It is well known that Syria and Iran have for years been ardent financial and political supporters of the terrorist organization Hezbollah. These countries recently signed a mutual defense pact, so if Israel targets Syria in its retaliation, there is a risk that Iranian leaders could take actions that destabilize the entire region.

While Iran’s military may not yet have the capability to project force on Israel, the mullahs could foment a Shiite uprising that would destabilize the fledgling democracy in Iraq. Or they could use missile batteries to disrupt the flow of Iraqi, Kuwaiti, and Saudi oil to world markets. This involves threats of the shutting down of the Strait of Hormuz, one of the most critical chokepoints in the crude oil supply chain.

The risk of such a shutdown is the primary reason crude oil has been rallying so strongly in the face of such high inventory levels. In the long run, commodities, and the stocks of commodity companies, do not trade on inventories. Instead, they “price in” the long-term supply and demand scenarios, and the threats to those scenarios can exacerbate short-term price fluctuations.

These factors create fear in investors and the market will continue to deteriorate until the Middle East is not in such turmoil.