Correction: Earlier versions of this article, including in The Washington Post’s Wednesday print edition, overstated the number of barrels of oil produced daily around the globe. The number is 90 million, not 90 billion.
Crude oil prices jumped nearly 3 percent to an 18-month high on Tuesday, capping an increase of about 20 percent over the past two months as a result of scattered supply disruptions and rising anxiety about war and political instability in the Middle East.
The growing likelihood of a U.S.-led military response to reports of Syrian use of chemical weapons rattled markets, analysts said. The price of the U.S. benchmark crude oil, West Texas Intermediate, on the New York Mercantile Exchange closed at $109.01 a barrel for October delivery, up $3.09 from the day before and up from less than $95 in late June.
Syria, whose oil output has shriveled to less than 50,000 barrels a day from 350,000 in March, is insignificant in the 90 million-barrel-a-day global oil market. Although it once exported about 150,000 barrels a day, Syria has been barred from selling oil internationally since sanctions took effect in 2011.
But Syria’s conflict threatens to spread. It has pitted Saudi-backed Sunni rebels against the Iranian-backed Shiite regime of President Bashar al-Assad, an unusually open conflict between proxies of the two leading Persian Gulf powers. Syria’s civil war is also inflaming strife in Iraq, where violence has reached the highest level in five years. Sunni insurgents have repeatedly bombed and disrupted export pipelines from Kirkuk to the Turkish port of Ceyhan, putting a dent in the output of OPEC’s second-largest oil producer.
The Syrian conflict also could undermine nascent hopes among the Western powers of negotiating a deal over Iran’s nuclear program. Such a deal would lead to an easing of international sanctions that have reduced Iran’s oil exports.
“The increasing likelihood of some form of limited US led military action in Syria is compounding concerns about the stability of the world’s key oil producing region and will likely exert upward pressure on prices until the nature of the possible military intervention becomes apparent,” oil analysts at Barclays said in a note to clients. “But the bigger risk for the oil market is the potential for the Syrian conflict to spread to neighboring producing countries and imperil regional output.”
Oil prices are hovering near historic highs, squeezing economic recovery in Europe and swelling the financial power of leading members of the Organization of the Petroleum Exporting Countries, including Saudi Arabia. The sovereign wealth funds of the United Arab Emirates, Saudi Arabia, Qatar and Kuwait have climbed to more than $2 trillion, up $420 billion over the past two years, according to industry newsletter Petroleum Argus.
Saudi Arabia, for most of the past century considered one of the pillars of American oil diplomacy, has recently defied the United States over Egypt, pledging to make up for whatever aid the United States withdraws from the new military regime. If the United States relies less on Saudi Arabia because of rising domestic production, Saudi Arabia relies less on American markets for its oil, although it still overwhelmingly buys U.S.-made military equipment.
This summer’s run-up in crude-oil prices flies in the face of widespread optimism about oil supplies in the United States, where domestic production has surged as a result of shale drilling. Yet global oil supplies remain somewhat tight in large part because of disruptions in Iraq and Libya.
In Iraq, persistent attacks on the pipeline from Kirkuk to Ceyhan sliced about 290,000 barrels a day off Iraqi exports, according to the Energy Information Administration. In Libya, labor protests at several oil production facilities cut production to 1 million barrels a day in July, down from 1.5 million barrels a day in April. It has now slumped to 200,000 barrels a day, according to a Bloomberg News report. In Nigeria, crude exports were reduced during July and August because of work on key pipelines.
Further disruptions in Yemen, Sudan and South Sudan have trimmed global oil output.
But Greg Priddy, global oil director at the Eurasia Group consulting firm, expects that the run-up in oil prices may be temporary. He expects a limited attack on Syria and notes that the summer peak oil consumption period is ending and that demand eases during the fall. Moreover, he added in an e-mail, Saudi Arabia has increased its oil production to 9.8 million barrels a day in an effort to moderate prices. The kingdom added 150,000 barrels a day to calm markets after the Egyptian military toppled the elected president, Mohamed Morsi.
One factor driving up the price of the West Texas Intermediate benchmark has been the addition or reversal of pipelines to alleviate the bottleneck in Cushing, Okla., where the price is set. Oil flowing to Cushing from Canada, North Dakota and other areas can now be transported more easily to the Gulf Coast, where there are more buyers.
But the price of the more widely used international benchmark called Brent crude also jumped on Tuesday, to $113.95 a barrel. It has risen sharply since late June.