Oil prices have risen over the last 24 hours following Israel's offensive against Palestinian militants in the Gaza Strip, while Israeli stocks and the shekel have weakened, but one analyst told CNBC that markets shouldn't worry unless Iran becomes involved.
On Thursday, Hamas fired dozens of rockets into southern Israel, killing three Israelis in retaliation for the Israel's assassination of Ahmed Al-Jaabari, Hamas' military chief. Israel also launched numerous air strikes across the Gaza Strip and threatened an invasion of the enclave. Iran condemned Israel's attack as "organized terrorism."
"These things aren't uncommon, there are always occasional flair-ups between Israel and Palestine. I think the only worry would be if Iran gets involved and the oil supply becomes affected," Daniel Morris, Global Strategist at JP Morgan Asset Management told CNBC.
Worryingly for markets concerned about oil supply disruptions, Iran condemned Israel's attack as "organized terrorism" on Thursday.
Former British Prime Minister Tony Blair who acts as representative for the Quartet (the U.S, European Union, Russia, and the United Nations) to the Middle East told CNBC it was important that Egypt and other countries tried to calm tensions between the two sides.
"If the rockets keep coming out of Gaza, and in those circumstances Israel will retaliate, if that continues to happen … this could escalate in a very, very serious way indeed."
Andrew Su, CEO of Compass Global Markets told CNBC that the military action could trigger a spike in U.S. crude prices past $90 a barrel if the fighting worsens.
"There's a possibility of a $5 spike in premium over the next week if there's escalation...if there's ground movement, if the Israeli army moves its infantry into the Gaza Strip," Su told CNBC Asia's "Squawk Box" on Thursday.
Brent crude gained 14 cents to $109.75 a barrel on Thursday morning after settling $1.35 higher in the previous session, while U.S. crude edged up 2 cents to $86.34, after ending 94 cents up. However gains were limited by data showing the euro zone was in recession for the second time since 2009 and as worries over the U.S. "fiscal cliff" continued.
David Hartwell, a Middle East analyst at defence and security intelligence firm IHS Jane's told CNBC that it was unlikely that Iran would get involved
"These events have happened before between Israel and Palestine and though neighboring states provide rhetorical support for Palestine, it's very unlikely that this would be followed by action to defend Palestine," Hartwell said on Thursday.
"These events tend not to impact on foreign investment or oil prices too much as people see them in isolation rather than part of an ongoing conflict."
"Iranian involvement in the Palestinian cause is very hands off. Most of Hamas' relationships are with the Gulf states rather than Iran."
In a note issued on Thursday, Hartwell said that although the scene is set for a major escalation of violence in and around Gaza, with Israel apparently ready to deploy ground forces, it was unlikely in the immediate future.
"More likely is a period of Israeli airstrikes and Palestinian rocket exchanges, perhaps presaging limited ground operations in the future."