Middle East conflict increases oil prices

Oil prices rose roughly 3% on Tuesday, as the US government and its allies considered a military strike on Syria following the country's suspected use of chemical weapons.

The conflict has left investors reeling, with global stocks selling off and investors rushing to safer havens, such as Treasuries, which are backed by the US government.

"In a world when you don't know what to do, you buy government bonds," said chief investment officer at Saxo Bank, Steen Jakobsen. Even gold, which had been maligned by investors, is spiking. The precious metal, also considered a safe haven in times of geopolitical turmoil, is back above $1,400 an ounce for the first time since early June.

But oil prices in particular are being closely watched since any turmoil in the Middle East could threaten global oil supplies.

"It's very difficult to measure a perceived threat of military intervention, but immediately we know Middle East oil prices will rise," said a London-based market strategist at ETX Capital, Ishaq Siddiqi.

Syria is not a major oil producer, but there's a spill-over risk if neighbouring nations become engulfed in the conflict, said a market strategist at Noah Capital, Emad Mostaque.

"Brent crude could easily go up by $10 to $20," said Mostaque, noting that prices were already relatively high as traders have been pricing in geopolitical risk from the ongoing conflict in Egypt.

Mostaque forecasts prices will jump further if a strike on Syria somehow leads to a disruption in global oil supplies. Saudi Arabia produces nearly 12 million barrels of crude a day. Iraq and Iran are also big producers. Sanctions have already severely restricted oil exports from Syria, according to the US Energy Information Administration. But Iran has been operating under sanctions for years, and it hasn't imploded yet.

While global stocks have been selling off, equity markets in the Middle East have been posting the most dramatic declines. The benchmark index in Dubai tumbled by 7%, while markets from Abu Dhabi to Bahrain to Kuwait also moved roughly 1% to 3% lower on Tuesday.

Turkey, which neighbours Syria, has been particularly hard hit in recent months as it has faced its own share of violent protests and heightened concerns about the Syrian conflict. The country's benchmark stock index fell 3% on Tuesday and the Turkish lira hit a record low.

Syria shares a border with Turkey, Iraq, Jordan, Israel and Lebanon. In Israel, the main stock index shed 2% on Tuesday. Emerging markets around the world also stand to lose out if Syria is hit with a military strike, as investors will be keen to pull their money out of more volatile markets in favour of traditional safe havens.