What hasn’t gone wrong in the Middle East (so far)

The Israel-Hamas war is nowhere near settled, with fighting picking up again after a weeklong ceasefire to facilitate the exchange of hostages. The shooting could continue for weeks or months. But there are a few things that haven’t gone wrong since Hamas terrorists attacked Israel on Oct. 7, and financial markets are passively showing relief by discounting risks related to the war.

One of the biggest worries after Oct. 7 was whether Iran, the Middle East’s most notorious troublemaker, would overtly or covertly escalate by attacking Israel, Israel’s allies, or anybody else. Any provocation linked with Iran would invite and perhaps compel American or Israeli retaliation that could imperil shipping lanes and production facilities in a region that supplies nearly one-third of the world’s oil, sending prices soaring.

There have certainly been rumblings. In Lebanon, Iran-allied Hezbollah has been conducting harassment attacks against Israel, mostly in the north. Israel has been firing back. Other militias aligned with Iran have mounted sporadic rocket attacks against American bases in Syria and Iraq, also drawing return fire.

But seven weeks after Hamas ignited the war, escalatory pressure appears to be easing. Hezbollah seems to have opted against triggering a broader war, and attacks on US troops have diminished. To the extent that Tehran controls any of these groups, it seems to be avoiding anything that could bring the war to its home turf and disrupt oil exports that are finally recovering after several years of US sanctions depressed Iran’s desperately needed oil revenue.

“Iran has been wary of intervening in the ongoing Middle East crisis and is likely to avoid any action that might escalate the conflict,” Eurasia Group analysts wrote in a Nov. 25 report. “Though Iran supports Hamas and has celebrated the 7 October attack on Israel, it appears unwilling to enter the conflict directly.”

Markets have noticed. Brent crude, the global benchmark, jumped by about $10 per barrel in the days following the Oct. 7 attacks. But it has since settled back to around $83, slightly below the pre-attack price. And that’s with new supply cuts announced by the OPEC+ oil cartel, which put upward pressure on prices. So the fear premium tacked onto oil prices after Oct. 7 seems to have dissipated, perhaps completely.

The United States has an unexpected ally in its effort to keep a lid on Middle East tensions: China. As the world’s largest oil importer, China has been trying to expand its influence in the Middle East, where it gets a lot of its oil. Earlier this year, Chinese envoys brokered a make-nice deal between Saudi Arabia and Iran, longtime rivals that fought a proxy war against each other in Yemen and have feuded in many other ways. China doesn’t have military assets in the region the way the United States does, but it’s selling itself as an alternative and counterweight to American influence in the Middle East.

Drop Rick Newman a note, follow him on Twitter, or sign up for his newsletter.

One upshot of that is China may have more influence over Iran than the United States does — and China wants low oil prices as much as anybody else since it’s so dependent on imports. China buys most of Iran’s oil, which gives it a powerful interest in keeping the spigots open. “Beijing does not view chaos in the Middle East as being in its interest,” Eurasia Group wrote in a separate Nov. 30 report. “China has already engaged Iran to some degree with a message of restraint.”

The United States, meanwhile, has sent two aircraft carrier battle groups and other military assets to the region, a muscle-flexing exercise targeted mainly at Iran and its proxies. US ships in the Red Sea have shot down missiles fired toward Israel by a rebel group in Yemen, which is more than 1,000 miles from Israel. American military force, combined with quiet Chinese influence, is calming the periphery of the Israel-Hamas war, for now.

Other Arab nations in the Middle East have been less hostile toward Israel than they could be. Israel has diplomatic and trade relations with Jordan, Egypt, Bahrain, and the United Arab Emirates. Before Oct. 7, there was progress toward the normalization of relations between Israel and Saudi Arabia. Those governments have publicly criticized Israel’s invasion of Gaza, "But I will point out, no country has broken relations with Israel,” Steven Cook of the Council on Foreign Relations said during a Nov. 28 briefing. “Israel is an important country. It is well integrated into the global economy. It’s an important cog — one of the most important cogs in technology, cybersecurity, and those kinds of things.”

There could be new ruptures at any moment, and a wider Middle East war is always possible. But Arab nations that benefit from trade with Israel want to keep it that way, and those that don’t have their own markets to protect, as well. Economic self-interest is a powerful force, even amid the madness of war.

Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.

Click here for politics news related to business and money

Read the latest financial and business news from Yahoo Finance