation to the northwest of Aleppo that severed a major rebel supply line to Turkey, and it seems the rebels are suffering major losses.
It seems the answer to our first question is - the Russian involvement will turn the tides in favor of the Syrian government.
How will this affect the markets?
In the chaos created by the conflict, insurgents and terrorist groups flourished. ISIS oil production soared, and the Saudi's used price reduction to strangle the Iranian economy (part of the Syrian proxy war).
Oil prices have been steadily plummeting in the last months - WTI crude oil (NYMEX) took a free fall from 107.26 in July 2014, to 29.42 in February 2016.
A similar trend can be observed for Brent oil (ICE), which went from 113.30 in July 2014 to 32.51 in February 2016.
The re-establishment of order in Syria will directly affect the politics of petroleum.
We can expect a short-term drop in the prices of oil (a continuation of the trend), but in the months to come we will see a recovery - not to the ante-bellum prices, but still a meaningful, steady climb.
Here is the catchy bottom-line - short-term traders should short the oil, long-term traders - go for the long position.
Don't forget to combine this fundamental analysis with a technical one, especially if you are going for a short-term trade.