Geopolitical tensions escalated this week impacting oil markets (BZ=F, CL=F), after three US soldiers were killed by a drone strike in Jordan. The attack was reportedly carried out by Iranian-backed militants, though Iran has disputed involvement and denied responsibility.

Yahoo Finance's Rick Newman breaks down the details, providing insights into how President Biden's next move could affect global energy markets.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Well, oil prices are lower as conflict in the Middle East escalates. Three US soldiers were killed and dozens wounded by a drone strike from Iran-backed militants on Sunday. President Biden vows to retaliate, saying in a statement that those responsible will be held to account.

As for Iran, the nation's foreign minister is distancing itself from the attacks, saying that accusations of Iranian involvement are quote baseless. With tensions flaring, what can we expect the fallout to be for the US? We've got our very own Rick Newman tracking this story. Rick, what do we know so far?

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RICK NEWMAN: Well, this crosses a so-called red line regarding US involvement in everything happening in the Middle East because we now have American service members who have been killed and others injured by what appears to be a strike emanating from Iran or with Iran's backing. And President Biden very quickly said-- he left no doubt about it-- he said we shall respond to this. Now, the whole question is what is the United States going to do?

This chorus of some Republicans on Capitol Hill saying President Biden needs to attack Iran directly. I would not necessarily expect that to happen. Biden, for what it's worth, has been pretty measured in the way he has responded to various types of provocations globally. I mean, we've seen a very incremental response to the war in Ukraine, for example, where Biden gradually provided new weapons.

So markets actually seem somewhat reassured by this. We did see a little spurt upward in oil prices after news of this first came out. But oil prices have since settled back, which seems to be the market saying, we don't necessarily think this is going to escalate in anything that will threaten global oil supplies.

But there is a slippery slope problem here. I mean, United States keeps getting a little more involved, a little more involved, and it's not clear where this ends.

SEANA SMITH: And certainly, President Biden vowing here to respond. And, of course, Rick, like you were just talking about, the question is, how exactly that is going to happen? And if it is any sort of escalation, then more broadly speaking, the risk that this could pose here to the global markets. Rick, always great to get your insight. Thanks so much.

RICK NEWMAN: See you, guys.