The US dollar is at a ten-month high. Oil is trading above $120 a barrel. And a waterway 21 miles wide at its narrowest point is at the centre of the biggest disruption to global energy supply since the 1970s.
If you are planning an international transfer and wondering why exchange rates have shifted so sharply in recent weeks, this is the article to read. The Iran conflict is not just a geopolitical story — it is directly moving currencies, and it has clear implications for anyone buying or selling US dollars right now.
What Happened
On 28 February 2026, the United States and Israel launched coordinated airstrikes on Iran under Operation Epic Fury, targeting military facilities, nuclear sites, and leadership. Iran retaliated immediately — striking US embassies, military installations, and oil infrastructure across the Gulf, and closing the Strait of Hormuz to Western shipping.
Brent crude surpassed $100 per barrel on 8 March for the first time in four years, rising to $126 per barrel at its peak. The closure has been described as the largest disruption to the energy supply since the 1970s energy crisis.
The conflict is now in its fifth week with no clear end in sight. Trump has extended his deadline for Iran to reopen the strait, pausing threatened strikes on Iranian power plants until 6 April while talks continue through intermediaries.
Why This Is Pushing the Dollar Higher
Three mechanisms connect the Hormuz closure directly to dollar strength.
Safe-haven demand. When geopolitical risk spikes, global investors move into the assets they trust most — and the US dollar remains the world’s dominant safe-haven currency. Investors typically move toward safe-haven assets when oil shocks are tied to war risk, pushing attention toward gold, the yen, the Swiss franc — and the dollar. With a conflict of this scale, that flow has been substantial.
The Fed is frozen. Elevated oil prices feed directly into inflation. With energy costs surging, the Federal Reserve cannot cut interest rates without risking a further inflation spike. Markets have pushed the first expected Fed cut back to December 2026 at the earliest — keeping US rates at 3.75% and maintaining the dollar’s yield advantage over the euro and other major currencies.
The US is an energy exporter. This is the factor that distinguishes 2026 from previous oil shocks. Unlike the 1970s, the US is now a major oil and LNG producer. Rising energy prices that damage energy-importing economies — the eurozone, Japan, South Korea, India — actually improve the US terms of trade. The dollar benefits where others suffer.
What Is Happening at the Strait Right Now
Traffic through the strait has fallen by 90% since the war began on 28 February, with Iran targeting vessels attempting to transit the waterway.
Iran has effectively created a toll system. Iran has now added recognition of its sovereignty over the Strait of Hormuz to its list of demands to end the war — seeking to turn the leverage of the closure into a permanent source of revenue, potentially earning $800 million a month from transit fees on oil and LNG alone.
Some vessels have been allowed to transit after changing their registration or raising the flags of countries Iran considers neutral — with reports that certain operators have paid fees in Chinese yuan or cryptocurrency for safe passage.
The practical result: most Western-linked tankers cannot move through Hormuz. Chinese, Indian, Pakistani and Malaysian vessels have secured passage through direct diplomatic arrangements with Tehran. Everyone else is rerouting — adding days to journeys and significant cost to every cargo.
What This Means for the Euro and Sterling
The dollar’s strength is not happening in isolation — it is coming at the expense of other currencies, and the euro is bearing the brunt.
The European Central Bank has warned that a prolonged conflict will likely trigger stagflation and push major energy-dependent economies including Germany and Italy into technical recession by end-2026. Europe imports heavily from the Gulf and has limited alternative supply routes. The conflict has caused a severe energy supply shock and industrial strain, with chemical and steel manufacturers imposing surcharges of up to 30% to offset surging electricity and feedstock costs.
EUR/USD has pulled back to around 1.1483 as a result. The more the conflict extends, the more the euro is exposed.
Sterling is holding up better. The UK is less dependent on Gulf energy than continental Europe, and the Bank of England’s equally hawkish stance limits GBP/USD downside. The pair is trading around 1.33 with most forecasts seeing recovery toward 1.36–1.40 once the conflict premium fades.
What Could Change — And Fast
The dollar’s current strength is almost entirely geopolitically driven, not fundamental. That means it can reverse quickly.
The key triggers to watch:
- A ceasefire or Hormuz reopening — safe-haven dollar flows would unwind rapidly. Oil prices would fall, inflation expectations would ease, and the Fed would be back on track to cut. The dollar would weaken.
- Trump’s April 6 deadline — if talks with Iran break down and the US escalates further, oil prices could push higher still, extending dollar strength through Q2.
- Iran’s sovereignty demand — if accepted in any form, it would signal a prolonged closure and sustained energy disruption, keeping dollar strength in place for longer than markets currently expect.
What This Means for Your Transfer
If you are buying US dollars — for a property purchase, business payment, or personal transfer — GBP/USD around 1.33 is historically reasonable, though below where most banks see it ending the year. The risk is that the conflict extends and the dollar strengthens further before resolving.
If you are selling US dollars, the current rate is significantly better than it was in January or February. If dollar weakness resumes from June as most forecasts suggest, this window has genuine value.
In both cases, a forward contract lets you lock in today’s rate for up to 12 months — removing the uncertainty of what happens next in the Gulf from your transfer entirely.
