Air Strike on Syria would be very risky business

Why are some Western governments contemplating an extremely risky military strike on Syria? What is the true motivation of those trying to upend the unsavory regime of Bashar Al-Assad?

Were we to see intervention, would the main driver be moral outrage, as the US and its allies sought to punish the Syrian President? After all, Assad last month ordered a ghastly chemical weapons attack, killing hundreds in a Damascus suburb.

British and American officials certainly argued, at this latest G-20 summit in St. Petersburg, that Assad gassed his own people. While the UK can’t get involved in the military side of any Syrian operation, given the historic Parliamentary vote, we’re still lending diplomatic support.

Yet not everyone is convinced Assad is guilty. Could this atrocious crime be the work of anti-Assad rebels, bidding to oust the President by whipping up international opprobrium? Several other G-20 governments voiced that view – one reason why host-nation Russia, supported by China, staunchly opposed military strikes. The likes of Germany and Italy are meanwhile on the fence, insisting intervention should only happen with the explicit backing of the United Nations.

What we know for sure is that Saudi Arabia and Qatar have spent billions of dollars arming the rebel forces. Both Gulf states are predominantly Sunni, as is Syria. Yet Assad and his retinue, along with much of Syria’s military elite, is Alawite, a group that sees itself as Shi’a.

So are Saudi and Qatar engaged in a joint-effort to unsettle a Syrian President that oppresses their Sunni brethren? Their financial support could then be seen as part of a centuries-old intra-Islamic conflict. Yet Saudi and Qatar are themselves so often lately at loggerheads, not least over who should rule Syria once Assad has gone. Oil and gas experts of all nationalities now talk in hushed tones about rival schemes to pipe Saudi oil, or Qatari gas, to the Mediterranean – via Syria. There’s also much Western diplomatic speculation, again sotto voce, that this is precisely the outcome that Russia wants to avoid, lest its own energy-related leverage over Europe be undermined.

When it comes to motive, the truth – as is so often the case in global politics – is probably a complex mish-mash of factors, be they ancient and modern, geo-strategic, moral, commercial and ethnic. Yet amid all this theorizing, one thing is clear. Even the prospect of Western military action in Syria is already taking its toll on the nascent global recovery, weighing down investor confidence. And if we saw actual air strikes, the economic downside could be huge.

Car sales in America are now back at pre-crisis levels, we learnt last week. US unemployment is at a five-year low. The service sector of the largest economy on earth just posted its best numbers since 2005. America’s crucial small business sector is also showing signs of life.

In the UK, survey data shows our manufacturing sector now buzzing along at its best rate since early 2011. Even in the Eurozone, official growth forecasts were raised last week, boosting the outlook for a global recovery. Yet this slew of positive data was almost entirely lost amid concerns about a military strike on Syria.

Syria’s GDP was $75bn last year, about the same size as Azerbaijan. Already, commercial activities have been severely disrupted by civil war. The country’s imports and exports can hardly be damaged further. The human consequences of unrest in Syria have already been enormous, of course. The UN now counts more than two million refugees, a figure that’s doubled over the last six months. Air strikes would likely add to this sum of local human misery. Yet in terms of the global economy, the Syria barely registers.

What’s important, of course, is that military strikes on Syria could easily unleash turmoil across the Middle East, the world’s major oil-producing region. That’s why Zhu Guangyao, a senior Chinese official, told the G-20 summit that a US-led attack on Syria “will definitely have a negative impact on the world economy”.

Citing figures from the International Monetary Fund, Zhu said that a military strike would lead to a $10 jump in the price of oil, which in turn would cut global economic output by around 0.25pc. That doesn’t strike me as an exaggeration. Over the last two months, Brent crude has already surged 11pc, partly due to tightening inventories and better global growth data, but also on geo-strategic fears. Oil is now approaching the worrying $120-a-barrel mark that, in recent years, has been associated with Western recession.

There are growing fears among investors that action against Assad could see him escalate his attacks on rebel forces. Alternatively, given the rather suspect loyalties of some of the rebels, an air strike could facilitate the emergence of a even more hostile regime in Syria, destabilizing the Middle East further and so cranking-up oil prices more.

Israel and the US last week carried-out a joint missile test in the Mediterranean. While both sides were careful to point out that such tests are planned long in advance, and I’m sure they are, the timing still raised eyebrows, suggesting that the Israeli military is concerned American air attacks could provoke copy-cat retaliatory strikes aimed at Israel.

We must hope, of course, that such atrocities are avoided. But even if they are, there is still the possibility that this Syrian stand-off causes a lot of damaging diplomatic fall-out, even in the absence of on-the-ground chaos. During the G-20 summit, China’s government-controlled newspapers complained that proceedings had been “high-jacked” by President Obama’s lobbying for a military strike on Syria. “The US military action plan cannot be allowed to control the tempo of the global economy and politics,” sniped the state-run Global Times.

At the summit itself, the Chinese delegation was even more blatant, ominously warning of “spill-over effects” linked to the Federal Reserve unwinding its programme of quantitative easing. Given that the People’s Republic is America’s biggest foreign creditor by far, with the US still reliant on China to buy swathes of Treasury IOUs, this is no idle threat. Syria could easily cause a serious breach in Sino-US relations – and that’s not good for investor confidence. Any hint that Beijing might actually put the thumb-screws on the US financially, as it is well capable of doing, would cause havoc on global bond markets.

Another significant, and more immediate, political danger is that of partisan acrimony in Washington. Obama is now committed, of course, to holding Congressional votes prior to launching any attack on Syria. At the latest count, across the Senate and the House, around 20pc of US legislators are for military action, some 60pc are undecided and another 20pc are against. In order to secure these votes, Obama could be forced to engage in an almighty political row. That could easily unsettle US businesses, just as they’re starting to recover, so curtailing their investment and spending.

A Congressional blow-up over Syria would also augur badly for the now annual, almost ritualistic conflict over the question of raising the US government debt ceiling, another conflict which could seriously spook global markets. And all this is against the backdrop of an autumn political season that’s already set to be extremely fraught, as the Fed tries to smoothly withdraw from its $85bn-a-month money-printing habit without sparking a market melt-down.

As I said, when it comes to air strikes on Syria, be they threatened or actual, however unclear the motives, the economic damage is real.