Oil prices surge, dollar rallies as Middle East war shakes global markets

Global financial markets were jolted on Monday as the escalating Iran–Israel conflict sent energy prices sharply higher, strengthened the US dollar and drove investors toward traditional safe-haven assets.

European natural gas prices surged more than 50 per cent after Qatar's state-run energy firm halted liquefied natural gas (LNG) production following Iranian attacks on facilities at two major gas processing plants.

Crude oil prices also spiked amid fears of supply disruptions, particularly with the strategically vital Strait of Hormuz- through which roughly 20 per cent of global seaborne oil passes- effectively shut, and multiple vessels reportedly attacked.

Brent crude futures jumped as much as 13 per cent to $82.37 a barrel, their highest level since January 2025, before easing to trade up $4.92, or 6.75 per cent, at $77.79 by late morning in New York. US West Texas Intermediate (WTI) crude rose $3.87, or 5.77 per cent, to $70.89 after earlier climbing more than 12 per cent to $75.33, its highest since June.

Dollar strengthens
The US dollar emerged as the biggest beneficiary of the turmoil, rallying even against traditional safe-haven currencies such as the Swiss franc and Japanese yen.

The dollar index, which measures the greenback against a basket of major currencies, was on track for its biggest one-day gain since late January. The euro fell 0.91 per cent to $1.1705, while the dollar strengthened 1.03 per cent against the yen to 157.64.

Oil price swings often influence currency markets, particularly as the US is a net energy exporter, while Europe and Japan remain heavily dependent on imports.

Gold retreats after surge
Gold initially rose more than 2 per cent on geopolitical fears before easing as investors took profits. Spot gold was little changed at $5,284.14 an ounce by 1611 GMT (9.41 pm IST). It earlier hit a session high of $5,418.50. Prices touched a record of $5,594.82 on January 29. 

"Right now, the market is attempting to figure out whether these attacks are going to be followed up over the next several weeks," said David Meger, director of metals trading at High Ridge Futures. "I think it's that uncertainty that is more than likely to support prices."

Equities under pressure
Wall Street's main indices fell more than one per cent at the open but pared losses in morning trade. European and Asian equities saw sharper declines as investors shifted funds into the dollar and gold.

"Investors are scuttling towards safe havens, seeking shelter as conflict widens in the Middle East," said Susannah Streeter, chief investment strategist at Wealth Club.

Patrick O'Hare of Briefing.com noted that uncertainty remains high but stopped short of predicting a sustained market rout. "Participants are not convinced yet that the military action will fuel broader disarray for the global economy," he said.

Inflation risks and political implications
Sustained energy price increases could complicate the outlook for US President Donald Trump ahead of November's mid-term elections, particularly as he has pledged to keep consumer prices in check.

While OECD countries are required to maintain emergency oil reserves equivalent to 90 days of imports, analysts warned that prolonged disruption in the Strait of Hormuz could strain global supply.

"No matter how much spare capacity exists, it will not fill that gap if Hormuz remains disrupted. The gap is simply too large," said Amena Bakr, head of Middle East and OPEC+ research at Kpler.

In an attempt to calm markets, key members of the OPEC+ alliance announced a larger-than-expected increase in production quotas on Sunday.

(With AFP and Reuters inputs)