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Why Syria's Civil War May Spill Over Into Oil Market

Wednesday, 18 Jul 2012 | 12:43 PM ET


The civil war in Syria took a dramatic turn Wednesday as a suicide bomber killed Syria’s Minister of Defense, Daoud Rajha, and brother in law in the heart of Damascus.

Syria's Defense Minister General Dawood Rajiha killed by Syrian Rebel attack.
AFP | Getty Images
Syria's Defense Minister General Dawood Rajiha killed by Syrian Rebel attack.

Many people in the intelligence community say the fighting in Syria has ramifications far beyond that nation’s borders and they could spill into the oil market very quickly. Syria is Iran’s main ally and they believe if Syria falls Iran will increase the speed of its nuclear program.

Ali Nader is a senior international policy analyst focusing on Iran for the Rand Corporation, he said, “Bashar Al Assad's fall will increase Iran's sense of isolation and encirclement.”

Nader added, “Assad's fall may compel Iranian leaders to become more intransigent on the nuclear program motivating them to pursue a nuclear bomb with greater speed.”

Jonathan Rynhold is a political science professor at Israel’s Bar Ilan University. “Assad’s fall in Syria will add pressure on Iran but they are already progressing on the nuclear front as fast as they can go,” Rynhold said.

Many oil watchers believe if Iran is backed into a corner it will act. Some say that could mean Iran becoming more aggressive on the nuclear front, possibly even testing a nuclear device before any sort of potential outside attack could prevent a test.

John Kilduff trades oil for Again Capital. He noted, “if Iran can and does test a nuclear device oil prices would skyrocket. There would be an atmosphere of severe crisis and the fears of a military strike against Iran by the U.S. and/or Israel would stoke oil supply fears and region-wide conflict. We would see oil prices surging to between $150 - $200 per barrel instantly.”

Ray Carbone, President of Parmount Options, noted there would be "an obvious spike in oil but it could be limited based on the U.S. response. I don’t think the market is as short as it was a few weeks ago so short covering could be less pronounced.”

Over the weekend there were reports in the Wall Street Journal that Syria’s military had taken chemical and biological weapons out of storage but it was unclear why or where those weapons were heading.

Syria has one of the world’s largest stockpiles of chemical and biological weapons along with sophisticated missile delivery systems.

At a Pentagon news conference Wednesday Defense Secretary Leon Panetta said the situation in Syria “is rapidly spinning out of control.” He then echoed comments by western leaders calling for Assad to step down to make room for a peaceful transition of power. That was followed by an announcement by the White House it was slapping more financial sanctions on Syria’s leaders.

-By CNBC's Jason Gewirtz

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