Economic Forecasts


The Fallout From a U.S. Strike on Syria

For the Middle East and for oil prices, the month of September will be critical.

Once missiles fly, the odds of a wider conflict grow. We don’t see the worst case playing out, though deeper U.S. involvement and a big surge in oil prices can't be ruled out altogether.

But don’t bet on a quick resolution. Swift, meaningful changes in Syria will be difficult, if not impossible, to achieve under any circumstances.

See Also: The White House's Case Against Syria

The U.S.’ role will go beyond missile strikes, as there’s a good chance that follow up bombing raids and missiles will be needed to deter further atrocities by Syria’s Bashar al-Assad. Initial American strikes will stop short of removing him from power, but that may come later if circumstances don’t change.

Limiting the scope of fighting won’t be easy — and not just in Syria. Expect Hezbollah to hit Israel from southern Lebanon and for Israel to retaliate over a period of weeks. Iran is sure to rattle its sword, as well, but its rhetoric about attacking Israel is just a bluff. Tehran knows that if it strikes, Israel is sure to go straight for Iran’s nuclear facilities, no matter what the U.S. says.

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Heightened conflict in Syria alone won’t drive oil prices up. That country's daily output is a drop in the bucket compared to global output of about 90 million barrels a day. The real threat is if the conflict spills over into key oil producing countries such as Iraq, Saudi Arabia and Iran, or jeopardizes key transit points in the Persian Gulf or Egypt.

Uncertainty will drive up oil and gasoline prices for much of September Oil will hit $120 to $125 a barrel, from about $107 now. Gas will reach $3.75 a gallon, up 15¢.

No matter what happens after the initial U.S. strikes, this much is certain: The civil war in Syria and the broader unrest in the region will continue, probably for decades. Even if Assad is killed or sent into exile, the divide will remain. Any rebel faction that takes over the country will be anti-American to some degree. In fact, one of these factions, an al Qaeda offshoot, is well positioned to gain power.

Egypt, largely out of headlines because of Syria, will remain a flashpoint. A new constitution is in the works, but it’s hard to see an outcome that is acceptable to Islamists, the military and the Christian minority. The U.S. will keep sending aid.

Prolonged tensions would drive oil prices even higher than they’ve risen in recent weeks because of concerns about Syria and supplies from Libya and Iraq. And the U.S.’ standing in the Muslim world will continue to erode. That’s not the most pressing issue for the U.S. now, though Washington is on guard as Sept. 11, now the anniversary of two deadly attacks on Americans, draws nearer.

Kiplinger Letter editors Kenneth R. Bazinet, Jim Patterson and Richard Sammon contributed to this report.

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