As the Obama administration decides how to respond to Syria‘s use of chemical weapons on civilians, the prospect of a conflict there is already affecting the economy.
Stock prices fell on Tuesday, and oil prices rose as the U.S. considered its response to last week‘s attacks. Dr. Mike Hicks with Ball State‘s Center For Business and Economic Research says the trend could continue depending on the length of any Western military operation in Syria.
He says tose are all potentially bad outcomes that argue for a very limited, very brief engagement, if any at all. Crude oil prices rose to an 18-month high of almost $110 per barrel on Tuesday, and Hicks says the reason is two-fold. “Obviously, there are concerns about supply interruptions and concerns over whether or not the conflict will extend into the Persian Gulf,” Hicks says, adding that there isn‘t much oil traffic through Syria itself.
Oil also tends to move higher when stock prices fall, “simply because the uncertainty involving the ultimate outcome requires many investors to hold cash, so they retreat out of the market to see how things shake out.” Hicks says it is easier for investors to obtain cash for commodities than from stocks.
Many economists are worried about the government of Syrian president Bashar al-Assad using chemical weapons again within Syria‘s borders, or perhaps launching an attack against a neighboring country.
He says that would have big spillovers into oil prices, which would do all kinds of bad things to our economy; slow the economy, stop tourism, and cause consumers to shift their income from other areas into fuel.