Yesterday, a multi-faction rebel coalition toppled the Assad family’s more than 50-year rule in Syria. The situation on the ground is still evolving, and with little visibility, it’s too early to predict what will unfold in the coming days and weeks. However, history tells us that when authoritarian regimes fall—Saddam Hussein in Iraq or Muammar Gaddafi in Libya are key examples—initial euphoria among the citizenry quickly fades as internal and external forces rush to fill the power vacuum, often leading to violent and unpredictable political transitions.
We would not be surprised to see Syria head down the same road. The rebel forces that ousted Assad are led by Hayat Tahrir al-Sham (HTS), a group that may have links to the Islamic State and on both the US and EU terrorist lists. While the HTS leader, Mohammed al-Jolani, has signaled a willingness to establish a unified government, there’s a real risk of escalating violence or terrorism if a legitimate government in Syria fails to emerge.
From an oil market perspective, Syria’s internal turmoil shouldn’t have an immediate impact on prices. US oil production is at historically high levels and there is the growing possibility of the Saudis adding production back into the market to defend its market share. We also do not anticipate any impact to broader supply/demand oil dynamics as Syria isn’t a major oil producer like Iraq or Libya.
But the backdrop is worrisome. This conflict unfolds alongside Israel-Hamas tensions, Hezbollah’s presence in Lebanon and Iran’s regional ambitions, with Tehran using Syria to extend its influence through proxy groups like Hezbollah. In the immediate aftermath of the Syrian government collapse, Iran appeared to downplay the situation, but it’s important to recognize that Iran’s supreme leader, Ayatollah Ali Khamenei, once called Syria the “pillar” of the “Axis of Resistance,” intended to thwart US and Israeli influence in the Middle East. With Syria and Hezbollah in disarray, Iran’s financial and military capacity to carry out its geopolitical vision has been diminished, heightening the risk of Iran acting as a destabilizing force in the region.
Meanwhile, Russia views Syria as a vital ally and a strategic foothold in the Middle East, maintaining military air bases and offering refuge to Bashar al-Assad and his family in the final days of power. Despite conducting air strikes on the rebels, Russia could not prevent Assad’s downfall, leaving its future role uncertain. Compounding the situation, Turkey, which had previously backed a faction involved in the rebel offensive against Assad, is now focused on preventing an escalation of the ongoing humanitarian crisis along the Turkey-Syria border.
This powder keg of geopolitical instability could spark a broader regional conflict, adding fuel to global market volatility. With investors already jittery over an escalation in the Russia-Ukraine war, a deepening political crisis in South Korea, and Trump’s controversial proposals on tariffs and immigration, we could see a bid for the US dollar and US Treasuries as markets brace for more uncertainty.