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A strike on Syria: What could it do to Canada’s economy?

A look at financial markets, oil prices and the loonie


 

Ugarit News/via AP video

Secretary of State John Kerry has made public the evidence against Syria regarding a chemical attack against its own people and it appears America is getting ready for what now looks like a solo strike against Syria. What’s in store for the global economy and Canada?

A few pointers:

Financial markets. Syria is a concern, but the markets have bigger worries right now. Emerging economies like India, Indonesia and Brazil are facing massive capital outflows as investors move their cash into the U.S. and other rich nations, where growth prospects and interest rates are rising. In Washington, Democrats and Republicans are gearing up for another debt ceiling fight. The Fed is expected to slow the pace of its asset-buying program in the fall, which will push up long-term interest rates on things like bonds and mortgage rates. All of these developments have more obvious implications for the global economy than a limited military attack in Syria. In general, history suggests geopolitical events have a modest impact on financial markets. The stock dive of the Summer of 2011, for example, had little to do with the anti-Gaddafi strike: It was the debt-ceiling crisis cum U.S. credit rating downgrade that really rattled investors’ nerves. On this, financial newsletter editor Mark Hulbert, over at Market Watch, has dug up an interesting 1989 study co-authored by none other than Fed chair hopeful Larry Summers. The research finds that most non-economic news, from Pearl Harbor up to 1987, failed to provoke big stock market swings.

Oil prices. Oil prices spiked after news of an impending Syria mission, but they are expected to come down once the attack has taken place—assuming all goes as the White House hopes. Syria isn’t a big oil producer, but supply disruptions could get serious if the surgical strike degenerates into a wider Middle East conflict. Severe supply shocks can contribute to worldwide recessions, as with the first Gulf War, analysts at Barclays said in a client note this week. The global economy is much better at coping with oil-price increases caused by a rise in global demand, as seen in the past decade. Still, the Financial Times‘ Nick Butler notes that any decline in oil supply from the Middle East might have more modest effects this time around because the world’s demand for oil from that region is decreasing—thank the economic slowdown in China and the shale revolution in the U.S. The latter is particularly good news for Canada because it means that the American economy might be less vulnerable to an oil price shock than it used to be.

The loonie. The rule of thumb is that oil price hikes are a transfer of wealth from oil-importing to oil-exporting nations. Canada is on the right side of this, of course, and the loonie has done relatively well during previous supply shocks. Still, the Canadian dollar could depreciate, should the shock become severe, Barlays analysts warn. A sharp and sustained oil price shock could threaten global growth and send investors seeking refuge in a few safe-haven currencies, like the U.S. dollar.

This article appeared first on Canadian Business.


 

A strike on Syria: What could it do to Canada’s economy?

  1. So how much did it cost us to go to Afghanistan when Harper got his marching orders from the Americans? What was the final tab for sending over aerial support for the Libyan mission to help the Americans? Just what is the PM’s criteria for not handing out gobs of Canadian taxpayer money for this military endeavor?

    • So far the Afhanistan war has cost Canadians $22 billion not to mention the 158 casualties and the 22 “accidental” deaths and the more than 2000 injured.
      Here are some other stats:
      Canada is ranked 13th in the world for its military spending.
      Our military costs us $63 million a day.
      In just one month we could pay for 13,000 affordable housing units.
      Or give 90,000 students going to university the money for their fees.

      • If we are ranked 13th, it speaks volumes of how poor our efficiency of expenditures is in regards to the military.
        Once an item is designated for military use, it seems to take a comical increase in value.

        • Wasn’t there something in the news a long time ago about the military spending more than $150 each for toilet seats?
          :))

      • Canada still lives with an inferiority complex. It needs constant proof from the international media how desirable the country is. Ask natives, aboriginals, senior citizens – a different opinion.

    • Harper wasn’t prime Minister when Canada deployed to Afghanistan, -Chretien was

  2. Really, innocents are being slaughtered like animals by poison gas and you’re talking about the price of oil?? Shame on you Macleans. And shame on the harper government for not first offering humanitarian assistance first, instead of promoting the American war propaganda, new evidence is being released that it was in fact the saudi/american backed rebels that launched the chemical attack! http://intellihub.com/2013/08/29/syrian-rebels-caught-sneaking-sarin-gas-across-border-may/

    • please describe your humanitarian solution to this problem in detail

      • Well, for one thing, right now a group in Vancouver is sending a boxcar full of medical supplies (and have sent previous ones) to established centres in Syria. This is just one small step. Doctors Without Borders is also involved with this group.

  3. New Economic Action Plan Ad: “The Harper government is supporting Obama’s War against Syria for a strong economic future”

    • Astute

  4. Why does the wolrd listen to the Americans. They’re nothing more then the bully on the block/school grounds.
    United nations need to keep the USAsses out of everything going on in this world.
    The gas attack in syria was conducted by the US. If all the countries turn there backs on the USA. All deadly problems will simmer more than half. Cut the head off the snake.
    CIA
    Central Idiots Agency!!!!!!!!

  5. You might be interested in this paragraph from Global Research out of Montreal:

    “The self-righteousness of the United States about the alleged use of chemical weapons by Assad is hypocritical. The United States used napalm and employed massive amounts of chemical weapons in the form of Agent Orange in Vietnam, which continues to affect countless people over many generations.
    Recently declassified CIA documents reveal U.S. complicity in Saddam Hussein’s use of chemical weapons during the Iran-Iraq war, according to Foreign Policy: “In contrast to today’s wrenching debate over whether the United States should intervene to stop alleged chemical weapons attacks by the Syrian government, the United States applied a cold calculus three decades ago to Hussein’s widespread use of chemical weapons against his enemies and his own people. The Reagan administration decided that it was better to let the attacks continue if they might turn the tide of the war. And even if they were discovered, the CIA wagered that international outrage and condemnation would be muted.””

    A typical case of “Do as I say, not as I do.”

  6. well PEIMAC and jackal both make a damn good point

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