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Ongoing Mid-East Tension To Drive Oil? Here's A Bigger Concern

By Ellen R. Wald, Ph.D.CommoditiesApr 12, 2017 06:21AM ET
www.investing.com/analysis/ongoing-mid-east-tension-to-affect-oil-here's-a-greater-concern-200182366
Ongoing Mid-East Tension To Drive Oil? Here's A Bigger Concern
By Ellen R. Wald, Ph.D.   |  Apr 12, 2017 06:21AM ET
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Immediately after President Trump announced on Thursday night that U.S. warships in the Mediterranean had fired 59 Tomahawk cruise missiles at a Syrian airbase, oil futures rose by 2%. By the time the market opened the next morning, however, prices had gradually returned to their former levels, although some volatility remained throughout the day.

The price spike reflects the reality that geopolitical events, especially those in the Middle East, still effect the price of oil even when those events have no relation to oil fundamentals. This seems to be founded on two speculation-based factors:

  1. A history of military events in the Middle East causing disruptions in oil supplies (the 1973 Arab-Israel War, the Iran-Iraq War, the First Gulf War); and
  2. Unexpected or poorly forecasted events cause unfounded fears in markets unrelated to actual events.

In truth, airstrikes in Syria were not a cause for concern in the oil market. Syria has been mired in internal strife for over four years and there has been no impact on oil supply or demand. Syria is not a major oil exporter, nor have the political instability and military activities there impacted other regional oil producers. In fact, the civil war in Syria is intricately connected to the war with IS in neighboring Iraq, but even that fighting in one of the world’s largest oil producers has not caused serious supply disruptions for the global market.

The threat of overall supply and transportation issues from Mideast fighting is minimal at this stage. Only a major conflagration would imperil tanker passage through key choke points like the Suez Canal or the Straits of Hormuz in the Persian Gulf. (Note, the Suez Canal stayed essentially open through two successive Egyptian coups this decade.) Access to the Suez Canal is well guarded by U.S. allies Saudi Arabia and Egypt. Moreover, the U.S. maintains naval forces in the Persian Gulf as a strong deterrent to conflict.

It is far more likely that tensions in the South China Sea will disrupt oil and natural gas shipments to Asia than escalation of longstanding and ongoing Middle East conflicts will cause disruptions in oil supplies. The sudden price spike in oil futures that occurred after the U.S. strike on Syria is an echo of a bygone era in the oil market, not an indicator of future supply disruptions.

Ongoing Mid-East Tension To Drive Oil? Here's A Bigger Concern
 

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Ongoing Mid-East Tension To Drive Oil? Here's A Bigger Concern

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Do Deikins
DoRight Apr 13, 2017 10:45PM ET
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Oy vey! Disruption in the South China Sea. Good for Russia far east and WTI to Asia, perhaps? And would make oil cheaper for India and Europe, perhaps? Not so good for Africa, ME, and Australia. Good article in Forbes, though the graphic is a little out-dated (2014). It does emphasize the importance of the Straits of Malacca. Of course, they are not only economically important, but also are one of the most beautiful bodies of water in the world.
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Stanley Emmy
Stanley Emmy Apr 13, 2017 9:11PM ET
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Thank you Ellen....Stanley Emmy
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Brad Smith
Brad Smith Apr 13, 2017 6:02PM ET
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Judging by the overall market response to the Syria strikes, the movement points towards the Syria strikes being mostly contained and that there won't be any escalations from it. This means there is even less chance of a disruption to the oil supply as this conflict won't be expanding outside of Syria any time soon.
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Tony Mahomi
Tony Mahomi Apr 12, 2017 8:38AM ET
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The critical situation in the whole Middle East , is very strong underrated ! Very surprise that this not affect the crude! The other point is , that all the Oil produced starting to have less Reserve due the low investment in activate Oil fields, already the CEO of IAE speaks that it will be a big problem starting 2020 , if the actual situation not change it, the World Oil supply will have serious problems !
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Oke Trader
Oke Trader Apr 12, 2017 8:22AM ET
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Please choose ; geopolitic actions created to fight technical, or.... , technical created to fight geopolitic actions?
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Darryl Parvin
Darryl Parvin Apr 12, 2017 8:19AM ET
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Syria's demise is part of the Greater Israel project. Israel regards Syria as an "invented nation" and according to their magic book, all that land belongs to them.
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Tony Muse
Tony Muse Apr 12, 2017 8:19AM ET
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LOL, when the State of Israel is a product of man's invention in itself. Ironic, isn't?
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Tony Muse
Tony Muse Apr 12, 2017 7:51AM ET
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With the end game being the construction of the Qatari Pipeline through Syria, it would actually eventually lower the price of transporting oil from the middle east into Europe.
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SWK swk
SWK swk Apr 12, 2017 7:51AM ET
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Problem. The war within Syria isn't going away any time soon. If Assad is replaced what or who takes his place. Could be worse like Egypt before their civil coup.
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Tony Muse
Tony Muse Apr 12, 2017 7:51AM ET
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Yes sir. The void will be filled with a huge mess, Iraq is a prime example.
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