Markets hit by fears that Syria attack could raise fuel prices
FTSE down but Shell and BP shares boosted while petrol retailers warn of grim outlook for consumer
Motorists are warned petrol prices will rise as oil hits its highest level for six months, with investors worried the Syrian conflict could affect neighbouring countries. Photograph: Lewis Whyld/PA
Mounting prospects of a US-led military strike on Syria sent shock waves through the energy and financial markets on Wednesday with oil hitting its highest level for six months and drawing predictions that it could reach $150 (£97) a barrel.
The move in the value of crude, reflecting fears that wider Middle East output could be disrupted, gave a major boost to the share price of Shell,BP and other oil companies but sent the stock of heavy fuel-users such as easyJet and International Airlines Group, the parent of British Airways, into a nosedive.
The Petrol Retailers Association also warned motorists that it was only a matter of time before the price of petrol at the pump would have to rise and the outlook was "grim".
The FTSE 100 index fell further in London as investors worried about the potential for a wider conflict involving Iran and even Russia wading in on the side of the embattled government of Assad.
There was a slight rally in prices as David Cameron indicated he would first seek some kind of United Nations approval for an attack on Syria but not before shares in Dubai – the most important financial market in the Middle East – had slumped 7% and the index in Kuwait had fallen by 6%.
Michael Wittner, head of global oil research at French bank Société Générale, said the North Sea crude oil benchmark, Brent Blend, could rise from Wednesday morning's six-month high of $117 a barrel to as much as $150 if the war spread from Syria to key important oil producers such as Iraq. The US crude price, for West Texas intermediate oil, hit a two-year high, rising above $112 for the first time since May 2011.
"We believe that in the coming days Brent could gain another $5-$10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started," Wittner said in an investment note to clients.
"If the regional spillover results in a significant supply disruption in Iraq or elsewhere, Brent could spike briefly to $150," he added.
Syria is not an important oil producer or transit country but the wider area including Saudi Arabia produces 35% of the world's supplies. If Iraq or Iran were affected by any fallout from a military strike on Syria, the global oil market would rely on extra output from Saudi Arabia, the only member of the Organisation of the Petroleum Exporting Countries with significant spare oil production capacity.
"The Saudis could handle most likely scenarios, but the markets will look at the shrinking spare capacity that remains after any disruption is made up, and that would be bullish [for higher oil prices]," said Wittner.
The oil price spike was a boost to Shell, whose share price rose almost 4% to £22.25, and BP, whose shares rose by more than 1% at 452p.
The wider FTSE 100 index of leading companies fell by nearly 0.5% early on , adding to an already 3% slump since the middle of the month on the back of fears about Syria, allied with concerns that the US would finally halt a long-running government economic stimulus package.
Stock markets in continental Europe were also down, as was the Nikkei index in Japan, which fell by more than 2% to 13,264 points, with companies such as Toyota and Sony down up to 3%. The Dubai Financial Market index closed at 2,549.61 points, with Emaar Properties leading the rout. Shares in the developer that built Dubai's Burj Khalifa, the largest freestanding structure in the world, fell almost 8.5%.
Most mining companies based in London, such as Glencore Xstrata, were hit by the political uncertainty, but the price of gold – seen as a haven – continued to rise as did the US currency. The dollar strengthened 0.5% against the Japanese yen and 0.3% versus the euro.
Ishaq Siddiqi, London-based market strategist at ETX Capital, explained the dangers to the wider economy of higher crude values on the back of foreign aircraft strikes on Syria. "Once filtered through to the real global economy, the increase in oil prices will put a halt to the pace of economic momentum we are currently experiencing in major parts of the world.
"It's plausible that Brent oil prices could be over $120 a barrel in the coming days and, if oil prices spike even higher, it wouldn't be out of the question for the US Federal Reserve to hold off on tapering stimulus measures this year."
Threats of a $150 oil price take the markets back to July 2008 when Brent briefly traded at US$147.50, the highest intraday price on record. This was the height of the economic boom, which was followed by the autumn collapse of Lehman Brothers and then a full-scale banking crisis.
Crude then crashed to $40 but has largely been priced at over $100 since the middle of 2010, despite a relatively slow recovery in the world economy. Prices have been pushed upwards due to a mixture of stronger demand and supply problems. Oil supply from Opec producer Libya has already been reduced to a trickle after an armed group shut down a pipeline linking its largest western oilfields to the ports.
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