Despite the tension between Iran and Israel, the oil market remained unperturbed this week.

• Despite the direct strikes between Iran and Israel, U.S. crude oil and Brent ended the week 3% lower.
• Concerns about oil prices reaching $100 a barrel or higher did not come to fruition.
• It appears that investors think Israel's limited response allows Iran to avoid retaliating.
• According to Manish Raj, managing director at Velandara Energy Partners, the skirmishes did not impress the oil markets, which believe that no disruption to oil flows will occur.

If investors only focused on the price of oil at the end of this week, they wouldn't have been aware of the potential conflict between Israel and Iran, OPEC's third-largest crude producer.

Despite the escalation of tensions between Iran and Israel, U.S. crude oil and global benchmark Brent ended the week with a 3% decline. Contrary to expectations, oil prices did not surge to $100 a barrel or higher.

On Friday, U.S. oil futures settled at $83.14 a barrel, which was the lowest price since late March, just before the current escalation began with Israel's attack on an Iranian diplomatic compound in Damascus, Syria on April 1.

Prices of futures decreased for three days after Iran's missile and drone attack on Israel last weekend, and they increased only slightly after Israel retaliated on Friday.

It seems that investors believe that Israel's limited retaliatory strike, which did not cause significant damage or casualties, gave Iran an opportunity to stop counterattacking.

After traders bid up prices last week on war fears, the market has effectively eliminated the risk premium associated with the Iran-Israel tensions.

"According to Manish Raj, managing director at Velandara Energy Partners, traders are not convinced that Israel or Iran is genuinely interested in escalating tensions and are only engaging in symbolic, face-saving exercises. The skirmishes did not impress the oil markets, which believe that no disruption to oil flows will occur."

The bar for war is high

According to John Kilduff, founding partner at Again Capital, oil markets were most concerned about the possibility of Israel striking one of Iran's nuclear facilities, which would have required Tehran to retaliate. However, international pressure on Israel to exercise restraint seems to have been effective, as the International Atomic Energy Agency confirmed on Friday that there was no damage to Iran's nuclear sites.

Marko Papic, the chief strategist at the Clocktower Group, informed clients in a Friday note that he believes the cycle of escalation between Israel and Iran has ended, at least in terms of direct attacks against each other. Papic stated that a prolonged war between the two countries is unlikely and may even be unattainable.

"The two countries are separated by considerable distances due to the power projection capabilities of their militaries," Papic told clients. "As such, Israel's limited response to Iran may not be merely a diplomatic choice due to U.S. pressure. Instead, it may be a function of material constraints as well." Kilduff told CNBC's "Squawk Box" on Friday that the bar is very high in the Middle East for all-out war to break out, choking off oil supplies.

Kilduff stated that over the years, these attacks have been handled diplomatically and we have managed to avoid any significant loss of oil barrels.

Rising Mideast risk

The oil market and the world may have been fortunate this week as Israel and its U.S.-led allies successfully shot down most of the over 300 missiles and drones launched by Iran, easing pressure on the Netanyahu government to retaliate with a significant response.

According to Tom Donilon, who served as former President Barack Obama's national security advisor, Iran had intended for the missiles and drones to cause significant damage. However, the Islamic Republic did not anticipate that the coalition's air defenses would be so effective in protecting Israel.

At the Columbia Global Energy Summit in New York City on Tuesday, Donilon warned that there is no assurance of achieving a 99% success rate in any of these things. Although the situation has not escalated in the short term, the Iranian attack has altered the region, he stated.

Donilon stated that the risk profile in the region would increase structurally in the long term.

The Strait of Hormuz, which serves as a vital passageway for 19 million barrels of oil daily from the Persian Gulf to the global market, could cause the price of global benchmark Brent crude oil to reach $130 a barrel if there is a significant disruption in the strait, as predicted by Rapidan Energy Group.

Kilduff stated that while the Strait of Hormuz is rightly the focus when discussing Iran, it is difficult to see Iran affecting it because they rely on it heavily for exporting oil.

If the Iranians started seizing vessels, the oil market would take notice, but blocking the strait is not an option for them, Kilduff stated.

If tankers start avoiding the region to avoid direct conflict or interaction with Iranian naval forces, then the oil market will focus on that, and we'll be back in the soup, according to Kilduff.