A sharp escalation in the Middle East conflict, centered around threats between the United States and Iran regarding the Strait of Hormuz, has triggered significant volatility across global financial markets. Over the weekend, US President Donald Trump threatened to 'obliterate' Iran's power plants if the Strait of Hormuz was not reopened within 48 hours, prompting Iran to vow retaliation and threaten to close the strait completely, targeting US-linked energy infrastructure in the region [1][2][3][5][6]. Reports indicate the US is considering a ground operation to seize Iran’s Kharg Island, a major oil export hub [3].
Oil prices surged in response to these developments, with West Texas Intermediate (WTI) trading 2.7% higher near $100.15 and Brent Oil up 1.4% to $109.75 [1][3][5]. The International Energy Agency (IEA) Chief, Fatih Birol, stated that consultations are underway with Asian and European governments regarding the release of additional oil stockpiles if necessary, following a previous agreement to release 400 million barrels to mitigate supply disruptions [5]. Rabobank’s Benjamin Picton warned that destruction of oil and gas infrastructure could push markets toward worst-case scenarios, with energy supplies throttled indefinitely, and noted that even conciliatory moves by Iran, such as allowing Indian LPG cargoes to transit, only provide limited relief [4].
The Canadian Dollar (CAD) outperformed most major peers, benefiting from higher oil prices, though it was marginally down against the US Dollar at 1.3735 [1]. The US Dollar Index (DXY) rose sharply, trading around 99.80–99.90, supported by safe-haven flows and expectations of a hawkish Federal Reserve stance amid inflation concerns [1][2][3][6]. Futures markets indicate an 85.5% probability that Fed rates will remain unchanged at the April meeting, and CME FedWatch tool shows a 97.3% chance of rates staying steady or above the current range of 3.50%-3.75% in December, up from 32.4% a week ago [2][6]. The USD/JPY pair approached 160.00, reflecting strong US Dollar demand [6].
In contrast, gold and other precious metals experienced a dramatic sell-off. Gold fell 7.8% to $4,126.36, with futures down nearly 10% at $4,119.10, marking the lowest level in 2026 and extending last week’s 10% drop—the worst since September 2011 [3][7]. Spot gold has lost about 25% since its January record high. Silver, platinum, and palladium also plunged, with silver futures down 11.7% and platinum futures dropping 10.6% [7]. The retreat from gold, traditionally a safe haven, reflects investor concerns over inflation and rising energy prices, as well as the prospect of higher interest rates, which may favor government bonds over non-yielding assets [7]. Euro zone government bond yields moved higher as the conflict escalated, leaving few safe havens for investors [7].
Analysts highlighted that oil sentiment may fluctuate with threats and rhetoric, but its longer-term direction will depend on the state of Middle East oil flows [5]. Rabobank’s Picton cautioned that any US climbdown could leave Iran controlling Hormuz flows, potentially enforcing Chinese Yuan pricing, an outcome seen as unacceptable for the US [4].
CONCLUSION
The deepening Middle East crisis has driven oil prices sharply higher and triggered a flight to the US Dollar, while gold and other precious metals have plunged amid inflation fears and expectations of higher interest rates. Market strategists and analysts warn that ongoing supply risks and geopolitical uncertainty could sustain volatility, with energy flows and central bank policy remaining key drivers. The overall market impact is high, with investors closely watching developments for further escalation or resolution.