29th August 2013
The Syrian crisis is unlikely to derail the global recovery because the scale of the intervention is likely to be much smaller than either the first or second gulf wars says Keith Wade, Chief Economist at Schroders.
He also questions whether a big spike in Brent crude prices would be warranted given that Syria is not critical to global supplies.
In a note issued this week, Wade says: “Concerns about the conflict in Syria have escalated following the condemnation of the Assad regime by the US and EU in the wake of the gas attack in Damascus. Intervention now seems likely and the oil price has jumped. The question is whether this will derail the global recovery? In the run up to the first Gulf war in 1990-91 US growth stalled as oil prices spiked and uncertainty caused companies and households to delay investment plans.
“At the risk of sounding complacent, this time should be different. The first and second Gulf wars were on a much larger scale than the Syrian conflict with the clear intention of sending in troops. This time, intervention is likely to be limited to the firing of cruise missiles. The experience of the past twenty years has made the public and politicians sceptical of what military involvement can achieve.”
Yet Wade says that the recent spike in oil prices will be unhelpful as it will add to inflation and this can act like a tax on consumers.
He says: “The increase seen so far is not sufficient to cause a significant problem with US gasoline prices which are still within their recent trading range and lower than a year ago. Should Brent crude rise another $10/ barrel to $125 there would be more of a problem for global activity, but Syria is not critical enough to global energy supply to necessarily warrant this.”
“Looking at commodities more generally, the overall picture is benign as agriculture prices are in retreat following strong harvests. In terms of confidence, the impact may well depend on how Syria’s allies in Russia and Iran react. Should they choose to escalate tensions then there might be a greater pull back in spending as uncertainty rises.”