In the long history of the world, the world has seen the Middle East conflict constantly. And what the world has seen along with the conflict is the “strong dollar.” You’re curious, aren’t you?
Today, we’re going to talk about why the dollar strengthens in the event of a conflict in the Middle East, and what kind of strategic benefits will the United States gain.
1. Middle East conflict and strong dollar relationship
The Middle East has always played a central role in the global energy market. The crude oil produced by major oil producers such as Saudi Arabia, Iran, and Iraq is one of the most important factors supporting global economy.
However, international oil prices have always tended to rise when Israeli-Iranian clashes highlighted the risk of a blockade of the Strait of Hormuz, and when Middle Eastern conflicts arise, such as the threat of transit routes due to Red Sea militant activity.
How does the global economy move after that? High international oil prices lead to higher production costs and inflation. This makes the world increasingly concerned about a slowdown. In turn, capital around the world increases investment in the most secure assets: the U.S. dollar. In turn, the U.S. dollar turns strong.
2. Dollar Bullish Mechanism: Why Will The Dollar Be Strong If Conflict Blasts?
Here’s the relationship between the Middle East conflict and the dollar’s strength.
Conflict in the Middle East → Crude oil prices rise → Concerns over a global economic slowdown → Demand for dollars skyrockets → Dollar strengthens
2.1 Question here: “Why is the demand for dollars increasing and not the currency of other countries?”
✔ First, because the dollar is the reserve currency.
The dollar (USD) has become an international reserve currency through the Bretton Woods system since World War II, meaning the dollar is used as the default currency in almost every sector, including global trade, financial transactions and foreign exchange reserves.
✔ Second, because the dollar is a safe asset.
The dollar, along with U.S. government bonds and gold, is a representative safe asset. A safe-haven asset is an asset whose value remains stable or rises when economic uncertainty or geopolitical risks increase.
As a result, investors around the world tend to sell risky assets and buy dollars when uncertainties arise, such as war, financial crisis, and geopolitical conflict.
✔ Third, because international oil transactions are done in dollars.
Petro-dollar is a system where international oil transactions are settled in U.S. dollars. Most oil exporters around the world pay for their oil sales in dollars, which keeps the international demand for the dollar going.
In the early 1970s, the United States worked with major oil exporters (OPECs), including Saudi Arabia, to make oil settlements in dollars only. Since then, oil exporters have continued to invest the dollars they earn from oil sales back into their U.S. assets (bonds, stocks, etc.), and as a result, the dollar has continued to strengthen.
3. US Strategic Gains
As of 2025, the strength of the dollar and U.S. economic stability are more important than ever for the United States, which is at a tariff war with China. In that situation, the conflict in the Middle East may be a “bad” card in many ways for the United States.
✔ First, rising demand for safe assets from the Middle East conflict could lead to higher demand for U.S. government bonds, thereby easing the U.S. fiscal burden.
✔ Second, the Middle East conflict increases the price of crude oil exported from the Middle East, which strengthens the competitiveness of the United States to export shale oil.
✔ Third, the conflict in the Middle East causes global investment funds to flow into safe assets (national bonds, stocks, etc.) in the United States, which are safe assets, resulting in a strong dollar.
✔ Fourth, there is a risk of inflation due to rising prices as the tariff war progresses. However, a strong dollar as above has the effect of offsetting this inflation risk by increasing the purchasing power of U.S. consumers.
The result is that the Middle East conflict creates a positive trend for the dollar and the U.S. economy.
4. Wrap it up
The world in 2025 is still “Middle East instability = dollar strong” It’s moving within the formula, and it’s not just a psychological response, it’s a closely intertwined oil-financial system, the monetary structure, the strategic interests of the United States.
As you watch the news in the future, if you think of this economic link behind a simple event together, it will help you understand the international political and economic trends.