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The Dow Jones Industrials (DJINDICES:^DJI) had lost a slim eight points as of 11 a.m. EDT Tuesday. Investors let a couple of troubling economic reports dampen their enthusiasm, as inflation at the consumer level rose more than expected last month while housing starts fell substantially. Financial stocks still posted solid gains, but energy giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) helped drag the Dow lower, reflecting the uncertainty in the oil market as participants try to assess the impact of sectarian fighting in Iraq.

Cvx
Source: Chevron.

The news from the Middle East shows few signs of getting better anytime soon, as the Obama administration sent added security personnel to protect the U.S. Embassy in Baghdad and is reportedly weighing the possibility of sending special operations forces troops to assist the Iraqi military in holding off insurgent activity. Early pronouncements from the Obama administration emphasized its desire not to send regular ground troops back to Iraq, but the situation militarily remains in flux.

Yet from an economic standpoint, markets aren't reacting much further to the news. Oil prices actually fell back slightly today, with West Texas Intermediate crude holding below $107 per barrel. Given the moves upward that ExxonMobil and Chevron made following the spike in oil prices after the initial word of the conflict inside Iraq, short-term traders appear to believe that the current trajectory of hostilities is already baked into oil prices, and therefore the upside left for the Dow's energy stocks isn't as great as some investors might think at first glance.

Xom
Source: ExxonMobil.

Moreover, both Chevron and ExxonMobil have taken steps to keep things business as usual in their global operations. Late last week, Chevron sold off about $1.3 billion in assets to the government of Chad, including a 25% interest in oil fields in the African nation's Doba Basin and a pipeline system to carry crude oil to the African coast in Cameroon. The move should allow the company to focus more on what it considers to be its highest-potential projects in ongoing efforts to keep production levels high. Meanwhile, ExxonMobil yesterday reaffirmed its commitment to its Russian business opportunities, with CEO Rex Tillerson speaking in Moscow despite the ongoing tension between the U.S. and Russia over events in Ukraine.

Developments in Iraq could obviously have a major impact on oil prices, as they have in the past. For investors in the Dow Jones Industrials, looking at how Chevron and ExxonMobil react to changing conditions will help in assessing risk levels both in the energy markets and to the stock market overall.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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