There is no good time for war, but some of them are especially bad. The United States is bogged down in the Middle East, and Donald Trump is feverishly looking for ways out. The tactics of threatening to bomb energy infrastructure and then instructing it not to attack remind investors of the president’s actions during the trade wars. And giving reasons for TACO or Trump always backs down. As a result, oil and the US dollar are falling on the news about the negotiations between Washington and Tehran.
There is no smoke without fire. The words of the White House host that Iran wants to make a deal are overgrown with facts. The Americans, through Pakistan, handed over to this country a list of 15 requirements, including the inadmissibility of developing nuclear weapons. Tehran is preparing its list. The key goal is to unblock the Strait of Hormuz. According to Vitol group estimates, with the current capacity, the world is losing 70 million barrels of oil per week. Goldman Sachs predicts that the total value will reach 800 million barrels.
Currently, the Gulf of Hormuz is under the control of Tehran. Not only does he allow tankers from friendly countries to pass through the main oil artery of the planet, but he has also started charging fees for this. The price for barrels from Saudi Arabia, which have alternative routes, reaches $160. Brent will strive for this figure if the negotiations between the United States and Iran fail.
For the US dollar, de-escalation of the conflict in the Middle East is likely to be a death sentence. The main trump cards of the greenback in the form of the status of the safe haven asset and the currency of the net energy exporting country will be defeated.
On the other hand, the EURUSD did not fall as much as it did at the start of the armed conflict in Ukraine, because investors believed in the best. The dynamics of the premium for geopolitical risk in the form of real bond yield differentials between the United States and Germany indicate that the euro should trade significantly lower. That is why rumors about negotiations between Washington and Tehran dropped oil, but did not attach wings to the main currency pair.
If the EURUSD had sold off as quickly as it did four years ago, any good news, including Donald Trump’s comments about the negotiations, would have made the US dollar extremely vulnerable. There is no such thing. Moreover, if rumors of a dialogue become a false start to peace, the greenback may strengthen.
We should also not count on a rapid EURUSD rally. Oil prices are unlikely to return to pre-war levels until the end of 2026, which preserves the risks of stagflation in the eurozone economy.
