Events in Syria Could Impact Crude Oil Market

Events in Syria over the weekend could impact the crude market and increase the geopolitical risk premium on oil prices in the weeks and months to come amid yet more instability in the Middle East region.

That’s what Rystad Energy’s Head of Geopolitical Analysis, Jorge Leon, said in a Rystad Energy oil market update, which was sent to Rigzone by the Rystad team late Monday. Leon highlighted in the update that Syria “isn’t a major oil producer” but noted that it “holds huge geopolitical clout due to its location and ties with Russia and Iran”.

“Mixed with the tensions elsewhere in the region, the regime change has the potential to spill over into neighboring territories,” Leon stated in the update.

“Sectarian tensions and instability in neighboring Iraq, a major oil producing nation that produced almost 4.1 million barrels per day of crude in November, could be further exacerbated,” he added.

“Iran has lost another regional ally and is becoming increasingly isolated and more exposed to domestic revolts. This could embolden the upcoming Donald Trump administration to go for a ‘maximum pressure’ stance against Iran,” he went on to state.

The update noted that Syrian oil production “shrunk rapidly after the civil war started in 2011 during the Arab Spring movement”. Syria’s oil output peaked in 1996 at 605,000 barrels per day, according to the update, which outlined that the country’s output then “started to decline gradually to 430,000 barrels per day by 2010 before abruptly plummeting to around 30,000 barrels per day in the years following the civil war”.

According to the Energy Institute’s (EI) latest statistical review of world energy, which was released earlier this year, Syria’s oil production averaged 40,000 barrels per day in 2023. That figure marked a 6.6 percent year on year drop and less than 0.05 percent of global oil production in 2023, the review outlined. From 2013 to 2023, Syria’s oil production dropped by an average of 3.8 percent every year, the review showed.

Syria’s crude oil and condensate production averaged 30,000 barrels per day last year, the review revealed. That figure represented a 7.7 percent year on year drop and less than 0.05 percent of the world’s crude oil and condensate output in 2023, according to the review. Syria’s crude oil and condensate production declined by an average of 3.8 percent every year from 2013 to 2023, the review highlighted.

The EI’s oil production figure includes crude oil, shale oil, oil sands, condensates (lease condensate or gas condensates that require further refining), and NGLs (natural gas liquids – ethane, LPG, and naphtha separated from the production of natural gas), the review points out.

It excludes liquid fuels from other sources such as biofuels and synthetic derivatives of coal and natural gas. It also excludes liquid fuel adjustment factors such as refinery processing gain and oil shales/kerogen extracted in solid form.

The EI’s crude oil and condensate figure includes crude oil, shale/tight oil, oil sands, and lease condensate or gas condensates that require further refining, the review highlights. It excludes liquid fuels from other sources such as biomass and synthetic derivatives of coal and natural gas.

Rapid Seizure

Rystad Energy’s update noted that the “rapid seizure of … Syria’s capital … brought a sudden end to the 50 year rule of the Assad family on Sunday”. It outlined that the rebel advance can be explained “by a few reasons”.

“Recent Israeli attacks on Iranian proxies in Syria in the last few weeks helped to weaken the fighting capabilities of Assad supporters,” the update pointed out.

“Intensified fighting between Russia and Ukraine also prevented Moscow from providing rapid military support to the now former president,” it added.

“After months of Israeli attacks, a severely weakened Hezbollah - a key Assad supporter - meant the Syrian rebels encountered little resistance on their way to Damascus,” it continued.

“And finally, a cautious Iran opted not to intervene in support of Assad to avoid yet another military escalation in the region,” the update went on to state.

Reduced Geopolitical Risk?

Rystad also noted in its update that it could be argued that the events in Syria “might somewhat reduce the geopolitical risk premium well into next year”.

“A weakened Iranian regime might be more willing to reach an agreement with the U.S. to avoid economic pressures that might lead to more anger domestically,” it said.

“At the same time, Russia’s inability or unwillingness to provide military support to Assad’s regime raises questions about Moscow’s own military capabilities, having found itself bogged down in its war with Ukraine,” it added.

“This might add to Russian willingness to end its war with its neighbor, which, if materialized, would reduce the geopolitical risk premium in the oil markets,” Rystad went on to state.

In a market analysis sent to Rigzone on Monday, Samer Hasn, a senior market analyst at XS.com, said, “after the fall of Bashar al-Assad’s regime in Syria, Iran has become less capable than ever of threatening Israel”.

“Syrian territory was a lifeline for Hezbollah in Lebanon, and the latter is now besieged after being Iran’s key arm in the region,” Hasn added.

To contact the author, email andreas.exarheas@rigzone.com