Seismic events in Syria will not affect oil markets. Here’s why

If you needed confirmation that global oil markets are behaving with little if any reference to geopolitical risk in the Middle East, it came at the weekend.

The sudden downfall of the Assad dynasty in Syria, after more than half a century in power, warranted headline adjectives such as “seismic” and “tectonic”, but the price of a barrel of Brent crude flickered up just over 1 percent to $72 when markets opened in Asia on Monday morning. 

That barely registered on the year-to-date graph, on which prices have been down by more than 5 percent, locked for months now towards the lower end of the $70-$80 range.

On one level, that is not surprising. Syria does have some oil – capacity to produce around 450,000 barrels per day is usually cited – but it has been a footnote in global markets for many years because of civil war and the resulting infrastructure and investment deficits.

The question to which the oil markets really wanted an answer after the downfall of Assad was: does this event take us nearer to, or further away from, a regional conflagration?

It has become an accepted truth that the only regional event that will really get the oil price soaring again is the closure of the Straits of Hormuz, through which about 20 percent of the world’s crude passes.

But possible closure of the Straits depends on so many imponderables. Does Israel regard the passing of one of its regional enemies as an opportunity to capitalise on Iranian weakness and launch an attack that could threaten the Straits? Or an occasion to pause and take another win? Will Iran use the setback as an opportunity to regroup, or to lash out at Israel? 

Nobody knows yet.

It may be entirely unreasonable to do so, but make the assumption for a moment that the end of Assad prompts a period of reflection in the region and a lowering of tensions while Syria sorts itself out.

In these circumstances, there are other factors at play in global markets that will affect oil prices in the coming months. Number one is President-elect Donald Trump.

He has promised to “Drill, baby, drill” in US shale fields and his choice for treasury secretary, Scott Bessent, has said he wants to add 3 million barrels per day to American output. There is much doubt whether US oil companies have the capacity or the desire for such a dramatic increase, but of course a leap in production would be a huge drag on global prices.

Trump’s preference for import tariffs as a tool of domestic economic policy will also affect global trade activity and economic growth, reducing demand for crude.

Meanwhile, there has been nothing to show that China – the driving force behind oil demand growth for the past three decades – is going to pull itself out of the economic doldrums and ride to the rescue of the oil price.

Traders have pointed out that Sunday's decision by Saudi Aramco to cut its official selling price to established buyers in Asia (China being by far the biggest) to the lowest level for four years was a telling sign of weak future demand. EV-crazy China is nearing its peak oil import level.

Nearly all the oil experts are now forecasting a surplus in supply next year, which helps explain why Opec+ decided to hold off once again on restoring 2.2 million bpd to global markets at last week's meeting.

That resumption is now scheduled for April 2025, to run until September 2026, in a clear signal that Opec+ is also wary of oil demand into next year. Some experts believe that even April will be too soon to turn the taps back on – and question whether markets will ever be ready to take back the crude that was originally cut in reaction to the pandemic.

Oil traders are fixed on the uncertain threat of a Middle East cataclysm, the Trump presidency, Chinese demand and Opec+ policy.

For them, the historic events in Syria make for fascinating reading, but do not really affect the day job.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia

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