Meanwhile, the Dollar Index traded slightly lower at 99, but the weekly picture is different: the index is set for about a 1.4% gain this week, its strongest since November 2024.

• Gold (XAU/USD): 5,122.71 USD
• Euro (EUR/USD): 1.1612 USD
• USD/JPY: 157.5 Yen
• Brent Crude: 85 USD

Middle East Tensions Drive Dollar Demand

At the start of the week, markets had priced in a short-lived diplomatic easing. However, news from the field quickly erased that expectation.

US and Israeli warplanes struck certain areas in Iran, while Gulf cities faced renewed bombardment. Iran warned that the sinking of an Iranian warship would be “a step Washington will bitterly regret.”

Investors’ reflexes in this atmosphere are familiar:

• Dollar strengthens

• Risk assets face pressure

• Energy prices surge

IG market analyst Tony Sycamore notes that if the current intensity of the tension persists, the picture could become clearer: higher inflation, a stronger dollar, and a reduced chance of Fed rate cuts.

Oil Prices Rekindle Inflation Concerns

The first market impact of geopolitical risk has been on energy.

Brent crude futures surged to 85 USD, reaching the highest level since 2024. Weekly gains are roughly 5%, marking one of the sharpest weekly jumps since March 2022.

This surge in energy prices particularly means new inflationary pressures for economies dependent on energy imports.

The market scenario is simple:

high oil → higher inflation → later interest rate cuts.

This shift in rate expectations is also visible in money market instruments. Overnight Index Swaps (OIS) indicate that the Federal Reserve’s first rate cut has been postponed to either September or October.

Euro and Yen Under Pressure

Against the stronger dollar, major currencies spent the week on the defensive.

• Euro: around 1.1612 USD, flat

• Japanese Yen: 157.5 per USD

• Sterling: 1.3361 USD

Major pairs may look stable, but the trend is clear: dollar strength dominates.

Skye Masters, head of market research at National Australia Bank, highlights two historical experiences in investors’ minds: post-pandemic supply shocks and inflation after the Russia-Ukraine war. A new energy-driven price spike is therefore seen as a serious risk.

Global Markets Volatility

Tensions are not limited to currency markets. Equities and bonds also faced pressure.

On Thursday, US stock indices saw sharp declines:

• Dow Jones: down ~785 points (%1.6)

• S&P 500: down ~0.6%

• Nasdaq Composite: down ~0.3%

Dow Jones thus approaches its worst weekly performance since October.

Meanwhile, futures markets show limited recovery signs:

• Dow Jones futures

• S&P 500 futures

• Nasdaq 100 futures

All trade slightly higher on the final day, yet market sentiment remains cautious.

Crypto Markets See Limited Pullback

During geopolitical risk periods, crypto markets often react in complex ways. This time is no exception.

• Bitcoin: ~70,956 USD

• Ethereum: ~2,074 USD

Daily declines for both assets hover around 0.3%, suggesting risk mitigation rather than panic selling.

Eyes on US Employment Data

Geopolitical developments dominate, but macro data still matters.

Recent data show:

• Weekly jobless claims remained unchanged

• Layoffs fell sharply in February

Economists are now focused on nonfarm payrolls. Surveys predict 59,000 new jobs in the US for February, after 130,000 in January.

Economists expect the unemployment rate to remain at 4.3% in February.

Short-Term Market Outlook

Analysts see room for the dollar to stay strong short-term, largely tied to the risk premium in oil prices.

Jayati Bharadwaj, head of FX strategy at TD Securities, notes that dollar gains will depend on how the Iran geopolitical process unfolds. If the conflict remains contained, markets may rebalance.

For now, the picture is different. Risk appetite is low. Energy prices are high. And the dollar… naturally strong.

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In short, the market is no longer driven by traditional data flows but is directly pricing in geopolitical risk.

Why Did Oil Rise?

Long-dominant drivers like inventory data, economic indicators, or OPEC statements have been temporarily overshadowed. According to Priyanka Sachdeva, senior market analyst at Phillip Nova, the price action is currently determined by something simpler: military developments in the Middle East.

Sachdeva identifies four key factors investors are closely monitoring in the near term:

• Physical oil exports from Gulf countries

• Verified tanker incidents

• US naval activity in the region

• Iran’s diplomatic and military statements

Any of these could trigger rapid price movements. Tanker security, in particular, is increasingly critical. The recent movements in energy markets are not limited to oil. European gas prices have surged in recent days, while refineries in Asia are seeking alternative supplies. These rapid changes suggest a new price equilibrium may be forming in global markets.

Strait of Hormuz Threatens Global Energy Flow

Israeli and US forces struck targets across Iran on Tuesday, prompting retaliatory strikes on energy infrastructure and tanker traffic. This region accounts for roughly one-third of global oil production.

Crucially, about 20% of global oil and LNG passes through the Strait of Hormuz, which is now effectively closed to tanker traffic. US President Donald Trump raised the possibility of the US Navy escorting oil tankers through the Strait if necessary, alongside political risk insurance and financial guarantees for maritime trade in the Gulf.

Markets remain cautious, as war risk insurance is rapidly being canceled and new mechanisms will take time to implement.

Iraq Production at Risk: 3 Million Barrel Exposure

The impact on oil supply extends beyond Iran. Iraq, OPEC’s second-largest producer, has cut production by approximately 1.5 million barrels per day due to storage limits and export disruptions.

If exports do not resume soon, Iraq could halt roughly 3 million barrels per day, potentially triggering another surge in global oil prices.

Rising Energy Prices Push Dollar Up, Euro Down

The rapid rise in energy prices is affecting not only oil but also global currency markets. The US dollar traded near a three-month high on Wednesday in Asia, while the euro fell 0.2% to $1.1590, extending a three-day losing streak.

George Saravelos, global head of FX strategy at Deutsche Bank, explains: the impact boils down to energy. Rising energy costs are effectively a dollar-denominated tax for European consumers, potentially putting pressure on the European Central Bank and sparking discussions about possible rate hikes.

Market Snapshot

• Brent Crude: $82.57
• WTI Crude: $75.28
• Euro/Dollar: 1.1590
• US Dollar Index: 99.2

How the Energy Crisis is Affecting Global Markets

Rising energy prices are forcing countries to look for alternative sources:

• India and Indonesia are exploring new energy supplies

• Chinese refineries are accelerating maintenance schedules

• Tanker traffic in the Gulf has slowed dramatically

• European natural gas prices surged nearly 70% in a few days

Such price shocks rarely affect a single market, impacting inflation, bond markets, currency, and equities simultaneously. The current period reflects exactly that chain reaction.

US Oil Inventories Rise Above Expectations

Despite geopolitical tensions, US inventory data provides a different signal. According to the American Petroleum Institute, crude stocks rose by 5.6 million barrels last week, well above the 2.3 million barrel expectation. Official figures from the US Department of Energy are expected later.

Normally, such a large inventory increase would push prices lower. But in the current environment, markets are focusing more on military developments in the Middle East.

Investors Eye Three Key Factors

Short-term oil price direction depends on:

• Whether the Strait of Hormuz reopens

• US naval escort plans

• Potential halt in Iraqi production

These combined could trigger another surge in oil prices—or the opposite. Geopolitical risks can rise and fall rapidly, and markets are aware. Prices rise… but caution remains.

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