I’m kind of surprised. Sure, the market dropped all week, but it didn’t plunge the way it might have when there is a serious international disturbance.
If you were around at the times when there was violence in the Middle East in the past half-century, you would know that any threat to our oil supplies could send the market into a tailspin.
There are several ways of looking at the recent relatively calm markets in the face of a “coup” in Egypt and the use of chemical agents in Syria. Oops – we can’t use the word “coup,” or that would trigger military action on our part. There seemed to be a divergence between the warnings of President Barack Obama and Secretary of State John Kerry.
I’m writing this with less than an hour before the market closes Friday and the Dow is down barely 20 points (it closed the day down nearly 31 points). Think about it: we’ve had drops of hundreds of points when there was even the remotest threat to our oil supplies.
I know that Egypt is not a supplier of oil of any consequence, but history tells us that violence in one Middle Eastern country can trigger threats to oil production in another. No one who trades oil futures seems to even notice the turmoil in Syria. The headline in Friday’s edition of The New York Times, “Obama Set for Limited Strike on Syria as British Vote No,” so far has triggered little notice in the market.
The exception to the yawn in the stock and bond markets does not carry over into the oil market, which shot up about 10 percent before calming down somewhat. If I remember correctly, it was the 1973 Arab-Israeli War which boosted the price of oil $60 or $70 a barrel, a level which it has held, more or less, ever since then.
Is it too early to be sanguine about a possible conflagration that really disturbs oil production among Middle East producers? I would say we have to watch not only Syria, but a possible closing of the Suez Canal after more serious fighting in Egypt.
Some analyst once said, if you want me to forecast our stock market, tell me what’s going to happen to the price of oil. Even though we are much less dependent on foreign oil sources – thanks to “fracking” – we can’t ignore what’s going on in the Middle East.
Bud Stevenson, a former stockbroker, lives in Fairfield. Reach him at Bsteven254@aol.com.