The crisis in Syria is turning into a regional conflict with the potential for major economic consequences, Sen. John McCain told CNBC on Wednesday.
In advance of a possible Western military strike, President Bashar Assad's forces appear to have evacuated most personnel from army and security command headquarters in central Damascus, residents and opposition sources said Wednesday. Tensions ramped up after a poison gas attack killed hundreds in a rebel-held area outside the capital last week.
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Assad is "obviously responsible," McCain asserted during an interview on "Squawk Box."
"What is this doing? One of the first signs is driving up the price of oil. There are economic impacts if this conflict continues to spiral out beyond the borders of Syria," the Arizona Republican said. "Those who think we can contain this within Syria, frankly that's just not what's happening in that part of the world."
But McCain said, "Don't worry about the Suez Canal. It's not going to be closed. That's a 'Straw Man.'" The closure of the key trade waterway is often a concern when there are flare-ups in the Mideast. "There certainly could be [other] areas of unrest and areas of disturbance that would disturb the world's oil supply.."
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Among the buildings that have been partially evacuated are the General Staff Command Building on Umayyad Square, the nearby air force command and the security compounds in the Western Kfar Souseh districts, residents of the area and a Free Syrian Army rebel source said.
Assad has blamed the poison gas attack on rebels in that country's two-year civil war. He's also demanded that the U.S. produce the evidence against him.
Several factions of rebels are fighting to topple Assad, including Islamists.
McCain said it would be easy to establish a safe-zone in Syria with airstrikes and then get weapons to "right people" in the resistance.
On Tuesday, White House spokesman Jay Carney said any military action under consideration by the president is not aimed at ousting Assad. Rather, he said, it would be a punitive measure for violating the international ban on chemical weapons.
"The optimal result [of military action] would be to deliver a hard enough slap on Syria that they would never resort to any further use of chemical weapons, and a slap which would keep the door open to getting these parties back into negotiations," Richard Murphy, former U.S. ambassador to Syria, said Wednesday on CNBC's "Squawk on the Street."
"The administration is trying to calibrate which targets to select, and not shut the door to political progress, which is very, very slow in the case of Syria," Murphy added. In doing so, the U.S. would certainly have to take into account the "very strong position" of Iran, an ally of Assad that had been the target of chemical attacks during the Iran-Iraq war.
McCain said he's puzzled by the Obama administration's stance now because two years ago President Barack Obama said Assad had to go. He said the president needs to do a better job to explain what the U.S. policy is in the Mideast, particularly in Syria. But McCain said he would not support sending American troops into Syria.
How will Syria affect markets? "Syria in terms of its oil output is relatively de minimis, but in the meantime should it escalate to something where Iran gets involved … [this could lead to] some kind of major supply disruption," Jeffrey Kleintop, chief market strategist at LPL Financial, told CNBC. He added that a bigger shock like this, with the potential to bring the price of oil back up to 2008 levels "would be problematic economically."
"It's a bigger risk for Europe than it is for the U.S.," said Mark Luschini, CIO at Janney Montgomery Scott. "As Brent [crude] continues to move higher, that's the big issue—that Europe rolls back over again after we've seen a big rally in those markets in the last six-eight months. That could be a risk here."
Addison Armstrong, director of research at Tradition Energy, told CNBC that a military strike in Syria could create a widening disparity between the European oil benchmark—Brent Crude—and the U.S. benchmark, West Texas Intermediate crude. "I think you would see the spread between Brent and WTI move back out to the highs that we saw earlier this year, out above $20 per barrel," he said.
"If we were to have a sustained rally in WTI prices, which I think is very, very likely if there is a military attack in Syria, [then] we'll see the highest prices since 2008," Armstrong added. "Gasoline prices would certainly go to $4 per barrel and that's the point where we've seen [consumer] demand destruction in the past."
This piece by Matthew J. Belvedere of CNBC originally appeared on CNBC.com.
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