The prospect of Western military action against Syria hit emerging market assets hard and pushed oil to a six-month high on Wednesday.
In the scramble for safety,investors turned to gold,which hit a three-and-a-half-month month peak above $1,430 an ounce,and bought the dollar on a view that it was the ultimate refuge from the risks of intensified upheaval in the Middle East.
Emerging markets,such as Syria’s neighbour Turkey,already being pummeled by an expected reduction in US stimulus measures,took further hits. The Turkish lira and India’s rupee both touched record lows against the dollar. The moves stem from signs the United States and its allies are gearing up for a strike against Syrian president Bashar al-Assad’s forces,blamed for last week’s chemical weapons attacks,which traders fear could prompt retaliatory action,engulfing a region which supplies a third of the world’s oil.
“The market feels an attack on Syria is highly probable but what they’re concerned about is the retaliation,” said Mike Gallagher,managing director of IDEAglobal.
“We could see a wider spillover into the region which could easily push oil prices up,at least temporarily,to $120 or $125 a barrel,” Gallagher said. At one point those concerns had pushed Brent crude above $117 a barrel and the US benchmark to its highest level in over two years,though both subsequently eased off these highs in volatile trading. In the Middle East,Dubai’s stock index DFMGI shed 1.4 per cent to add to the 7.0 per cent loss recorded on Tuesday,leaving it near a six-week low.