A major escalation in the Middle East occurred after the US and Israel assassinated Iran's Supreme Leader on February 28, triggering an all-out war. Iran responded by attacking US military bases around the Persian Gulf and blocking the Strait of Hormuz, a critical chokepoint for global oil shipments, effectively cutting off Asia’s primary source of oil [1][3]. The closure of the strait, which typically handles about 20% of global daily oil supply, led to a collapse in tanker traffic and attacks on nine vessels, including crude tankers near Iraq and Kuwait [3]. In response, WTI crude oil surged approximately 11% on Thursday, breaching $87.00 and marking its highest level since October 2023, with prices rallying over 30% from the February consolidation zone near $65.00 [3]. Qatar halted liquefied natural gas production at its two main facilities, removing roughly 20% of global LNG supply, and Iraq began shutting down operations at the Rumaila oil field due to storage constraints [3].
The oil price spike has fueled global inflation concerns, with the European Central Bank’s Isabel Schnabel warning that the Iran war creates upside inflation risks, though she noted the ECB is still in a good place and must remain vigilant [4]. The surge in energy prices has also impacted the Euro, which was heavily affected by oil and gas volatility, as Europe relies on energy imports [1].
The US Dollar Index (DXY) initially benefited from safe-haven demand, trading around 99.70 during the week before settling at 99.00, remaining muted on Friday [1]. However, the US Nonfarm Payrolls (NFP) report showed a decline of 92,000 in February, missing expectations for a 59,000 increase, and the unemployment rate rose to 4.4% from 4.3% [1]. This softer-than-expected labor data led to an easing in the US Dollar and Treasury yields, providing some support to precious metals like Silver [2].
Silver (XAG/USD) traded around $84.27, up nearly 2.73% on the day, but remained on track for its first weekly decline in three weeks [2]. The escalating US-Iran conflict offered underlying support to safe-haven assets, but rising oil prices and inflation concerns led traders to trim expectations for Federal Reserve interest rate cuts, which weighed on non-yielding metals like Silver [2]. Technical indicators for Silver suggest a range-bound market with neutral to slightly bullish bias, and momentum indicators show a lack of strong directional conviction [2].
Currency markets reflected the volatility, with the US Dollar strongest against the Japanese Yen and the Euro also showing strength against the Yen [1][4]. The British Pound gained some footing over the USD, supported by reduced expectations for a Bank of England rate cut in March [1].
CONCLUSION
The escalation of the US-Iran conflict and the closure of the Strait of Hormuz have caused a sharp rally in oil prices, heightened global inflation risks, and increased volatility across currency and commodity markets. Central banks and market participants are closely monitoring the situation, with inflation concerns and shifting rate expectations influencing asset prices. The market impact is high, with energy and safe-haven assets at the center of investor focus.