John Kilduff
CNBC Contributor

Oil is on the boil, again, this morning over renewed speculation concerning Israel’s intentions on Iran’s nuclear capabilities. Once again, we awake to a raft of comments from various officials in the protagonist countries about a possible military strike on Iran.

This has been the season of unfortunate comments. I had previously thought the International Energy Agency’s premature comments about its analysis of global supply, which was never done before and will not be released until November, at the earliest, was a lock for the ill-timed remark of the year award. The recent round of comments surrounding Iran’s nuclear ambitions made it a horse race.

This morning, Isaac Ben-Israel, a former Israeli Air Force General, told Der Spiegel’s on-line edition that Israel’s recent military exercise was in preparation “for the eventuality that the international community will not be able to put a halt to Iran’s nuclear program. Among his statements, he remarked that while this undertaking would be more difficult than the 1981 bombing run in Iraq, “… it is possible. We could do it [strike Iran] today.”

Last week, former United Nations Representative John Bolton gave the upcoming interregnum, as the time frame for an attack. This was given further credence, today, by a comment by an unnamed Pentagon official who said Israel is likely to attack Iran this year.

Iran, of course, does its part foment tensions with fiery language over the future, or lack thereof, of the Jewish State.

The markets are reacting strongly, at the moment, to this latest round of rhetoric. To a degree, the price response is appropriate: just how high prices would spike on such an attack is virtually incalculable.

However, the sky is not falling… yet. While Israel may have the capability to undertake an attack, it would be at the outer limit of their capabilities. In fact, despite the recent exercise, many still believe Israel is not capable of such an attack.

The more reasonable analysis is the Israel is saber rattling not just against Iran, but against the UN Security Council, specifically China and Russia. By raising the temperature on the situation, Israel appears to be trying to pressure a diplomatic solution. As Ben-Israel said, “the problem can still be solved another way: [diplomatically].”

Furthermore, as NBC News Terrorism Expert, Bob Windrem, pointed out, Israel needs the element of surprise for an attack to be successful.

Therefore, while all of this talk is unnerving, it should be taken in moderation. There are still plenty of reasons for energy prices to continue their climb; this latest rally is the hollowest. There is no worse potential price whipsaw than a rally built upon diplomatic discourse. These are people who schooled in the art of the graceful climb down, but markets are not as nuanced.

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John P. Kilduff Senior Vice President Of Energy at MF Global Ltd. He's also a CNBC contributor.

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