How Will the Syria Conflict Affect the Markets?
Without a doubt, the situation in Syria is having an effect on the markets. Specifically, the threat of a US military intervention is affecting the price of oil in particular. For example, oil prices have slowly increased in price since the US government made it known that a military strike on Syria is likely to occur.
Syria’s Effect on the Price of Oil
While Syria produces a modest amount of oil at approximately 180,000 barrels per day, the country’s neighboring countries do produce a significant amount of oil. Thus, there is a certain degree of fear regarding whether these neighboring countries may get involved in the conflict. Further, Syria is close to a number of different oil import points and oil transit routes. For example, Syria is quite near the Strait of Hormuz which transports approximately 17 million oil barrels per day. Additionally, as Russia is an ally of Syria, there is also a concern that Russia may choose to use its oil as a political tool like it has done in the past.
Syria’s Effect on the Stock Markets
As you may already know, the markets tend to reflect investors’ confidence in the economy, and there is a great deal of uncertainty over Syria at the present moment. That said, in the past, what type of effect did military encounters have on the stock market?
Past Studies
Sam Stovall, a Chief Equity Strategist at S&P Capital IQ studied fourteen different military interventions that spanned a total of seventy years. Through his research, he noticed that when a military event is imminent, stocks usually sell off, but then rapidly recover and go back to their original prices. Further, another study conducted by Birinyl Associates looked at US international bombing campaigns over the past twenty years. He discovered that in four out of five bombing campaigns, stocks in the S&P 500 index usually sell off in the two weeks leading to the actual bombing campaign. However, after a month or so, the stocks recovered their losses and went on to increase in value.
Thus, perhaps investors can see the decrease in the stock market as an opportunity to buy stocks at a slightly reduced price. After all, when one looks at this situation from a historical perspective, it is really unlikely for the markets to bottom out due to the uncertainty in Syria.
And speaking of Syria, Assad and Kerry, here’s a pic from 2009 when they were buddies. They met 5 times from 2009-2011.