Nigeria’s economic outlook could turn positive on US Syria attack

The launch by the United States of missile attacks on a Syria government army base is bad news for global security but positive for Nigeria’s economic outlook if the surge in crude oil prices after the attacks is sustained.

Prices of Crude oil futures rose by as much as 2 percent after the U.S. military attacked the Shayrat air base near Homs with 59 Tomahawk missiles. The attacks is said to be in to the use by Syria of chemical weapons during an air attack Tuesday on a rebel-held area.

Now all eyes on how Russia and Iran, two key allies of the Syrian government will respond to this attack by the US. A pro-Russian media organisation says that the US government has crossed the Russian “red line” in the attacks and that President Putin of Russia will definitely respond.

“The response of Russia and Iran to U.S. missile strikes on Syria will be a crucial determinant of whether the “risk premium” returns to benchmark oil prices, commodity strategists and economists,” told US based CNBC.

Crude oil prices briefly touched a one month high of US$56.08 on Friday before retreating.

Analysts note that the US action has raised uncertainty in the highly volatile Middle East which many large crude oil producing countries are located. If the crisis escalates, it could disrupt could oil supply in the region and that could see a spike in crude oil prices, which will be positive for Nigeria. Nigeria depends on crude oil for 70 percent of government revenues and more than 90 percent of foreign exchange earnings.

A CNBC report quotes oil analysts as saying that the initial surge in oil prices reflected fears of the conflict escalating in the region and a possible spillover effect on tanker-borne supply, particularly through “choke points” like the Strait of Hormuz in the Persian Gulf. Beyond that, regional politics and the delicate balance of state actors in Syria and how they react remains the next key risk.

“This is a short-term spike as traders price in a possible supply route disruption,” said analyst Jonathan Chan of Phillip Futures in Singapore. “However, if this conflict prolongs or escalates with Russia possibly intervening on the Assad regime’s side, there may be further upward adjustment on the geopolitical risk premium.”

The jump in prices was unlikely to last as well-stocked inventories globally should cushion any future supply disruption. “The world still awash in oil,” Hansen said. “The risk of this developing and impacting oil supplies from the region, especially from Iraq is very limited.”

UBS commodity strategist Giovanni Staunovo added: “Syria is a tiny oil producer and there are no key oil pipelines which could be hit. Today’s oil rally might lose steam or even reverse during the day unless the airstrike heightens tension between Russia, Iran or Iraq and the U.S.”

Many commodity strategists agreed it was premature to speculate how U.S. involvement in Syria, which may possibly involve even regime change, would play out.

“The strike, at least for now, appears retaliatory rather than the indication of the beginning of direct involvement by the U.S. in Syria,” said commodity strategist Harry Tchilinguirian of BNP Paribas. “Pending the next developments, the recent oil price move may start to shift back. It is too early to tell at this juncture.”

Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think tank, didn’t believe the U.S. missile strikes on Syria would be a “game changer” for oil markets because traders appear to have become inured to headlines reporting instability or upheaval even in the oil-rich Middle East and North Africa.

“It may be that the market has gotten used to the ‘risk’ and embedded it into the price,” Luft said, but he offered this warning: “The only missile that can move the market in a significant way would be one launched at North Korea — not the Middle East.”