U.S. and Israeli military action against Iran will cause oil prices to spike when markets open in Asia on Sunday and most likely result in a move of global capital into dollar-denominated positions, which will send Treasury yields falling and cause the dollar to appreciate.
The primary focus across markets will be on the 20% of global petroleum and liquified natural gas that flows through Strait of Hormuz daily and the price of Brent crude, which stood at $72.87 per barrel on Friday.
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In addition, exports from Kharg Island—the major Iranian oil export facility—increased to roughly 3 million barrels per day between Feb. 15 and Feb. 20, which was close to three times its daily rates in January.
Any military action against Kharg Island would most likely cause a significant increase in the price of Brent crude—the global benchmark—on top of the geopolitical risk premium of $6 to $8 per barrel.
The country most at risk to the disruption of those oil exports is China, which purchases 80% of that supply.
Iranian retaliation against Israel and U.S. military facilities was underway on Saturday, and one cannot discount a move against Saudi oil processing facilities like the one at Abqaiq, which processes up to 7 million barrels per day.
There is precedent for such an attack. Iran attacked the processing facility in Abqaiq in September 2019, temporarily knocking out 5.7 million barrels per day, or 5% of the global supply.
It is important to note that within 48 hours of that attack, which was the largest disruption in the flow of oil since the first Persian Gulf War in the early 1990’s, the Saudis restored approximately 2 million barrels per day.
While the U.S. produces more oil than it consumes, its trade partners in Europe and Japan depend heavily on imported oil. Approximately 90% to 95% of Japan’s oil imports are from the Middle East while roughly 20% of the European Union’s imports are from the region.
This reliance on imports will put a focus on the production and price of oil over the coming days.
In addition, given the recent focus on de-dollarization, global capital flows will be scrutinized for the duration of the conflict to ascertain if there is a move into the traditional safe haven of dollar-denominated assets, which would result in falling yields and an increase in the value of the greenback.
Given the quick Iranian retaliation against Israel and U.S. military assets in the region, we expect a move into dollar-denominated positions upon the open of the Asian trading session on Sunday.
But because of the policy unpredictability out of Washington over the past year, global investors have been seeking havens outside of dollar-denominated assets. One cannot discount a move by global investors into European, Japanese and Swiss-denominated assets.
While oil markets continue to react to potential tensions in the Middle East, history has shown that the price increases are temporary and quickly fall back.
During the 12-day war in 2025, oil prices jumped by 15% with gasoline rising by 3% domestically, all of which quickly fell back to pre-conflict levels as hostilities ended.
One gets the sense that the pledge by OPEC to increase production on the outbreak of hostilities will be put to the test immediately.
