Syria, the economy and the Eurozone crisis

Syria, the economy and the Eurozone crisis

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Syria, the economy and the Eurozone crisis 2.6.2012
By Andrew Lilico, The Telegraph

Andrew Lilico is an Economist with Europe Economics, and a member of the Shadow Monetary Policy Committee. He was formerly the Chief Economist of Policy Exchange. Photo: eer.co.uk
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June 2, 2012

Western diplomats are now warning that Syria is on the brink of all-out civil war and that this would be likely (in Secretary of State Clinton's words) to "morph into a proxy war in the region". This could have wider economic ramifications and in particular interact with the Eurozone crisis in ways that are under-discussed in the UK.

A Syrian civil war could well draw in the following countries either directly or as sponsors of one or other parties in the conflict. The most obvious are Iran (the Syrian government's ally), Lebanon (where many Syrian client forces dwell and would be called upon if necessary),www.ekurd.net Kurdish Iraq (which would seek to assist its Kurdish Syrian brethren), and Turkey (which would attempt to prevent the establishment of a Syrian Kurd enclave to combine with the Iraqi one, and which is also said to be connected to Syrian opposition forces).

Although in Syria the Russians maintain their only foreign military base outside the former Soviet Union, direct military intervention by the Russians may not occur except to protect the base. However, arms shipments by Russians to the Syrian government continue.

The Iraqi government might struggle not to become involved if Kurdish Iraqi and Iranian involvement became too deep and clear-cut. And the Syrians, having involved themselves in the Jordanian civil war in 1970 might find that what goes around comes around.

Still occupying Syrian territory, and with a finger in most pies in the region, the Israelis would be likely to be drawn in in some capacity.

All this, especially with Iranian and Iraqi oil production potentially affected, could have fairly obvious economic impacts – particularly if (as seems increasingly likely) attacks upon Iranian nuclear installations were conducted under the cover of the Syrian conflict. But we aren't finished yet with the list of neighbours of Syria that might get drawn in…

For most folk in Britain do not comprehend precisely where Cyprus is. It is a sea neighbour to Syria. Cyprus, indeed, has expressed concern about receiving a flood of Syrian refugees, and a number of arms shipments from the Russians to the Syrians have proceeded via Cypriot ports.

Furthermore, once Israel and Turkey were involved, other local regional pressures would arise. Israel, Cyprus and Greece are allies in the establishment of an Exclusive Economic Zone for the exploitation of potentially vast gas reserves in Cypriot waters – a venture that the Turks have expressly forbidden to proceed (sending a destroyer to express their displeasure), reflecting tensions over Northern Cyprus.

The Cypriot powder-keg has just about been kept damp by the influence of Greek and Cypriot EU membership. But a Greek euro exit would very probably precipitate a Cypriot euro exit at around the same time (because of the very high exposure of Cypriot banks to Greece). The geopolitical implications of a euro exit by Greece and Cyprus presumably add to the pressure the US and UK are exerting upon the Germans to somehow keep Greece and hence Cyprus within the euro.

That course will not, I think, be open for much longer.

Andrew Lilico is an Economist with Europe Economics, and a member of the Shadow Monetary Policy Committee. He was formerly the Chief Economist of Policy Exchange.

Copyright © respective author or news agency, blogs.telegraph.co.uk

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