On Aug. 21, 1,429 people were killed in a Damascus suburb, in what looks like a chemical weapons attack. Further, a preliminary U.S. report of the attack states that "we assess with high confidence that the Syrian government carried out the chemical weapons attack against opposition elements in the Damascus suburbs." In other words, the U.S. believes the Syrian government broke international law, by committing a crime against humanity.
This crime has spurred the U.S. to action, and a missile strike on Syria seems likely. So what does this mean for America, its economy, and defensive stocks?
Brace for impact
Pre-9/11, the Congressional Budget Office stated: "Under current policies, total surpluses would accumulate to an estimated $2 trillion over the next five years and $5.6 trillion over the coming decade. Such large surpluses would be sufficient by 2006 to pay off all debt held by the public that will be available for redemption."
Then 9/11 happened.
Wars are costly, and if America gets involved with Syria, we'll pay for it -- and not just financially. Defense analysts predict that if America engages Syria, Syria could respond with terrorist attacks on U.S soil, missile launches, and cyber-warfare attacks.
Even worse? Syria isn't Afghanistan or Iraq. The nation is well armed with surface-to-air missiles, ballistic missiles, fighter jets, and attack helicopters. More concerning? The Syrian government enjoys backing from Russia and China.
Right now, Syria doesn't have missiles that can reach the U.S., but they can reach Israel, and that's a problem. Iran's Fars News quoted a Syrian military official as saying, "If Syria is attacked, Israel will also be set on fire and such an attack will, in turn, engage Syria's neighbors." Whom is Syria referencing with "neighbors"? Iran. The Middle East is a mess, and it's just waiting for something to tip it into out-and-out chaos. Which could mean even more U.S. involvement.
A missile strike on Syria could also affect oil prices. In July, for example, OPEC crude output hit a four-month low because of the conflict in Libya and Iraq. July's gas prices rose $0.14 per gallon because of increased demand and unrest in the Middle East, according to AAA.
Oil price increases are usually good for ETFs such as the United States Oil Fund, ProShares Ultra DJ-UBS Crude Oil, and PowerShares DB Oil Fund, but a rise in oil prices could be detrimental to the global economy.
The World Bank Development Research Group Environment and Energy Team analyzed a wide body of research on oil prices' impact on the economy. They concluded that an increase in oil price negatively affects global GDP but is especially damaging to emerging and developing countries because of their reliance on oil-intensive manufacturing industries.
Finally, for years people such as former Defense Secretary Leon Panetta, and Gen. Keith Alexander, director of the National Security Agency and commander of U.S. Cyber Command, have warned about the United States' vulnerability to cyber attacks. Panetta said adversaries such as China, Iran, and Russia are more than capable of using "cyber tools" to do anything from derailing trains to contaminating water supplies and shutting down power grids, while Alexander has rated America's readiness for addressing a catastrophic cyber-attack "3 on a scale of 10." So while Syria can't reach the U.S. via missile, it and its allies are more than capable of launching cyber-initiatives.
The good news is companies the likes of Northrop Grumman (NYSE:NOC), General Dynamics (NYSE:GD), and CACI International (NYSE:CACI), are working to address U.S. cyber weaknesses. Northrop partnered with MIT, Carnegie Mellon, and Purdue University to create the Cybersecurity Research Consortium. General Dynamics has decades of "cyber domain expertise," and provides the only NSA-Certified SME PED, which is a secured wireless phone and PDA. And Lockheed Martin awarded CACI's cybermarket division a $36 million five-year subcontract to provide cyberforensics and information technology solutions for the Department of Defense Cyber Crime Center.
The bad news is, right now, the U.S. is still pretty vulnerable.
What to watch
Washington believes the Syrian government used chemical weapons. Vice President Biden went so far as to state, "No one doubts that innocent men, women, and children have been the victims of chemical weapons attacks in Syria, and there's no doubt who's responsible for this heinous use of chemical weapons in Syria: the Syrian regime." That crossed the United States' proverbial "line in the sand."
Consequently, U.S. officials have said the Obama administration is looking at a sending a message through three days of missile strikes, and that the initiative will be "small-scale." However, this could easily blow up into a much bigger conflict. Military action would of course benefit defense companies, and defensive stocks in general, but it could negatively affect the U.S. economy. This unfolding story is something to monitor closely.