Markets registered a pronounced lift in the US dollar after last weekend's military strikes on Iranian targets, yet the rebound looks less like a clear-cut revival of the greenback's safe-haven status and more like an indirect consequence of shifting energy economics.
Since the presidential transition last year, the dollar has generally shown less of the typical haven behaviour during periods of market stress. That pattern has been attributed to policy uncertainty tied to the new administration and broader domestic and geopolitical turmoil. A deliberate move to reverse what the Trump administration views as years of dollar over-valuation sits at the centre of its economic agenda. At the same time, foreign investors appear to have altered how they allocate capital in response to elevated positions in US assets.
Despite that backdrop, the dollar leapt across multiple currency pairs immediately after the weekend's large-scale air campaign by US and Israeli forces against Iran, an operation that included, according to the available account, the assassination of Supreme Leader Ali Khamenei and triggered a wave of regional violence. The initial market explanation for the move is grounded less in a sudden global dash for dollars and more in the way higher energy prices affect different countries unevenly.
Energy exposure as the main mechanism
The core of the reaction was driven by energy price dynamics. With the United States now a net exporter of total petroleum and energy products, an immediate spike in world oil prices left other major currencies more exposed to the risk of weaker demand if the supply disruption persists for weeks or months.
On Monday, world oil prices initially surged by around 10%, a move that disproportionately harmed currencies of countries with significant energy import bills. For example, Japan's yen fell by more than 1% against the dollar on that day - a sell-off linked to Japan's heavy reliance on imported energy and the fact that roughly one-third of its energy imports transit the Strait of Hormuz. China, also a major oil consumer dependent on shipments through the contested waterways - including heavily discounted Iranian crude now in limbo - saw its yuan decline by about 0.8% on Monday as well.
Societe Generale currency strategist Kit Juckes observed that the regional outcomes are unfavourable for Northern Asian currencies, and highlighted that the most important signal from the White House so far has been an indication the US operation will last weeks rather than days.
For Europe, the energy calculus is further complicated by exposure to natural gas. Attacks on shipping effectively closed the Hormuz route, a corridor responsible for approximately 20% of global liquefied natural gas shipments and up to 30% of crude oil. Benchmark European gas prices jumped sharply on Monday - rising almost 50% at one stage and finishing up about 35% to reach their highest level in more than a year. That spike prompted the European Union's gas supply group to convene an emergency meeting.
Europe's dependence on US-supplied LNG was underscored by data showing the United States provided 58% of the EU's LNG last year. Qatar, which accounted for roughly 6% of the bloc's imports, reportedly shut down its production plants on Monday after attacks from Iran. Against this backdrop, the euro slid about 1% versus the dollar to a more-than-one-month low.
The Swiss franc continues to exhibit features of a traditional safe-haven asset, but its performance is complicated by the Swiss National Bank's policy stance. The central bank has been fighting deflationary pressures and has signalled a readiness to intervene by selling francs to limit appreciation, a factor that constrains the franc's unhindered haven appreciation.
How large an economic effect?
Analysts are already attempting to translate oil price moves into macroeconomic impacts. Barclays economists use a rule of thumb that every sustained $10 per barrel increase in crude tends to subtract up to 0.2 percentage point from global growth. Under scenarios where crude moves to $100-plus per barrel, that could be materially negative for output.
In the current episode, the net move in Brent crude was a rise of about $5 to $77 per barrel - a much smaller shock than the higher-end scenarios. That level of increase would be a modest hit overall and would likely have only limited direct demand effects on the United States itself.
The policy question becomes whether the oil price pressure acts primarily as a drag on growth or as a force that accelerates inflation. With US core inflation already running above 3%, a tilt toward inflationary concerns could argue for keeping US interest rates higher for longer through the year - an environment that would typically support a stronger dollar.
As with many Middle East conflicts, however, the economic arithmetic at this stage depends heavily on how long the disruptions last. The White House has indicated the military campaign will run for four or five weeks. Prediction markets such as Polymarket, reflecting the outlook of their participants, show a roughly 63% probability that the US military operation will be halted by the end of the month.
Relative assessments, not pure dollar hoarding
Market commentary suggests that the currency shifts observed are less about investors hoarding dollars per se and more about relative evaluations of how different economies will cope with an outsized energy-price shock. Nevertheless, such relative moves can create powerful feedback loops.
Barclays also offers a practical rule of thumb for exchange-rate sensitivity: the dollar tends to appreciate between 0.5% and 1.0% for each $10 increase in the oil price. If energy prices rise and remain elevated while denominated in dollars, exchange-rate appreciation in the dollar would amplify the pain for energy-importing economies, potentially further strengthening the dollar in a self-reinforcing cycle. That scenario would be undesirable for many global policymakers, including those in Washington.
Market mechanics and implications
Currency responses over the period in question show that energy exposure is a decisive factor in short-term moves. The initial episode that saw major currencies such as the yen and the yuan weaken materially against the dollar underscores how dependent those economies are on uninterrupted energy shipments through the region.
European gas markets' acute reaction - almost a 50% intraday jump at one point - triggered immediate policy-level attention via the EU's emergency meeting. Those price moves - and decisions by major suppliers to halt output under attack - reinforce the link between geostrategic shocks and currency and commodity markets.
Conclusion
The recent surge in the dollar reflects an interplay between geopolitical shocks and energy market dynamics rather than a simple reversion to traditional safe-haven behaviour. That interplay has produced sharp moves in currencies and energy prices, and creates a potential loop where dollar appreciation and higher dollar-denominated energy prices could reinforce each other. How long that process lasts depends on the duration of the military campaign and how persistent the supply disruption proves to be.
Key figures and developments cited in this analysis are drawn directly from market moves and commentary reported in the period immediately following the weekend strikes.