The US dollar strengthened during a turbulent week that saw oil prices surge past $90 a barrel and global financial markets reel from the impact of the Iran conflict. The dollar’s gain — a typical response to energy price shocks that hit oil-importing economies harder than the US — was one of the few directional moves in financial markets that went with the grain of historical precedent; almost everything else defied easy categorization in an extraordinarily complex week.
Oil’s more than 25% weekly surge — from around $72.50 to $91.89 per barrel — was driven by the Iran conflict, which has disrupted tanker traffic through the Strait of Hormuz and triggered a storage crisis across the Gulf. Kuwait has already been forced to cut production at storage-full fields, and energy consultants warn that Saudi Arabia and the UAE face the same situation within 20 days. The prospect of a coordinated Gulf production shutdown is what is most alarming the oil market.
The LNG market has added a parallel crisis. Qatar, which supplies about 20% of global LNG, has had infrastructure damaged by drone strikes and has warned of a recovery measured in weeks or months. European gas prices have responded by hitting three-year highs. The competitive dynamics between European and Asian gas buyers are being closely watched, as they could determine whether Europe faces another gas supply crunch similar to the one that devastated the continent’s economy in 2022.
Qatar’s energy minister has issued the most alarming forecast of the week: continued conflict could force all Gulf exporters to halt production and push oil to $150 a barrel. Gold, normally a beneficiary of such warnings, paradoxically fell about 3.5% during the week, suggesting that investors preferred the safety of dollars and cash over the traditional haven of precious metals.
Beyond currencies and commodities, the week’s damage to other asset classes has been substantial. Stocks fell sharply globally, bond yields surged to multi-year highs, and rate cut expectations were effectively abandoned in both the UK and eurozone. Airlines issued profit warnings, and economists began the difficult work of incorporating a potentially severe and prolonged energy shock into their global forecasts.