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Middle East

Middle East tensions felt on oil markets

Elastic at the best and worst of times, the price of oil has been rising in keeping with tensions in the Middle East. DW looks at the possible effects of the Syria conflict on the global energy market.

Reacting to Tuesday's news at the Syrian government's stated willingness to accept a Russian proposal to hand its chemical weapons to the international community, crude oil futures dropped almost three percent.

But with the possibility of US-led military intervention not entirely ruled out, and with the confict in the Middle East country far from resolved, prices rose again later, and they are likely to remain around the $110 (82€) mark - at least for the foreseeable future.

Although Syria itself is not a major oil exporter - prior to the conflict it was producing some 500,000 barrrels a day, largely for domestic use - its geographical and geopolitical positions lend it a strategic importance that could bring all manner of scenarios to life.

Some analysts attribute the current market volatility to the possibility that other countries such a Saudi Arabia, Qatar, Iran and Russia could be dragged into the fighting. Others take the line that the Syrian confict is a proxy war between Iran and Saudi Arabia, which are arming Bashar al-Assad and the rebels respectively.

Pipeline deal

Iran shares the South Pars/North Dome gas field with Qatar.

Iran shares the South Pars/North Dome gas field with Qatar.

In 2011, prior to the unrest that evolved into the current civil war, Syria, Iran and Iraq singed a deal under which a gas pipeline will run through all three countries, Southern Lebanon and under the Mediterranean into Europe.

William Engdahl, Frankfurt-based geopolitical consultant and author of "Myths Lies and Oil Wars," says Qatar, which shares the largest gas field on the planet - South Pars/North Dome - with Iran, is threatened by Syria's union with its two co-signatories and has consequently paid mercenaries bilions to "go into Syria to create terror and violence."

He believes US military action could ignite tensions between Iran, Iraq, Syria and Hezbollah in Lebanon on the one side and Saudi Arabia, Turkey and Qatar on the other. "Were that to happen, minority Shi'ite populations in Saudi Arabia could sabotage the world's largest oil refinery, Ras Tanura, and Saudi oil flows," Engdahl told DW.

He added that the Suez Canal could be disrupted and that Iran has the ability to close the Strait of Hormuz, which would result in a "horror scenario for world oil prices."

Too many variables

Concerns over renewed unrest in Egypt are also feeding into the current cost of crude, as is the decline in production in Libya, Iraq, Nigeria and Southern Sudan brought about by workers' strikes and pipeline sabotage.

A ship on the Suez Canal in Egypt

Any disruption to traffic on the Suez Canal could push oil prices up higher

Edgar Van der Meer, analyst with London energy intelligence company, NRG Expert, says that although the market sees wars and conflicts coming and builds in contingencies, it is impossible to foresee the effects of all variables.

"Any military action would see a spike in prices, but they should quickly return to current levels," he said. "How Syria's allies and other countries in the region react will have a more profound influence on the longer term prices."

Van der Meer believes the real cause for concern would be the energy supply from Russia to Europe if they were to become involved in military action against Syria.

Economic effects

And while that possibility still hovers over the Middle East, the current price of crude is affecting global economic recovery.

Higher costs make for winners and losers. Russia and Saudi Arabia, who could make up any production shortfall, are among the former, while importers such as China, India, Brazil and South Africa, fall into latter category.

Some experts claim that every $10 rise sets economic growth back to half a percentage point, but Van der Meer says the global economy can cope better with the kind of spikes caused by Middle East tensions over the past years, than it could with Western military intervention in Syria.

"These high prices do have an effect on the recovery efforts in many economies, however, the cost of armed combat itself would have more of an effect on the bottom line."

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