Syria Intervention Impacts Your MENA Business

There are growing indications that the US is readying for a military intervention in Syria after last week’s suspected chemical weapons attack, which killed up to 1,000 people in a rebel-held Damascus suburb. This post highlights three business challenges likely to arise from an intervention and three suggested actions for multinational companies operating in the MENA region.

Business impact:

1. Higher Energy Prices: Anticipate a spike in oil prices that could last for days or weeks. Oil analysts are estimating that Brent Crude could exceed US$120 per barrel as a result of a military strike. In extreme circumstances, Société Générale envisions prices climbing up to US$150 per barrel in the short term. A sustained spike in energy prices could lead to increased cost of production and less discretionary income available for households.
2. FX volatility: Higher energy prices could place significant pressure on currencies in import-dependent countries. Several countries are near 10-year lows in currency reserves (Tunisia, Morocco, Jordan, and Lebanon) and they could have trouble covering the cost of imports during a sustained conflict. Currency depreciation is possible as reserves run low, putting further pressure on imports.
3. Supply-chain disruptions: It is unlikely that military intervention will impact supply chain through key ports in the GCC or cargo traffic through the Suez Canal. However, even the threat of disruptions to shipping routes through Lebanon’s Port of Beirut could increase insurance rates and lengthen travel times for goods destined for other parts of the Levant, Eastern Mediterranean, Iraq, and Europe.

Suggested actions:

1. Lend dollars to top customers and partners: In MENA countries that are impacted by Syrian spillover, provide liquidity to partners and customers to help them maintain local operations in case of a liquidity crisis. Lending can be used to build loyalty and extract concessions.
2. Educate your team on the impact of FX volatility: Factor currency depreciation into next year’s strategic plans for import-dependent countries that are vulnerable to commodity price shocks. Use our quarterly report on FX volatility to align your team and adjust your strategy.
3. Anticipate higher transportation costs: Hold inventories in several locations to ensure goods can reach customers. Protect your staff and products by identifying secure facilities away from areas that could be targeted in the event of spillover from the Syrian conflict.