While the geopolitical risk has been falling in Europe as European governments and central banks stepped up to ease Eurozone tensions, the latest events in Syria have raised the temperature and the ugly geopolitical risk has raised its head again. The growing possibility of some form of a limited U.S. led strike in Syria has increased fears about the stability of the world's key oil producing region. Until the nature of the possible military intervention becomes apparent, these concerns are likely to put upward pressure on oil prices.
Oil markets have reacted strongly to the deteriorating situation in the Middle-East and prices have spiked sharply due to the unpredictable consequences of a likely military action against Syria. Brent crude spot is currently trading at a six-month high of $115 and prices are expected to remain volatile leading up a military strike on Syria. However, prices could fall sharply after a strike, as the actual supply losses remain small and the chances of a violent response from Syria, Russian, or Iran also remain low. Nevertheless, unpredictable factors weigh heavily in the market for good reasons.