Oil prices, not safe havens, are driving the dollar's rally
The US dollar typically strengthens during global political or economic instability as investors seek the safe haven of the US economy. But from Trump's inauguration to the start of the 2026 Iran War, the dollar consistently weakened, falling by 10 percent over the period.[1] As this stretch wasn't particularly stable -- e.g., Greenland, Iran and Israel's June 2025 war -- investors questioned whether the currency's slide indicated that the US was losing its safe-haven status. Since the 2026 Iran war, this commentary flipped as the dollar surged 2.5 percent. But rather than demonstrating the dollar as a safe-haven, the recent rally is more closely tied to the price of oil.
The table below shows the exchange rates of several European countries against the dollar in the three weeks since the war in Iran. Despite these currencies being exposed to similar economic fluctuations, oil producers saw their currencies fall much less than oil importers. Notably, Norway's krone only fell by 0.3 percent while Sweden, which lacks large offshore oil reserves, saw its krona fall by 2.5 percent.
Period: 2026-02-27 to 2026-03-18 (WTI Oil: +43.7%)
| Currency | Status | % Change vs USD |
|---|---|---|
| Norway (NOK) | Oil exporter | -0.3% |
| Great Britain (GBP) | Minor producer, net importer | -1.0% |
| Switzerland (CHF) | Safe haven | -1.5% |
| Euro (EUR) | Net importer | -2.3% |
| Sweden (SEK) | Net importer | -2.5% |
The mechanism driving the data above is straightforward. In general, commodity prices and the currencies of the countries exporting them rise and fall together. Like other commodities, oil is price-inelastic in the short term, meaning that when prices rise, demand can't sufficiently fall to offset more spending on the commodity. Increased spending on oil boosts exports from oil-producing countries, causing their exchange rates to appreciate.
For the US, the relationship between oil and USD fundamentally changed after regulatory and technological innovations in the 2010s led the US to become the world's largest petroleum producer and a net oil exporter. Since oil is generally priced in dollars, when consumers around the world purchase oil, they must first convert their local currency to USD, putting pressure on the dollar to appreciate. Producers outside the US may then convert this back to their local currency, thereby relieving some pressure on the USD while their domestic currencies rise (see Norway above). But producers in the US keep most of their oil earnings in USD, leading the dollar to strengthen with no offsetting exchange into another currency. With 20 percent of the world's oil supply and 20 percent of its liquefied natural gas disrupted by not being able to pass through the Strait of Hormuz, demand for US oil is likely to intensify, further driving up the dollar.
Safe havens may still play a role during crises. But the table above shows that Norway's krone is down just 0.3 percent against the dollar, while the Swiss franc, an archetypal safe-haven currency, is down 1.5 percent. If the war leads to a broader economic crisis, the currency dynamics may change, and we may see a dash toward safe havens. But three weeks from the start of the war, oil is the major driver of the dollar's boom.
Specifically, measured against the DXY index of currencies. ↩︎