LONDON — The most surprising thing about the oil market’s reaction to the killing of Iranian Major-General Qassem Soleimani by the United States is that it has been so muted.

Prices jumped soon after the killing, but the upward momentum has since eased. On Tuesday (Jan 7), the Brent crude oil benchmark fell nearly 1 per cent, to US$68.27 (S$92.17) a barrel.

Analysts say that the subdued reaction to an event that heightened the risk of major conflict in the world’s most important oil-producing region is not as strange as it might seem. Oil flows have not been disrupted — so far — and markets are skeptical that Iran would seek to hobble trade in the fuel by, for example, closing the Strait of Hormuz, the narrow channel that many oil tankers have to pass through when they leave the Persian Gulf.

The markets are “pricing in just a low probability of something happening,” said Mr Bjornar Tonhaugen, head of oil market research at Rystad Energy, a research firm.

For now, traders have decided that raising the price of oil by US$3 a barrel is “enough” to account for the heightened tensions, he said.

The standoff between the United States and Iran follows several years of downward pressure on prices because of a gusher of supplies, largely from the shale boom in the United States.

American oil production has more than doubled over the last decade to more than 13 million barrels a day, and the United States is now the world’s biggest producer. It now imports about 4 million fewer barrels of oil a day than in 2008 because of its production surge and greater use of more fuel-efficient vehicles.

Concerns about growing restrictions on the use of fossil fuels because of their role in climate change have also weighed on prices said Mr Gary Ross, chief executive of Black Gold Investors, a trading firm.

"(People) don’t want to be invested in oil,” he said.

Markets have become so accustomed to a surplus of oil in the global market that they are not as worried about tensions in the Persian Gulf region as they once were.

“Oil has become a broken barometer for gauging Middle East tensions,” said Ms Helima Croft, head of global commodity strategy at RBC Capital Markets, an investment bank. “It now only reacts after something seismic happens.”

Ms Croft said that the markets had largely ignored the steps Iran had taken to respond to the reinstatement of US economic sanctions by the Trump administration.

The United States and Saudi Arabia have said that Iran was behind naval mines that damaged oil tankers and was behind an aerial attack on key facilities that temporarily cut Saudi oil production by more than half.

These moves were apparently intended to demonstrate that Tehran would make it difficult or impossible for American allies like Saudi Arabia and the United Arab Emirates to export oil if the Trump administration hemmed in Iranian exports.

“I do not know how anyone can be sanguine about Iran’s disruptive capabilities after that drone/cruise missile attack,” Ms Croft said.

Saudi Aramco, the national oil company, managed to restore production remarkably quickly, but Ms Croft said it was not clear that the company would be able to respond as fast to future attacks.

Analysts also say that the drone strike on Soleimani in Iraq may well worsen an already tumultuous political environment in that country. The killing has already sent ripples including calls from the Iraqi Parliament and government for the United States to withdraw its troops. Those in turn drew threats of sanctions from US President Donald Trump.

Iraq is the second-largest producer in OPEC after Saudi Arabia, and its oil fields have been largely unaffected. But there would be serious consequences if the turmoil spread to those fields, analysts say.

For instance, the prolonged loss of half of Iraq’s exports, which amount to close to 4 per cent of world supplies, could propel prices toward US$90 a barrel, Mr Tonhaugen said. And Iraq might not have the backup systems and other safeguards that allowed the Saudis to recover from the September attacks.

Mr Tonhaugen and other experts are skeptical that Iran would resort to the “worst case type of scenario” by trying to close the Strait of Hormuz, through which around 18 million barrels a day of oil is transported.

Occupying much of the eastern side of the narrow strait, the Iranians can easily tamper with ship traffic there, but analysts are skeptical that they would do more than seize or target the occasional vessel, as they have in recent months.

Anything more could “invite a very muscular response from the US,” said Mr Antoine Halff, chief analyst at Kayrros, a market research firm, and a senior scholar at Columbia University’s Centre on Global Energy Policy.

Mr David Fyfe, chief economist at Argus, a research firm, said that Tehran would be wary of responses that raised oil prices substantially or jeopardise supplies for China, a key supporter, which buys much of the oil Iran sells and is heavily dependent on the Middle East for fuel.

“I don’t think a major blockage of the Strait of Hormuz is really much more likely than a week ago,” Mr Fyfe said.

Of course, investors could quickly bid up the price of oil if the strait was closed or hostilities between the United States and Iran boiled over into a major conflict.

The United States remains an importer of oil, but it roughly exports as much oil as it buys from other countries. Higher prices at the pump would hurt consumers, especially lower-income families in regions like the Northeast that do not produce oil.

But higher prices would help parts of the country that produce oil, such as Alaska, Colorado, Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming. Higher prices would potentially expand employment and consumer demand in those states. THE NEW YORK TIMES