The sudden fall of Syrian President Bashar al-Assad’s regime has sent ripples through the global oil market, potentially increasing the geopolitical risk premium on oil prices in the coming weeks and months.
Despite Syria not being a major oil producer, its strategic location and ties with Russia and Iran give it significant geopolitical influence in the Middle East region.
The rapid seizure of Syria’s capital by Islamist-led rebels, ending the 50-year rule of the Assad family, has led to Assad fleeing to Russia where he has been granted asylum by President Vladimir Putin.
This regime change has the potential to spill over into neighbouring territories, particularly Iraq, a major oil-producing nation that produced almost 4.1 million barrels per day of crude in November.
Jorge Leon, Rystad Energy’s Head of Geopolitical Analysis, stated: “Mixed with the tensions elsewhere in the region, the regime change has the potential to spill over into neighbouring territories.”
He added that sectarian tensions and instability in neighbouring Iraq could be further exacerbated.
The overthrow of Assad’s regime is expected to marginally increase the geopolitical risk premium in oil markets in the coming weeks.
On Monday, oil prices rose by nearly 2 per cent, with Brent crude futures up 1.9 per cent to US$72.46 per barrel and U.S. West Texas Intermediate crude futures up 2.23 per cent to US$68.70.
The impact on the oil market could come from several fronts:
- Regional spillover risks adding uncertainty.
- Potential exacerbation of sectarian tensions in Iraq.
- Setbacks for Russia and Iran, Assad’s main supporters.
- Weakening of the Iran-backed Axis of Resistance coalition.
The regime change in Syria represents a clear setback for Russia and Iran.
Iran, in particular, has lost another regional ally, becoming increasingly isolated and more exposed to domestic revolts.
This situation could embolden the upcoming Donald Trump administration to adopt a ‘maximum pressure’ stance against Iran.
However, some argue that these events might reduce the geopolitical risk premium in the long term.
A weakened Iranian regime might be more willing to reach an agreement with the U.S. to avoid economic pressures that could lead to more domestic unrest.
As the situation continues to unfold, the global oil market remains vigilant, balancing local political changes with international economic signals.
The interplay of these factors will likely continue to shape oil prices and market strategies in the near future.
