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↪️A war involving Iran (especially if it escalates to include the US or major disruptions like closing the Strait of Hormuz) would likely have a short-term strengthening effect on the US Dollar (USD) in most scenarios. Here's why, based on historical patterns and recent market reactions to Middle East tensions:✅
Key Short-Term Effects on the USD
Safe-Haven Demand → In times of geopolitical risk and uncertainty, investors often flock to the USD as a traditional safe-haven currency (along with assets like gold and US Treasuries). This increases demand, pushing the USD higher against other currencies (e.g., euro, yen). Recent escalations in 2025 (including US strikes on Iranian facilities) saw the dollar rebound and strengthen initially due to this flight to safety.
Higher Oil Prices → Iran is a major oil producer, and conflict could disrupt supplies (e.g., via attacks on facilities or threats to the Strait of Hormuz, through which ~20-30% of global oil passes). This drives oil prices sharply higher (potentially $10-50+ per barrel in severe cases), which often boosts the USD because:
Oil is priced in USD globally.
Higher energy costs fuel inflation expectations, leading to higher US interest rates (or delayed cuts), making USD assets more attractive.
Emerging markets and oil importers suffer, increasing demand for dollars.
Risk-Off Market Sentiment → Stocks and riskier assets sell off, while safe havens like the USD gain. Analysts noted knee-jerk USD gains in past Iran-related flare-ups.
Potential Timeline and Magnitude (Short-Term: Days to Weeks)
Initial Reaction (hours/days) → USD often strengthens quickly (e.g., rebounds seen after US involvement in 2025 conflicts).
If Escalation (e.g., prolonged war or Hormuz disruption) → Stronger and more sustained USD rally, with oil spikes adding upward pressure.
If Limited/Quick Resolution → Gains could be short-lived or reverse.
Risks and Caveats