Investors Can Duck Big Risk if Syria Conflict is Resolved Peacefully

The alleged use of chemical weapons by Syria’s government against its own people has caused U.S. President Barack Obama to threaten limited military action designed to prevent a recurrence. However, a peaceful solution to the conflict would be much better for investors, if one can be found.

Markets dislike risk, and military action anywhere in the Middle East has the potential to trigger responses from a wide range of countries, terrorist organizations and rebels that could bring unintended and unwelcome consequences. Those who favor a U.S. military strike need to balance the risks with any possible benefits from attacking the chemical weapons distribution system in Syria.

The United States and other countries in the world have every right and reason to assail the Syrian leaders if they attacked their own people with chemical weapons. But definitive evidence to prove chemical weapons were used by the government in the recent attacks against innocent civilians is difficult to gather in the midst of a civil war. The victims included women and children who were doing nothing more than trying to survive in a land that has been engulfed in an internal conflict that shows no sign of abating.

The humanitarian aspect of the civil war is enormous and cannot be understated. But the ongoing battle and the risk of its escalation also weigh negatively on the markets. Another effect could be rising oil prices.

Syrian leaders previously refused to acknowledge that they even possessed chemical weapons. After the use of chemical weapons against Syrian civilians that was documented by medical personnel who treated the victims, nefarious elements in Syria certainly have the capability. The #1 suspect in perpetrating the inhumane attack is the country’s current regime.

A plan proposed by Syrian ally and arms supplier Russia to dismantle Syria’s stockpiles of mustard gas, sarin and VX nerve agent will be virtually impossible to verify. However, it may be a useful first step in trying to remove some of the chemical weapons from the Syrian government. Otherwise, the chemical weapons could be deployed to harm Syria’s own people as the country’s civil war continues and President Bashar al-Assad tenaciously clings to power, regardless of the violent opposition to his leadership within the country.

American leaders, including the Congressional lawmakers who President Obama has been trying to convince to support possible military action against Syria, need to recognize that limited strikes can snowball into much bigger and more problematic entanglements.

A peaceful solution is preferred to a military one if the chemical weapons truly can be eradicated in Syria. However, it is naïve to think that the Syrian government would hand over all of its existing chemical weapons to international inspectors. Nonetheless, it is worth trying to obtain a full accounting of all of the chemical weapons and eliminate as many of them as possible as a way for the Syrian government to avoid a military attack. If chemical weapons are used in Syria again after independent international inspections take place and existing stockpiles are supposed to have been destroyed, the military action that President Obama has threatened still would be a possibility.

For now, investors appear to have dodged a potential missile from hitting their investment portfolios. The peace could be temporary, however, depending on how cooperative Syria becomes in dismantling its chemical weapons stockpile and allowing international inspectors the full access that they need to monitor the situation.

However, oil prices fell more than $2 a barrel on Tuesday, after Syria publicly agreed to give up its chemical weapons, based on a peace proposal from Russia.

The fallout from major terrorist attacks or military action can be big. On the first day of NYSE trading after the 9/11 attacks, the U.S. stock market fell 684 points for a 7.1% drop. That plunge set a record for the biggest loss in NYSE history for single trading day. At the close of trading the next Friday, the week ended with the biggest losses in NYSE history, as the Dow Jones lost almost 1,370 points to amass finish with a 14% pullback.

After Iraq invaded oil-rich Kuwait on August 2, 1990, oil prices rose jumped more than 50 percent from less than $20 per barrel to top $30 per barrel in the spot market. Other key oil price shocks that have occurred since World War II feature major military, revolutionary or other activities in the Middle East, including the Suez Crisis of 1956-57, the OPEC oil embargo of 1973-1974, the Iranian revolution of 1978-1979 and the Iran-Iraq War launched in 1980.

Escalated military action in Syria could boost oil prices sharply, as well as cause investors to sell some of their holdings. Investors need to be aware of the risks ahead.

Russia could be delaying a U.S. military strike as a way to give its Assad regime allies in Syria time to move existing chemicals weapons stockpiles to roughly 50 divergent locations to make them difficult to track, as the Wall Street Journal is reporting. If so, the proposed peaceful solution may prove to be nothing more than a tactic to protect the regime of Syria’s President Assad. New calls from Russia and Syria that the United States needs to promise not to strike militarily — if a peaceful solution is attempted — strain credulity in light of news reports that the chemical weapons there already are going into hiding in dozens of new places that will be highly challenging to locate.

The 1960s Vietnam War era slogan, “Give Peace a Chance,” is worth rolling out again to see if it works in the Middle East. If Russia is simply trying to give Syria’s Assad regime time to hide stashes of chemical weapons from any inspectors who may be allowed into the country, investors beware. Hopes for a peaceful solution after President Assad’s latest role in accepting or causing human carnage among the people in his country well may fade and lead to future foreign intervention.

Paul Dykewicz is a seasoned journalist who is the editorial director of the Financial Publications Group at Eagle Publishing and the editor of the Eagle Daily Investor website. He also edits four monthly investment newsletters, Forecasts & Strategies, Successful Investing, Alpha Investor Letter and PowerTrend Profits, as well as a number of time-sensitive trading services.