Syria crisis: Why are crude prices on a boil?

Syria's proximity to key oil pipelines is a cause for major concern if US chooses to strike

Global equity markets have been rattled by the prospects of an attack on Syria becoming a strong possibility with every passing hour. If reports are to be believed, the US Congress has backed US President Barack Obama’s proposal to strike the Middle Eastern nation.

While the equity markets, especially India, went into a tailspin at the prospects and what it would imply for the domestic economy, the move has ignited global crude oil prices that touched $115-a-barrel in trade on Tuesday.

So, what does an attack on Syria mean for the global crude oil prices?

 

Syria’s strategic location and proximity to key oil pipelines that could possibly disrupt oil supplies to the rest of the world in case of a full-fledged war is the main reason why crude oil prices have been on an upward spiral.
 

Syria is the only significant crude oil producing country in the Eastern Mediterranean region, which includes Jordan, Lebanon, Israel, the West Bank, and Gaza, reports suggest.

The Mediterranean Sea sees around 370,000,000 tonnes of oil transported annually, according to reports, with around 250-300 oil tankers crossing the Sea every day. An outbreak of a full-scale attack on the nation could lead to a disruption in oil supplies via the Mediterranean Sea and send the prices to astronomical levels.

Syria's known oil reserves are mainly in the eastern part of the country in the Deir ez-Zor Governorate near its border with Iraq and along the Euphrates River. However, the Syrian link (Aqaba–El Rehab section) of the Arab Gas Pipeline (1,200 kms) that exports natural gas is also vital and also is the largest (390 kms).

Also in close proximity is the Suez – Mediterranean pipeline (Sumed pipeline) that has a capacity of 2.5 million-barrels-a-day and provides an alternative to the Suez Canal from transporting oil from the Persian Gulf to the Mediterranean.

However, one must note that the unrest can see Saudi Arabia increase its production thereby cushioning the impact of any loss due to disruption. Reports peg the Saudi Arabian capacity to produce crude at 9.8 million barrels per day.

Economic sanctions

Syria’s economy, according to reports, was primarily based on agriculture and oil that together accounted for one half of the country’s gross domestic product (GDP).

Since the outbreak of Syrian civil war in March 2011 that demanded the resignation of President Bashar al-Assad, whose family has held the presidency in Syria since 1971, as well as the end of Ba'ath Party rule, which began in 1963, economic sanctions by  major countries like the United States, European Union (EU), Japan among others has cast its shadow on the economy.

According to OPEC’s Annual Statistical Bulletin 2013 released in July, Syrian Arab Republic has 2,500 million barrels (2,500,000,000 barrels) of proven conventional crude oil reserves (around 0.17% of World proven crude oil reserves) in 2012 with 27 active rigs. Crude oil production, however, dropped 45.4% in 2012 to 182,100 barrels per day, as compared to 2011.