BY COMFORT OGBONNA
The U.S. dollar surged on Monday as a sharp spike in oil prices pushed investors to seek safety in cash, amid growing fears that a prolonged conflict in the Middle East could severely disrupt global energy supplies and slow economic growth worldwide.
The greenback strengthened against nearly all major currencies as market uncertainty intensified. The euro and British pound both fell by around 1% during Asian trading, while the Australian dollar and even the traditionally safe-haven Swiss franc also declined sharply, highlighting the broad strength of the U.S. currency.
Currency strategists say the dollar’s strength reflects its traditional role as a global safe-haven asset during periods of crisis. In addition, the United States’ position as a net exporter of energy has made the dollar more attractive compared with currencies from regions that rely heavily on imported oil and gas.
Ray Attrill, head of foreign exchange strategy at National Australia Bank, said the dollar is benefiting from both safe-haven demand and the relative strength of the U.S. energy sector compared with much of Europe.
The surge in the dollar came as financial markets experienced widespread selling pressure. Investors moved away from riskier assets amid concerns that soaring oil prices could fuel inflation, disrupt global trade, and weaken economic growth in major economies.
Stocks, bonds, and precious metals all declined as traders rushed to reduce exposure to market volatility. Many investors also chose to lock in profits from trades that had performed well in recent weeks, adding to the downward pressure across global markets.
Market strategists warn that the longer the conflict continues, the more severe the economic consequences could become. Analysts say rising oil prices are already acting as a shock to the global financial system, with the potential to trigger a chain reaction affecting inflation, trade flows, and investor confidence.
Michael Every, a senior global strategist at Rabobank, said the current situation could become increasingly damaging if tensions do not ease soon. According to him, continued escalation could create a domino effect across financial markets, where rising energy costs begin to weigh heavily on both businesses and consumers.
In currency markets, the euro fell about 0.9% to around $1.1517 after dropping earlier to a three-and-a-half-month low. The British pound also declined roughly 1%, trading near $1.3294 as investors shifted funds into the U.S. dollar.
The dollar also strengthened against the Swiss franc, rising about 0.75% to 0.7817. Meanwhile, commodity-linked currencies such as the Australian and New Zealand dollars dropped 0.77% and 0.5% respectively as markets reacted to the growing uncertainty in global trade and energy supply.
Analysts say Asian economies could be among the hardest hit by the energy price shock. Many countries in the region rely heavily on oil and natural gas imports from the Middle East, making them particularly vulnerable to supply disruptions and rising fuel costs.
The Japanese yen also weakened against the dollar, with the U.S. currency climbing to around 158.70 yen, approaching the key 159 level. The dollar gained even more strongly against the South Korean won, rising about 1% to roughly 1,496.40.
Deepali Bhargava, regional head of research for Asia-Pacific at ING, said the key issue for global markets will be how high energy prices climb and how long they remain elevated.
She noted that prolonged high oil prices combined with weakening regional currencies could significantly increase inflation across Asia. Rising import costs for energy would push consumer prices higher and potentially force central banks to maintain tighter monetary policies for longer.
Political developments in Iran have also contributed to market uncertainty. Iran announced that Mojtaba Khamenei will succeed his father as the country’s Supreme Leader, signaling that hardline leadership remains firmly in control in Tehran as the conflict continues.
The conflict has already disrupted a significant portion of global energy supplies. Attacks targeting shipping in the Strait of Hormuz and strikes on energy infrastructure across the region have led to the suspension of roughly one-fifth of global crude oil and natural gas supplies.
The Strait of Hormuz is one of the world’s most critical energy shipping routes, carrying a large share of the global oil trade. Any prolonged disruption to this corridor could have serious consequences for global energy markets.
Energy officials in the Gulf region have warned that the situation could worsen. Qatar’s energy minister recently indicated that Gulf producers might be forced to shut down exports within weeks if the conflict escalates further, a scenario that could push oil prices as high as $150 per barrel.
Higher energy prices are already raising concerns about global inflation. Rising fuel costs act like an economic tax, increasing transportation and production expenses for businesses while reducing purchasing power for consumers.
These pressures are also complicating the outlook for central banks. Investors had previously expected several major economies to begin cutting interest rates this year, but persistent inflation risks could delay those plans.
Recent economic data from the United States added another layer of uncertainty. Weak U.S. jobs figures released on Friday briefly slowed the dollar’s rally and led some traders to expect earlier interest-rate cuts by the Federal Reserve.
However, those expectations faded by Monday as rising energy prices increased concerns about inflation. Financial markets are now pricing in less than 40 basis points of rate cuts by the end of the year, reflecting growing uncertainty about the direction of monetary policy.
With geopolitical tensions rising and energy markets under strain, analysts say global financial markets could remain volatile in the coming weeks as investors closely watch developments in the Middle East and their potential impact on the world economy.
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