How will the Saudi-Iranian conflict affect oil?

Investors are eyeing oil amid Middle Eastern tension with fears that the conflict could boil over into the oil market. After a brief Brent rally of more than 4 percent, the commodity closed down on Monday.

Unless geopolitical events affect the direct supply of oil, such as by impeding a major pipeline, port or waterway, oil prices shouldn't be affected, said Brenda Shaffer, senior global fellow at the Atlantic Council's Global Energy Center.

"Iran has all the interest in the world right now to actually move the conflict between Iran and Saudi Arabia into the domestic arena in Saudi Arabia," she said, speaking to CNBC's "Closing Bell" on Monday. "If that happens ... we could still see a huge implication for the oil price."

Saudi Arabia announced the cut of diplomatic relations with Iran on Sunday, with Bahrain and Sudan following suite on Monday. The countries severed ties after the Saudis executed a Shiite cleric and Iranians stormed into the kingdom's embassy in Tehran.

While Shaffer sees escalation between Iran and the Saudis as a potential threat to oil prices, Kent Moors, director of the Energy Policy Research Group, considers Bahrain to be the "flash point" for the Saudis.

"[Bahrain] is connected to the province in which they produce the majority of their oil," he said. "It is also the only province in Saudi Arabia that has a majority Shiite population."

Still, Shaffer believes that if the Saudi-Iranian turmoil does not affect oil production, oil prices won't be affected.

"In the last year and a half, what we're really learning is stick to the fundamentals," she said. "If it doesn't affect, like what's happening currently between Iran and Saudi Arabia, it shouldn't be factored into the oil price."

—Reuters contributed to this report.