Iran's reaction to the re-imposition of U.S. sanctions in November could lead to some kind of "unintended military escalation" – a risk currently underappreciated by markets, RBC Capital Markets closely-watched oil market expert Helima Croft said on Wednesday. "We maintain that Iran 's response to the coercive measures will play an important role in determining the potential upward trajectory of prices," Croft and her team of oil analysts said in a note Wednesday.

An Iranian military truck carries surface-to-air missiles past a portrait of Iran's Supreme Leader Ayatollah Ali Khamenei during a parade on the occasion of the country's annual army day on April 18, 2018, in Tehran. Atta Kenare | AFP | Getty Images

The note titled "Winter is coming" warned that "if the Iranian regime restarts its nuclear program, increases support for regional proxy groups, or makes a genuine effort to restrict maritime traffic through vital chokepoints, fear price premium calculations will become of paramount importance." RBC Capital Markets' base-case scenario is that Iran's Supreme Leader Ayatollah Khamenei will opt for an approach of "contained escalation" and will seek to avoid a direct military confrontation with its regional rivals, like Saudi Arabia and Israel, that support the U.S. sanctions. Still, there's a risk that any retaliatory measures could get out of hand. "An unintended military escalation through miscalculation continues to be one of the most underappreciated risks in our view," Croft and her team warned. "Even if the probability of such a scenario remains relatively low, it would serve as the ultimate high-impact event for oil prices." The type of Iranian "provocation" will matter materially for oil prices, RBC's team said, as will the reactions of powerful rivals such Saudi Arabia, Israel, and the U.S. "If Tehran opts to avoid escalatory measures and attempts to wait out the Trump administration, the impact on oil prices would be more muted and largely limited to how many of its barrels are removed from the market by sanctions," Croft's team, including Christopher Louney, Michael Tran and Megan Schippmann, wrote. While the analysts noted that trade war and emerging market contagion fears could still serve to keep a lid on prices in the near term, they believed "the geopolitical risks remain skewed quite heavily to the upside." Emerging market currencies have succumbed to yet another sell-off – with some hitting record lows – as concerns rise about potential contagion across multiple regions.

Oil's 'fear premium'