Middle East tensions put investors on alert, weighing worst-case scenarios

Investors are mulling a host of different market scenarios should the U.S. deepen its involvement in the Middle East conflict, with the potential for ripple effects if energy prices skyrocket.

They are honed in on the evolving situation between Israel and Iran, which have exchanged missile strikes, and are poised for action if the U.S. decides to join Israel in its bombing campaign.

That would likely cause an initial selloff in equities and possible safe-haven bid for the dollar on concerns U.S. military action against Iran would send inflation higher, dampening consumer confidence and lessening the chance of near-term interest rate cuts.

The move by the U.S. to deploy B-2 bombers to Guam on Saturday has caught the attention of market participants. While the bombers could be used to deliver the 30,000-pound bombs able to destroy Iran's underground nuclear program facilities, it is unclear whether the move is tied to Middle East events.

The move "just underscores the administration's willingness to threaten to intervene," said Mark Spindel, chief investment officer of Potomac River Capital LLC.

"I think this will help oil prices stay higher; the easy direction for them right now is up at this point," Spindel added.

While U.S. West Texas Intermediate crude prices (WTI) have climbed some 10% over the past week, the S&P 500 (.SPX), opens new tab has been little changed, following an initial drop when Israel launched its attacks.

However, if attacks were to take out Iranian oil supply, "that's when the market is going to sit up and take notice," said Art Hogan, chief market strategist at B Riley Wealth.

"If you get disruption to supply of oil product on the global marketplace, that is not reflected in today's WTI price and that is where things get negative," Hogan said.

The White House said on Thursday that President Donald Trump would decide on U.S. involvement in the conflict in the next two weeks. Israeli officials, however, have told the Trump administration they do not want to wait the two weeks and that Israel could act alone before the deadline is up, two sources said.