Oil Surge on Iran Tensions Drives Dollar Higher
A sharp spike in global oil prices rattled financial markets at the start of the week, driving investors toward safer assets and boosting the US dollar as traders rushed to exit riskier positions.
The US Dollar Index (DXY) climbed about 0.7% to near 99.50 during Asian trading on March 9, as a surge in crude oil and other energy commodities triggered market volatility. The dollar's gains came amid a wave of risk aversion, though conditions later stabilized as the initial selling pressure eased.
Oil Prices Jump on Escalating Iran Tensions
The latest developments in the Iran conflict over the weekend heightened concerns that tensions in the West Asian region could last longer than expected, sending crude oil prices sharply higher along with other energy commodities.
The Iranian government appointed Ayatollah Mojtaba Khamenei as the third Supreme Leader of Iran, replacing the late Ayatollah Ali Khamenei, who died following a joint U.S.-Israeli airstrike in late February. The appointment has been widely interpreted as a sign that hardline factions remain firmly in control of political power in Tehran.
US President Donald Trump had previously expressed critical views towards Mojtaba Khamenei. Even before the appointment, Trump stated that the next Supreme Leader of Iran would not be able to survive without Washington's approval.
The geopolitical developments triggered a dramatic jump in oil prices. Brent crude surged from $93.57 at last week's close to $102.36 when markets opened, before extending gains to an intraday peak of $120.08 per barrel—the highest level since April 2022. Prices later eased slightly to around $112 per barrel at the time of writing.
Safe Haven Demand Strengthens
The ongoing Iran conflict, now stretching beyond a week, has also begun to disrupt global energy supplies. Roughly one-fifth of the world's crude oil and natural gas supply has reportedly been affected by the situation.
Qatar's energy minister warned in an interview with the Financial Times that energy producers across the Gulf could potentially halt exports within weeks if tensions continue to escalate. Such a scenario could push global oil prices as high as $150 per barrel.
A surge in energy prices of this magnitude could intensify global inflationary pressures, potentially forcing central banks to delay planned interest-rate cuts. In extreme circumstances, it could also undermine economic stability in several countries.
Regions heavily dependent on imported energy—including the United Kingdom, the euro area, and Japan—are expected to face the greatest impact. Their currencies weakened sharply at the start of the week, with EUR/USD and GBP/USD falling nearly 1%, while USD/JPY climbed back toward a key resistance level around 159.00.
The U.S. dollar benefited from three main factors: its traditional role as a global safe-haven asset, dominance in international energy transactions, and the United States' position as one of the world's major energy exporters.
Ray Attrill, head of foreign exchange strategy at National Australia Bank, stated that the US Dollar is supported by a combination of its role as a traditional hedge asset and the unique position of the US as a net energy exporter—a stark contrast to most European economies that rely heavily on imported energy.
Broad Market Selloff Hits Multiple Assets
At the time of writing, the US Dollar Index had eased slightly to around 99.30 after the earlier surge. The earlier turbulence was largely driven by a broad wave of selling across multiple asset classes, including equities, bonds, and even gold amid rising investor panic.
Some market participants are concerned that prolonged conflict will disrupt global economic stability, while others choose to liquidate assets to increase liquidity or secure profits.
Going forward, the economic fallout from the oil price surge will depend heavily on how long energy prices remain elevated. If the conflict drags on and inflation begins to rise again, concerns about a renewed slowdown in the global economy could quickly resurface.
The situation also helps explain why traditional safe-haven assets—particularly gold—began to recover rapidly after the initial wave of selling.
Deepali Bhargava, head of Asia-Pacific regional research at ING, stated that the key factor to watch is how high energy prices can rise and how long those levels can be sustained. Prolonged conflicts combined with currency weakening in various countries could trigger broader inflationary pressures at the global level.