The world oil market is usually extremely sensitive to geopolitical conflict. Today, it seems numb to anything but movements in the dollar.

Crude prices are sliding even as fighting intensifies in a region that plays a crucial role in the conduit of oil from the Caspian Sea, Georgia. On the New York Mercantile Exchange, the benchmark oil futures contract fell as much as $4 this morning, to below $116 a barrel, before recovering a bit. Oil prices have declined by about 20 percent since drawing near $150 a barrel last month.  Today's slump is driving a rally in U.S. stocks.

Oil prices have been falling as the value of the dollar rises and amid signs of slowing demand. Oil on the world market is priced in dollars.

But the slump also comes as Russian troops have entered South Ossetia, a pro-Moscow separatist region of Georgia.

President Mikhail Saakashvili of Georgia told CNN that Russian warplanes have been bombing his country. "My country is in self-defense against Russian aggression," he said. "Russian troops invaded Georgia."

Russia has vowed to defend its citizens in the region.

The fighting could endanger two major pipelines that run from the Caspian Sea to the Turkish coast through Georgia. The Baku-Tbilisi-Ceyhan oil pipeline runs roughly 60 miles south of the South Ossetian capital of Tskhinvali.

That pipeline has been closed since Tuesday because of an explosion in Turkey, but Reuters reported that the fire is expected to be extinguished by the weekend.

"In other circumstances, you might have expected it to push oil up $5," John Kemp, an economist with RBS Sempra, told Reuters. "I think it's an indication of how bearish the underlying sentiment is right now" that it has not.