Investors say that while the US air strikes on Syria increase uncertainty in the region, any significant economic effects are likely to be delayed. But in the coming days and weeks they will be keeping a close watch on the situation because of the risk of, in the words of one analyst, “high-impact scenarios”.
The crisis-response company Control Risks said in a note yesterday that the conflict creates short-term uncertainty for investors in the Middle East.
“Fear that the conflict could escalate and spread will feed hesitation to invest in the Middle East for some newcomers to the region, and more cautious business travellers may delay trips to the region,” it said.
Control Risks said the UAE will be “largely insulated” from the conflict by geographic distance from Syria but an escalation would raise the possibility that “tourism and business travel inflow to the region could decrease on the back of concerns about spillover … and perceptions of general regional insecurity”.
However, it noted that the Syria conflict has entered its sixth year and so for most companies the current flare-up will fit into “business as usual”.
In much the same vein the political risks consultancy Eurasia Group said that the bombing was most likely intended as a one-off strike to deter Syria’s ruler, Bashar Al Assad, from any further use of chemical weapons. In terms of the risks to markets, the company’s chairman, Cliff Kupchan, said in a briefing note: “Investors appear justifiably comfortable with the idea that this was a calibrated, one-off response that is unlikely to be of lasting consequence.”
Oil prices have moved upwards, but not sharply. Brent crude prices increased by 0.64 per cent on Friday, closing at US$55.24 per barrel.
The spot price of gold on Friday rose 0.2 per cent to $1,254.53.
The Dow Jones Industrial Average index barely budged on the day, while the Euro Stoxx 50 was up 0.2 per cent as investors waited for the conflict’s implications to become clearer.
Mr Kupchan said that global markets “do remain exposed to a raft of improbable, high-impact scenarios” but he said the most interesting aspect was a sell-off in Russian stocks and the rouble. Moscow’s stock exchange index closed 3 per cent lower on Friday at 111.75, while the rouble dropped in value by 1.7 per cent, closing at 57.265 to the US dollar.
“Investors are questioning with their feet the expected Trump reset [in its relationship with Russia],” Mr Kupchan said.
In terms of real estate, although the United Arab Emirates has previously benefited from regional turbulence because of its reputation as a safe haven, Cluttons’ head of research, Faisal Durrani, said it would be unwise to presume that the same trends will recur.
“It is still very early days,” said Mr Durrani.
He also said that there had already been a significant influx of Syrian capital into the UAE five years ago after the war broke out. Back then, many Syrian buyers snapped up properties in Sharjah not only because it offered affordable housing but also because it offered cultural familiarity to many of those who were relocating.
“But in general, instability is never a good thing,” Mr Durrani said. “People have often talked about the ‘lost decade’ of growth in global capital markets and I think that’s largely true. Anything that upsets the delicate balance of global economies is not going to be good for growth.”
Regarding investment across the wider Middle East, Philippe Dauba-Pantanacce, a senior economist and global geopolitical analyst with Standard Chartered, said that the “investor community has long seen the destabilisation in the Levant as clearly separate from the economic dynamics at play in the rest of the region”.
He noted that “we are seeing a growing alignment of interests and strategic vision between the current US administration and the Arab Sunni countries in the region, with a willingness to cement the military cooperation – from Egypt to the GCC and Jordan”.
Mr Dauba-Pantanacce further asserted that the action in Syria represented a “watershed moment” in US-Russia relations.
“There has been clear change from the US administration,” he said.
“The US had stated that fighting the Syrian regime was not the first priority but these calculations changed after the chemical attack.”
Although he said that the change does not necessarily mean higher engagement by the US in Syria or the installation of troops on the ground, it is likely to change calculations by leaders in Damascus, and possibly Moscow, regarding their actions.
The question for investors is at what point they might need to change their own calculations as well.
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