U.S. dollar surges as Middle East tensions push oil toward $120

SINGAPORE: The U.S. dollar jumped on Monday as oil prices surged toward $120 a barrel, driven by fears that escalating conflict in the Middle East could severely disrupt global energy supplies and weigh on economic growth.

Oil briefly retreated after a Financial Times report said G7 finance ministers would discuss a coordinated release of emergency crude reserves via the International Energy Agency. Yet the euro and sterling slid 0.6% and 0.7%, while the Australian and New Zealand dollars also weakened. Even the Swiss franc, a traditional safe haven, lagged.

“The U.S. dollar is finding strong support from traditional haven flows and the United States’ net energy exporter status,” said Ray Attrill, head of FX strategy at National Australia Bank.

The broader market reacted sharply: stocks, bonds, and precious metals fell as investors turned risk-averse, fearing the inflationary and growth impacts of surging oil. “The longer this goes on, the more exponential the damage becomes,” said Michael Every, senior global strategist at Rabobank.

In Asia, the dollar approached 159 yen, rising 0.4% to 158.47, and gained 0.26% against the South Korean won. Analysts warned the region could bear the brunt of the energy shock due to heavy reliance on Middle Eastern oil and gas.

“The key question is how high and how long prices remain elevated,” said Deepali Bhargava, ING’s Asia-Pacific head of research. “A prolonged conflict, coupled with continued currency weakness, would feed inflation pressures across the region.”

The surge follows Iran naming Mojtaba Khamenei as successor to the Supreme Leader, signaling hardliners remain firmly in charge a week into the conflict.

Attacks on ships in the Strait of Hormuz and regional energy infrastructure have already removed roughly one-fifth of global crude and natural gas supplies.

Qatar’s energy minister warned that Gulf producers could suspend exports within weeks, potentially driving oil toward $150 a barrel.