Iran War Disrupts Hormuz Flows; Oil Prices Rise, Dollar Strength Pressure Forex Reserves

The Iran war has fundamentally reshaped global energy flows and created a ripple effect across foreign exchange and emerging market reserves. According to the EIA, flows through the Strait of Hormuz fell by nearly 6 million barrels per day in the first quarter of 2026, a drop of nearly 30% from historical averages. This disruption has forced India, one of the world's largest crude importers, to request that the US extend its sanctions waiver on Russian oil to help stabilize supply. Japan's Eneos has also moved aggressively to purchase Chevron's Asian refining and retail assets for $2.17 billion, a strategic effort to diversify sourcing away from Hormuz-dependent flows.

The energy shock is feeding through to inflationThe rate at which prices rise across an economy. expectations and forcing central banks across Asia to deploy reserves to defend their currencies. The ECB's Martins Kazaks has flagged that if crude price increases deanchor inflation expectations, the central bank will be forced to raise rates despite soft growth signals. Meanwhile, Asian foreign-exchange reserves are slumping as policymakers in the Philippines, India, and other nations spend down reserves to counter the oil-price-driven weakness in their exchange rates. This creates a vicious cycle: higher energy import costs depress local purchasing power, pushes currencies lower, and depletes reserves needed for future stability.

For energy and materials sectors, this environment is deeply bullish. Copper prices have retreated from record highs as Chinese purchase flows slowed on the summit distraction, but gold has held its decline as inflationThe rate at which prices rise across an economy. concerns offset safe-haven demand. Oil majors and refiners face margin expansion from the supply-demand imbalance, while energy importers (utilities, airlines like Air New Zealand) face severe headwinds. Energy-importing emerging markets (India, Philippines, Indonesia) see currency weakness and reserve depletion as structural drains on growth.

The geopolitical path is critical. If Trump-Xi talks yield a framework for de-escalation or humanitarian pauses in the Iran conflict, oil could fall sharply, relieving pressure on central banks and emerging market currencies. Conversely, if tensions escalate or new military strikes occur, the $80-85 oil price range could be tested to the upside, potentially forcing the Fed and ECB to hold rates higher longer than financial markets currently price.