The volatile situation in Syria is teaching us again how global crisis can have a heavy impact on financial markets. Despite the news this week that an agreement is shaping up to contain the crisis in Syria, markets still remain jittery after weeks of volatility. Generally, investors hate uncertainty and Syria is a good example of how they can react to looming global conflict.
Supply Disruption Concerns
As it is the case with most crisis situation in the Middle East, the major concern is there will be a disruption in oil supplies from that region to the rest of the world. Although Syria is not a major oil producer, investors worry conflict in this country could spread to surrounding nations like Saudi Arabia and Iran. News that Syria may to agree to hand over its chemical weapons has brought the price of oil lower, but over all it remains high at $107.00 a barrel as there is no firm agreement yet, only diplomatic rhetoric.
The Market Reaction To The Threat Of War
Analysts say generally markets are volatile in the lead up to a military action, but as a war starts and investors know the full extent of what’s happening, the volatility starts to taper off. Usually rumours drive market action, because nobody knows for sure what’s going to happen, and everybody is looking to avoid a loss from being stuck on the losing side. In Syria’s case, markets are up this week on the news that a U.S. attack on Syria has subsided, immediately easing investor fears.
Investors Flock To Save Havens
In times of global crisis investors flock to so called “safe-haven” investments like gold and the U.S. dollar. Both have been strong lately. As the threat of U.S. military action in Syria beings to dissipate investors will likely start to pull out of these two areas. Many also take a wait and see approach, which can leave money on the sidelines waiting to be invested. That can be a drag on the global economy.
Global Crisis And Canada
Despite the temporary sense of calm, there’s no real agreement in place regarding Syria, and that uncertainty still threatens to derail the financial markets. Canada does not do a great deal of trade with Syria, but relies heavily on stability in the area in order to import goods and services from there and export our products to the Europe and Asia. According to a recent poll conducted by Barclays Capital of 800 investors worldwide, Syria is still the biggest threat to the world economy.