As the world awaits the decision of whether the US will intervene in Syria’s bloody civil war, the price that country is paying is growing day by day.
Hundreds of thousands of people have been slaughtered and cities that were once cultural capitals have been annihilated. Inflation is at triple digits, GDP has literally halved and the jobless rate has quintupled.
But the key question today, and the one that President Barack Obama has brought to US Congress, is whether military-led intervention will serve as an overdue punishment and warning to Bashar Al Assad and his regime, or whether it will simply deal a final blow to the country as the Syrian regime’s allies retaliate aggressively at the expense of innocent civilians.
While it is the humanitarian cost that is the number one consideration here, the economy, even in its current state, is still a lifeline for thousands of Syrians. The global economic impact of an escalation of the civil war is also a factor that is being mulled because of the ripple effect on global markets.
Based on interviews with half a dozen senior economists focused on Syria, Rebel Economy has put together a list of the key economic impacts of US military-led intervention in Syria:
Higher Oil Prices
Although Syria is not a major oil producer, many expect the oil price to spike, mainly because Western intervention in Syria is likely to lead to a bigger regional conflict involving major oil producers and two strong allies to the Assad regime, Iran and Russia.
More than two years into Syria’s civil war, Assad is settling his bills for Russian arms orders to try to shore up ties with his most powerful ally, this Reuters investigation reveals.
Oil prices have already hit an 18-month high, but if the civil war escalates with military strikes the oil price is expected to spike further, playing havoc with global markets as the cost of production soars.
Some oil analysts are estimating that Brent Crude could rise above $120 per barrel as a result of a military strike, while some, including those at Société Générale, see prices climbing to $150 per barrel in the short-term.
A possible spillover into Iraq, OPEC’s second largest producer, would cut the volume of oil from the global market and raise prices. Iraq’s Kirkuk oil pipeline has already been targeted six times in August. This has forced Iraq to cut oil shipments from pipeline by more than half for September.
Foreign Currency Troubles
Pressure on foreign reserves will grow as energy prices rise, especially in countries dependant on imports. Some countries near to Syria are particularly vulnerable to foreign currency pressures, including Lebanon and Jordan whose currency reserves stand at near 10-year lows. This means they could have trouble covering the cost of imports if the conflict in Syria escalates.
And the lower reserves fall, the more currency depreciation is possible and the more pressure on imports.
In Syria, in the days following the US’ announcement of possible military intervention, the Syrian pound has taken a beating on the black market.
Here’s Professor Steve Hanke’s update. He’s a professor of Applied Economics at Johns Hopkins University:
The Syrian pound (SYP) has lost 24.07% of its value against the US dollar in the two days since Kerry’s announcement. Currently, the exchange rate sits at 270 SYP/USD, yielding an implied annual inflation rate of 291.88%. In countries with troubled currencies, there is no better measure of economic expectations than the black-market exchange rate. The recent deterioration in the SYP/USD exchange rate clearly indicates that Syrians are anticipating Western military intervention in the near term.
Trade Routes Disrupted
Analysts say it’s unlikely for key ports in the Gulf or cargo traffic through the Suez Canal to be disrupted as a result of military intervention, however perception is king.
Even the threat of increased disruption could send insurance rates skyrocketing and delay the passage of goods passing through Lebanon’s Port of Beirut.
Aside from the impact on the oil markets and the major oil producers tied to Syria, many other countries in the region could see an adverse impact on their economies because of Syrian strife. Turkey for example, already suffering from a hard to manage current account deficit, could see it widen as political instability weakens the lira and raises oil prices.
And of course Israel has threatened aggressive action if attacked by Hezbollah or the Syrian army, which could impact both Lebanon and other countries in the region if the conflict escalated fast.
Overstating the impact?
Despite all the above pointing to an Armageddon scenario, some still say that an intervention will do no more than dent the Syrian regime.
Samer Abboud, a visiting scholar at the Carnegie Middle East Center and political economist, says the “regime is so boxed in economically and any major economic effects have already occurred – sanctions, the disrupting of production and trade routes, and so on – that the “limited and narrow” strikes will not be as debilitating as we may think”.
For one, though we mentioned above the impact of trade routes, in fact local reports from Lebanon suggest the Port of Beirut is doing much better than expected. The Daily Star reports:
About 2,200 such vehicles enter the port daily, twice the number at the start of the year, and the multicolored containers are stacked five high rather than three. While Lebanon’s growth has suffered during the two-and-a-half-year conflict next door in Syria, port traffic has risen as traders avoid risky overland transit. Domestic demand is also increasing as Lebanon absorbs 1.2 million Syrians fleeing their war-torn country.
Unlike Libya, which had little to no foreign support, Syria has the powers of Iran and Russia behind it arming it and financing the regime. The West’s reluctance and delay to intervene is also ultimately buying more time for the Syrian regime to replenish stocks, move somewhere new and high military assets.
It has also weakened the West against Syria, allowing the regime and its allies to calculate that any intervention will be short and not a major long-term threat, according to Abboud:
Regime allies are unlikely to cease financial and material support in the aftermath of intervention, regardless of whether the regime is perceived to be losing ground on the battlefield. Intervention will only strengthen the commitment and resolve of regime allies and supporters, particularly Iran and Hezbollah. If they can withstand the intervention, then the West’s only major military option will have been confronted.
What is clear is that even though the question of intervention is complicated and mired with complexities, the longer the West waits to decide, the more time the Syrian regime has to retaliate with strength.