Syria – Assad situation

Syria is a secular state, but the religious breakdown of the Syrian population is approximately 74% Sunni Muslims, 16% Shia Muslims, 10% Christian (source – CIA World Factbook).  However, the al-Assad family which has ruled Syria since 1971 are Alawites (one of the branches of Shia Islam), and government positions are mainly held by Alawites.  The Arab Spring – the movement across the Middle East which sought to overthrow long-established autocratic leaders – saw an uprising in Syria against the Assad government; this began in March 2011 and the ensuing civil war continues today, with the Assad regime determined to stay in power.  It has become a war between Shia and Sunni Muslims.  Both share many of the same beliefs, but the Sunni Muslims, who represent about two-thirds of Muslims in the Middle East region, believe in the authority of the Koran and the sayings and actions of the prophet Mohammed as the source of truth and wisdom, whilst Shia Muslims believe that Allah has appointed certain people from Mohammed’s descendants and that they possess special spiritual and political authority over their community.

The key allies of the Syrian government are Iran and Russia.  Iran is the largest Shia Muslim state and a neighbour, and is thus determined to ensure that Syria remains controlled by Shia Muslims.  Iran and Syria have been strategic allies since the Iran-Iraq War when Syria sided with Iran, sharing a common hostility to Saddam Hussein, as well as to the US and Israel.  For Russia, Syria is of geo-strategic importance as an ally, since the Syrian port of Tartus is Russia’s only Mediterranean naval base.  In the UN Security Council, Russia has consistently supported Syria against the imposition of UN sanctions and in providing arms to the government.

Saudi Arabia has been the biggest supporter of the Syrian rebels, providing finance and arms. Saudi is predominantly Sunni Muslim and its official form is Wahhabism, often described by critics as being “puritanical” or “intolerant”.  Both Iran and Saudi have aspirations to be seen as the leaders of Islam, and Saudi interests would be served by the rebels overthrowing the Assad government and installing a Sunni regime, thus gaining a new major ally and depriving Iran of the same.

Al-Qaeda is a terrorist Islamic organisation, which sees its targets as both any non-Muslim influence on Muslim countries (hence its attacks on the US and the UK), and any non-Sunni branches of Islam. They are widely believed to be very active in supporting the Syrian rebels with finance, troops and weapons.

Qatar is another Sunni-dominated Muslim country which has given heavy support to the rebels.  Qatar is a tiny country with huge gas reserves and is very keen to build a gas pipeline into Europe via Turkey. To get to Turkey, it must pass through either Saudi Arabia or Syria, and Saudi is currently blocking the proposals.  A more reliable and Qatar-friendly government in Syria would make a huge difference to its ability to supply gas to the European market.

Israel has little direct interest in the Syrian civil war other than to be very aware that should the US engage in military action, then it poses a very convenient and close target for retaliation by Syria.  It would though be more wary of a religious-led government in Syria than the current secular government.

In the initial stages of the Syrian civil war, the three Western permanent members of the UN Security Council, the US, the UK and France were generally sympathetic to the Syrian rebels, on the grounds that a minority grouping ran the country against the wishes of the majority grouping, which would not occur in a properly-functioning democracy.   However as time has gone on, the active support of Al-Qaeda to the rebels has limited the Western desire to take sides actively in the civil war, and instead seek to broker opportunities for peace.

About a year ago, President Obama warned Assad that he would regard any use of chemical weapons in the dispute as breaching a “red-line” for him, and would be unacceptable.  Last week the US announced that they were convinced such weapons had been used by Assad.

The US faces a set of very poor choices: (i) if it decides upon military intervention and this leads to the overthrow of the Assad regime, they are likely to find that Syria’s next rulers hate the US with just as much passion as Assad, and indeed Al-Qaeda supporters may well find themselves in power; (ii) if it decides upon military intervention and this does not lead to a change in the regime, then it will look weak and Assad will become a bigger hero in the eyes of many Arabs; or (iii) if it decides against military intervention, then Obama will have allowed Assad to cross one of his “red-lines” without incurring any serious consequences.  This will be noted and seen as weakness by Iran and North Korea where Obama has also set out “red-lines” over their development of nuclear weapons.

From its beginnings as an internal uprising during the Arab Spring to its evolution as a sectarian Muslim civil war, markets have taken little notice of Syria.  It is only now, as it nears turning into a proxy war between superpowers that the gold and oil prices have started to rise, and markets have begun to be wary.  The lack of public support in the US for military intervention is however likely to mean that Obama will not wish to get heavily involved in Syria beyond a round of air strikes at key Syrian targets.

We are not recommending any changes to portfolios in the light of the Syrian crisis – we expect tensions over the next few weeks, but in the end we believe that the US will not seek a deep involvement in Syria, as it has no major national interest in the outcome of the civil war and no clear objectives and strategy that would inform any deeper involvement.  However, should there be a clear escalation of US involvement in the conflict, the risks to the oil price and the world economy would become much larger.

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