Oil prices (CL=F, BZ=F) are rallying in response to the geopolitical tensions unfolding in the Middle East. President of Rapidan Energy Group Bob McNally joins Yahoo Finance Live to discuss how these developments could impact markets.

McNally emphasizes that the "real bullish oil market risk" is centered around Iran. He notes that traders had "shrugged off" the risks from the region since November. However, following an Israeli attack in the region this week, McNally says the markets are now starting to price in "the big one," or a direct conflict between Israel and Iran.

As oil prices have risen above the $90 level, McNally acknowledges this could be a "concern." However, he points out that with the Federal Reserve "worried about inflation," oil prices at this level could lead to worries about inflation spiking within consumer goods like gasoline— potentially slowing down the pace of future Federal Reserve rate cuts.

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

Video Transcript

JULIE HYMAN: A volatile week in the energy market-- we've been talking about this-- both West Texas and Brent Crude rising more than 3% on the week. Joining us now, Bob McNally, Rapidan Energy Group founder and president.

Bob, you just heard us talking about energy stocks, but I do want to start with the underlying commodity, and an interesting week in which we finally had things sort of moving the needle out of the Mideast, which has not been happening consistently over the course of this conflict.

The market's seeming to take seriously the idea of Iran retaliating against Israel. Talk to me about how it's being perceived and how it could play out.

ROBERT MCNALLY: Thanks, Julie. You know, you're right. Traders understand that the real bullish oil market risk from the Middle East is about Iran. It's not about Gaza. It's not even about the Red Sea. It's about Iran. And you're right. Until this week, traders have pretty much shrugged off what we call Iran contagion risk since early November.

What happened in early November? The Iranian proxy, Hezbollah, came out and said, look, we're not going to open up a second front. So when everyone said, OK, Iran's best friend in Lebanon, Hezbollah, is not going to open up a second front, traders looked the other way.

But that stopped this week when Israel attacked a building in a diplomatic compound. And now for the first time since early November, the market is pricing in the big one, the direct conflict between Israel and Iran, which there's a small chance that could always bring in the United States were that to kick off. So now it's getting real in the oil markets.