When it comes to the biggest threat to world economies, oil scarcity is second only to nuclear war. What started in Tunisia, then spread to Egypt has now spreading to Bahrain and Iran, where protesters are clashing with police. In Iran, lawmakers are threatening death to protesters.

The fear of chaos spreading across the Middle East has sent the oil market into overdrive. Brent crude traded at $104 per barrel Tuesday.

Oil prices have rebounded from yesterday's sell off, despite a larger than expected increase in oil inventories last week.

As we noted yesterday, analysts were expecting to see a 250,000 barrel increase in reserves last week, but the Department of Energy reported today that inventories actually rose by a much greater 2.4 million barrels.

If you do business with Iran, it's probably going to be harder to get insurance coverage. Regulators and lawmakers in the U.S. are looking for stiffer penalties to thrust upon companies that do business with Iran. And insurers, likely acutely aware of how risk can spread, are starting to pull back.

Munich Re (0KFE) and Allianz (AZSEY) announced that they are suspending business in Iran, according to a report by Business Insurance. Neither company, however, stands to lose much. For Allianz, the lost premium is "negligible," and for Munich Re, it's only around $13.6 million.

Oil prices have been on the rise today, following a government report that showed inventories fell more than expected last week.

Going into today's inventory report, analysts had been expecting to hear that oil inventories shrank by around 2 million barrels last week, but according the the Department of Energy the actual draw was much steeper at 3.7 million barrels.

Last year, a U.S. District Court in Manhattan secretly froze $2 billion held in a Citigroup (C) account. The money was believed to have been held on behalf of Iran, through Luxembourg's Clearstream Banking S.A. In what the Wall Street Journal reports could be the largest seizure of Iranian assets abroad since the Islamic revolution of 1979, several parties are lining up to claim the cash. And, it looks like the battle is headed for trial.

The order to freeze the funds was executed 18 months ago by the U.S. District Court for the Southern District of New York and hasn't been made public. In issuing the legal order, the court used information from the U.S. Treasury Department. Though the money is frozen, the struggle is heating up.

Insurance companies have $12 billion in indirect investments related to Iran, according to California Insurance Commissioner Steve Poizner -- and he wants them to stop. He's pushing insurers in his state to divest, and the perspective is gaining popularity: his counterpart in Florida thinks the policy should go national.

Kevin McCarty, commissioner in Florida, said to National Underwriter, "I have consulted with other state insurance commissioners to evaluate the practicality of developing a national initiative similar to the undertaking by the California Department of Insurance." He's already contacted the National Association of Insurance Commissioners' Securities Valuation Office to figure out "the feasibility of leveraging national resources to review the financial statements of national insurers to determine their exposure to companies with operations in Iran."

It seems like almost every day Iran is in the news, and today is no different. Oil prices have moved higher after reports that Iranian naval vessels had stopped a racing yacht with 5 U.K. nationals aboard.

Oil is up $1.30 a barrel to $77.35, and traded up as high as $78.00 earlier in the day.

Today's bits of economic activity hardly mattered in the grand scheme of the markets. Traders were watching more out of Dubai and the U.A.E. than they were watching what Federal Reserve districts had to say today. Iran also sent oil prices higher by detaining a British cruising race yacht and five Britons, and the added political fallout added to the gains in oil today. Stocks were weak for most of the day, but Dubai comments that $26 billion needed to be restructured (rather than $60 billion) helped in the final hour of the day.

Here were today's unofficial closing bell levels:

Dow 10,295.11 -14.81 (-0.14%)
S&P 500 1,095.63 +4.14 (0.38%)
Nasdaq 2,144.60 +6.16 (0.29%)

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Oil prices have risen sharply today, despite news that oil inventories rose more than expected last week.

Traders pushed oil up $2.92 a barrel Tuesday to $69.63 even though oil inventories rose by 2.8 million barrels last week verse analyst estimates for a rise of 2.1 million barrels.

Oil prices dropped a bit today, as investors weigh news that consumer confidence took a hit in September.

Today's move was not a sizable one, but further evidence that investors are concerned over just how strong the current economic recovery really is. News came out today that consumer confidence is down in September as more Americans are concerned over the weak job market.

The oil industry has been working hard to find new oil reserves, and so far this year the efforts have been paying off.

It has been a year with some major discoveries that have put the oil industry in a good position to make it the year with the highest level of new discoveries since 2000.

A big reason for the increase in discoveries is improvements in technology that has allowed oil hunters to drill deeper and break through tougher rocks than they were previously able to do.

Oil moved up above $70 early in the session, but was unable to hold that momentum through the day. After its strong start to the day, prices dropped $2.19 to $67.83.

A major reason for the drop in prices can be attributed to the World Bank. The World Bank slashed its forecast for this year's global economic growth, and reported that the current recession is deepening.

It really matters little what the outside world thinks about the current conflict in Iran over the disputed re-election of Mahmoud Ahmadinejad, or whether the people in Iran are crushed by the totalitarian form of government that has been adopted. This is not a matter of opinion. It is a matter of fact by definition. There is a supreme ruler and what he says goes.

Nothing is more important to the ruling elite than remaining in power -- not the economic well being of it's citizens, not the education of the rural population, not the personal freedoms of the man in the street, and certainly not the rights of Iranian women.

The rulers of Iran are losing their patience with the election protests of the last few days. They are selectively tightening their grip on the freedom of the press, freedom of speech, freedom to travel and peaceful marches by disenfranchised voters that believe the reported results of a Mahmoud Ahmadinejad victory were a fraud.

The government is cracking down by not renewing visas for the foreign journalists, confining others to their hotels, and limiting all broadcasts and news outlets.

If anything can be gleaned from this, one only need take a brief glance at history to learn that a nation with totalitarian rule begets a totalitarian economy.

The Iranian government hand counted tens of millions of presidential election ballots in a couple of hours; less time than we count ours by computer -- an Ayatollahs' miracle for sure!

These results indicated that Mahmoud Ahmadinejad was able to garner two-thirds of the vote. Given the Ayatollahs miracle, the public viewed this result as anything but.

Protesters expressing their extreme objection to the election results then created a miracle of their own when up to one million marchers hit the streets forming a 5 to 6 mile parade of discontent, claims of fraud, and in some cases calling the government a dictatorship.

Meanwhile Ahmadinejad who made references to disgruntled fans after a football game in slighting the protesters, hung around for a couple of days before appearing a day late for a conference in Moscow. He missed some of the key events but he did get a chance to mention how bad the US economy was doing, neglecting to mention that Iran's economy is showing signs of falling off a cliff. If he remains president that is a real possibility.

Meanwhile the pragmatist in me knows that the greatest miracle of all would be a recanting of the election results and the president stepping down. The Ayatollahs have asked for an investigation of the election results to appease the fuming population.

The results of this investigation being conducted by the same folks that created the fraud in the first place are easier to determine than any of my stock picks. Look for the results of the investigation to acknowledge that the vote count was off by some meaningless percentage, not affecting the outcome and leaving the results as they stand.

The Ayatollahs are all for democracy as long as they get to choose who wins. Perhaps in the future they will simply default to the patterns of authoritarian rulers before them -- massive election rhetoric, with only one candidate on the ballot.

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Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.