Investor sentiment turned negative Friday following the Pentagon’s confirmation that a United States airstrike inside Iraq had killed top Iranian general Qassem Soleimani, an escalation of tensions between the two countries. The benchmark Dow Jones Industrial Average plunged more than 300 points when markets opened Friday. In the overnight and early morning hours, futures for oil prices had risen as broader market indices fell.

“The oil market reaction was swift and quick as prices rose about 4 percent,” said Andrew Lipow, president of Lipow Oil Associates. This had ripple effects on other industries, particularly airline stocks, which are especially sensitive to energy volatility.

Lipow said American drivers shouldn’t expect a spike in prices at the pump — at least, not yet. Gasoline and diesel futures were up about six cents a gallon, he said. By comparison, the September attack believed to be conducted by Iran-backed forces on a key oil production facility in Saudi Arabia, which led to a short-term supply disruption, caused gas and diesel futures to rise around 20 cents a gallon.

F. Gregory Gause III, professor and head of the international affairs department at Texas A&M University, pointed out that the September impact on prices was relatively short-lived, as investor fear faded and Saudi Arabian authorities pushed to repair the damage and restart production within weeks. “The Iranian attack on Saudi oil facilities in September had only a temporary impact on oil markets,” he said.

The sharp drop in U.S. equities at opening had moderated somewhat by mid-morning; a sign, economists suggested, that cooler heads ultimately would prevail.

“I suspect that the market is relying on the fact that this is likely to be worked out, will likely be settled in a diplomatic fashion. We don’t see this escalating into an all-out military action,” said Peter Cardillo, chief market economist at Spartan Capital Securities.

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“Yes, a harsh war of words will likely take place before diplomacy is used — that’ll keep the markets nervous and volatile but I don’t think this is going to reverse the bullish sentiment that the market has been in,” he said.

“We’ve seen time and time again that Trump will attack someone and then send out a tweet to de-escalate. Trump is very good at playing the game. He will send a very strong signal, then try to appease you,” said Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management.

“I see this as a knee-jerk market reaction to startling news,” Gause said. “There will be an Iranian reaction, but it could be weeks away.”

That said, many analysts and economists aren’t counting out Tehran — or its proxies — just yet.

“The question is how, not whether, they will respond. For markets, the key issue is the impact of the Iranian response on oil prices,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a client note.

Shepherdson predicted that escalation to a full-blown military conflict is unlikely, but he said the oil industry has a bevy of soft targets that are vulnerable. “We can't rule out some sort of grand-scale attack, but an array of smaller-scale activity is our core bet,” he said. “The infrastructure of the oil sector, though, is a likely target in the event of tit-for-tat escalation.”

“Iran’s oil exports are already severely curtailed as a result of US sanctions. And while it appears that Iraq is being caught in the crosshairs of the U.S.-Iran tensions, it is unlikely to affect Iraq’s oil production directly,” Caroline Bain, chief commodities economist at Capital Economics in London, said in a client note.

While this makes an immediate supply disruption far less likely, it also could embolden Iran, Lipow said. “With Iranian crude exports virtually zero, Iran has very little to lose in the way of oil revenue and could take retaliatory action.”

Iran could strike at production facilities, ports or tankers — or harass vessels passing through the Straits of Hormuz, a critically important choke point through which an estimated one-fifth of the world’s oil supply passes. “A lot of countries over there want to use proxies rather than having their flag flying over an attack boat or troops. There certainly are a lot of actions that Iran could take to disrupt oil production and oil shipping,” Lipow said.

And despite U.S. efforts, Iran is not entirely isolated on the diplomatic stage. “It has two big backers now,” Ren said, pointing to the recent joint military exercises Iran conducted with China and Russia in the Gulf of Oman. “From that perspective, that makes me wonder if Iran is going to retaliate.”

Iranian leaders have a self-serving motivation to stoke further tensions with the U.S., Ren added. “The GDP of Iran shrunk by 9.5 percent in the last year, and the crime rate in Iran is up more than 30 percent year over year,” he said. “There’s a lot of domestic dissatisfaction… To have the U.S. as an enemy is a pretty good way for the government of Iran to divert that dissatisfaction.”

For investors, Lipow forecasted a potentially bumpy ride for the start of 2020. “The oil market is always concerned that the geopolitics in the Middle East can lead to a supply disruption,” he said, adding that an unexpected supply crunch could have broader economic ripple effects. “The volatility can certainly last for some time as the market waits for a reaction from Iran and perhaps a counter-response from the U.S. or someone else,” he said.