Why did you ignore the oil markets when Iran and Israel appeared on the brink of war?

In fact, US oil futures closed on Friday at $83.14 a barrel, the lowest settlement price since late March, days before the current escalation spiral began with an Israeli strike on an Iranian diplomatic compound in Damascus, Syria, on April 1.

Futures fell for three days following Iranian missile and drone launches against Israel last weekend, and prices settled only slightly higher after Israel responded on Friday.

Investors appear to believe that Israel's limited retaliatory strike, which did not appear to cause any significant damage or casualties, provided Iran with a ramp to refrain from counterattacking.

The market has essentially erased the risk premium associated with tensions between Iran and Israel after traders bid up prices last week on war fears.

“Traders do not believe that Israel or Iran are actually interested in escalating tensions, and are only engaging in largely symbolic face-saving exercises,” said Manish Raj, managing director at Velandara Energy Partners. He added, “These skirmishes did not impress the oil markets, which believe that there will be no interruption in oil flows.”

Oil markets were more concerned about Israel striking one of Iran's nuclear facilities, which would have required Tehran to respond, according to John Kilduff, founding partner at Again Capital. It seems that international pressure on Israel to exercise restraint has paid off. the International Atomic Energy Agency He confirmed on Friday that there was no damage to Iranian nuclear sites.

“We are therefore prepared to cautiously conclude that the cycle of escalation between Israel and Iran has ended, at least with regard to direct attacks against each other,” Marko Babic, chief strategist at Clocktower Group, told clients in a note on Friday. . Babic said that it is difficult to imagine an ongoing war between Israel and Iran, and may even be impossible in practical terms.

“The two countries are separated by great distances, given the capabilities of their armies to project force,” Babic told the agents. “As such, Israel's limited response to Iran may not simply be a diplomatic choice due to US pressure. It may also be a result of physical constraints.”

Expectations in the Middle East for an all-out war, choking off oil supplies, are very high, Kilduff told CNBC's “Squawk Box” on Friday.

“Over the years – over the decades now – these attacks come and are dealt with diplomatically and we do not lose any barrels of oil,” Kilduff said.

But the oil market and the world as a whole may have had good luck this week. Israel and its US-led allies were able to shoot down all of the more than 300 missiles and drones launched by Iran, potentially reducing pressure on Netanyahu's government to respond with dramatic force.

But Tom Donilon, who served as national security adviser to former President Barack Obama, said Iran intended the missiles and drones to cause significant damage. Donilon said the Islamic Republic simply did not expect that coalition air defenses would prove effective in protecting Israel.

“There's no guarantee that you're going to get a 99% success rate on one of these things every time it happens,” Donilon warned at the Columbia Global Energy Summit in New York City on Tuesday. He added that although the situation did not escalate in the short term, the Iranian attack changed the region.

“In the long term, it's a structural increase in the level of risk in the region,” Donilon said.

The focus remains on the Strait of Hormuz, the narrow body of water through which 19 million barrels of oil passes daily from the Persian Gulf to the global market. The price of global benchmark Brent crude could rise to $130 per barrel if there is significant disruption in the strait, according to Rapidan Energy Group.

“When you talk about Iran, everyone focuses on the Strait of Hormuz, and that's true, although it's hard to see Iran affecting that because they depend on it so much” themselves to export oil, Kilduff said.

Kilduff said closing the strait is off the table for the Iranians, but if they start seizing ships the oil market will take notice.

“The oil market will focus like a laser beam on this because to the extent that tankers start avoiding the region, and stop transporting oil to avoid any kind of direct conflict or interaction with the Iranian naval forces, then yes, we will come back,” he added. “Soup,” said Kilduff.