A surge in oil and gas prices, driven by escalating conflict in the Middle East and heightened geopolitical risks, has had significant effects on global currency and energy markets. Commerzbank's Michael Pfister highlights that the US, now a net oil exporter, benefits from improved terms of trade when oil prices rise, supporting the US Dollar (USD) against the Euro (EUR). He notes that the nominal EUR/USD exchange rate bears most of the adjustment, and if oil prices fall, there is scope for a EUR/USD rebound. Pfister also points out that US energy-intensive industries are more protected than those in Europe, making US growth more resilient in the current environment. However, he cautions that the duration of elevated oil prices will determine the persistence of these effects [1].
TD Securities strategists argue that the USD is regaining its safe-haven status due to the current shock, with near-term upside as risk premia in crude oil remain elevated. They foresee only temporary USD strength, expecting limits to escalation in the Iran conflict, especially in a US midterm election year. Over the longer term, they maintain a bearish USD view for 2026, citing fading US growth exceptionalism and diminished safe-haven appeal [2].
European Central Bank (ECB) Governing Council member François Villeroy de Galhau stated that the duration of the Iran war will determine the impact on prices, and assured that financial stability is not at risk. He observed that the Dollar has strengthened and returned to its refuge status, but saw no reason for the ECB to raise interest rates at this time. His comments had no immediate impact on the Euro, with EUR/USD trading 0.27% lower near 1.1600 [3].
Danske Bank notes that energy markets remain focused on supply risks, particularly potential disruptions through the Strait of Hormuz, following incidents such as a US submarine sinking an Iranian warship and NATO intercepting a missile. While US oil inventory data showed no strategic reserve purchases last week, the US may consider selling reserves if price pressures persist. Despite the magnitude of the geopolitical shock, risk assets have reacted in a relatively contained manner, with markets primarily viewing the conflict through the lens of energy supply risk [4].
The New Zealand Dollar (NZD) has weakened below 0.5950, trading around 0.5920, as persistent geopolitical risks and surging oil and gas prices fuel inflation fears. This has led traders to scale back bets on further easing by the US Federal Reserve, supporting the USD and acting as a headwind for NZD/USD. Bas van Geffen of Rabobank notes that markets have largely traded the Middle East war as an inflation risk [5].
European gas markets face upside risks after President Putin signaled Russia could redirect gas away from the EU, compounding supply concerns amid disruptions to global LNG flows from the Persian Gulf. ING analysts highlight that EU gas storage is tight at less than 30% full, and Russian gas accounted for 12% of total EU imports in 2025. The combination of Russian threats and Persian Gulf disruptions is expected to exacerbate supply jitters and support higher TTF gas prices in the short term [6].
In Switzerland, higher oil prices and a stronger Swiss Franc (CHF) are offsetting each other on inflation, keeping Swiss price pressures subdued. The Swiss National Bank (SNB) has stepped up verbal intervention against franc strength and is likely to move to active intervention, suggesting that the foreign exchange market will only gradually test stronger CHF levels [7].
CONCLUSION
The escalation of conflict in the Middle East has driven oil and gas prices higher, supporting the US Dollar and increasing inflation risks globally. While the USD benefits from safe-haven flows and improved terms of trade, the impact on other currencies such as the Euro, New Zealand Dollar, and Swiss Franc varies depending on local factors and central bank responses. Market participants remain focused on energy supply risks and the duration of geopolitical tensions, which will determine the persistence of these trends.