The next month will see several announcements that could signal
key developments in the economic recovery, including a revised
estimate of second-quarter GDP, an update on employment, August
inflation numbers and the statement from the next Federal Open
Market Committee meeting.
None of these, however, has the potential to be as disruptive to
the economy as events taking place thousands of miles away in the
Economic effects of conflict in the Middle East
The Middle East always seems to be the centerpiece of global
turmoil, but lately tensions have been rising beyond their usual
level. The alleged use of chemical weapons by the Syrian regime may
prompt intervention by the United States and its allies. Already,
the conflict has become something of a proxy war between hostile
governments in the region. Now, it has the potential to draw in an
even wider sphere of combatants.
Further raising the stakes is that Syria is home to Russia's
only naval base outside of the territories of the former Soviet
Union. For a country that has been concerned with naval power since
the days of Peter the Great, this ready access to the Mediterranean
is a high priority, so Russia has strongly supported the existing
Syrian regime. So, perhaps more so than at any time since the end
of the Cold War, the United States and Russia find each other on
opposite sides of a military conflict.
Meanwhile, farther south and west along the Mediterranean coast,
Egypt seems on the verge of a civil war. Given Egypt's military
strength, its history as one of the more stable nations in the
region, and its non-belligerence toward Israel over the past 30+
years, the potential for dramatic change in Egypt is unsettling to
the entire region.
The most immediate economic danger posed by unrest in the Middle
East is a rise in the price of oil, which could quickly spur
broader inflation. According to the U.S. Energy Information
Administration, the price of a barrel of oil was already up by more
than $14 from the start of 2013 through August 26. Then, oil spiked
by another $3.09 on August 27, as rhetoric concerning Syria heated
Implications for interest rates
Consumers could have a lot to lose if rising oil prices lead to
inflation. Interest rates would be likely to rise, making mortgages
more expensive and possibly snuffing out the recovery in home
could lose even more ground to rising inflation. Rates on savings
accounts might finally rise, but most likely at a slower pace than
surging prices, thus quickening the pace at which savings accounts
are losing purchasing power.
There are human and strategic costs to consider in decisions
concerning the conflicts in the Middle East. On top of that, the
economic costs could have a widespread and long-lasting impact.