Oil Surges 5% and Dollar Rises as Strait of Hormuz Crisis Deepens

How Oil Shocked the Yen and the Euro

The rally in crude had outsized effects on currencies tied to energy imports.

Japanese Yen: The yen fell 0.73% to a one-week low. Japan is a major oil importer, so higher energy prices weigh on the yen. A 2% rally in the Nikkei index also reduced demand for the safe-haven yen, pushing it lower against the dollar. Markets priced a 63% chance of a September BOJ rate hike against the Fed's 3.50%-3.75% target range, but the immediate impact of higher oil and a strong equity market dominated the session.

Euro: The euro slipped 0.09% to $1.1542 , pressured by broad dollar strength and higher energy costs that raise import bills for the Eurozone. Losses were capped by the Eurozone Sentix index rising to a six-month high of 0.9, signaling improved investor morale.

The Triggers Behind Oil's 5% Surge

Oil prices settled about 5% higher on Monday . The rally was driven by three distinct events that unfolded over the weekend and early Monday.

Stalled Iran-Oman Strait of Hormuz negotiations: Oman described talks as "positive" and Iran said they were near "final stages," but both sides hardened demands, with Tehran setting conditions for reopening . Iran conditioned reopening the Strait on compensation and on the U.S. meeting certain terms, complicating Oman-mediated talks .

Missile strike on a UAE tanker: On August 8, the UAE said an ADNOC tanker was hit by a missile while transiting the Strait of Hormuz. No injuries were reported, but it marked a major escalation and the 16th attack on a vessel since the conflict began .

Houthi attack on Saudi Arabia's Jazan refinery: On August 9, Houthis claimed a drone strike on the Aramco facility, causing a fire that was later extinguished with no injuries .

By the end of Monday, Brent crude reached about $86.75/barrel and WTI hit about $80.91/barrel . Price estimates vary: Reuters reported Brent settling around 5% higher at $87.72 , while other sources put Brent at $86.89 and WTI at $81.31 .

Broader Geopolitical Backdrop

The Strait of Hormuz handles roughly one-quarter of global seaborne oil trade. With the strait effectively contested, supply disruption fears are elevated.

President Trump said he would demand that Iran pay compensation, emphasizing economic pressure rather than immediate military strikes . Iran's Foreign Ministry spokesman Esmail Baghaei said Monday that the U.S. must lift its naval blockade before Tehran would agree to fully open Hormuz . Iran also conditioned reopening on sanctions relief, the release of frozen assets, and compensation for war damage .

Fed Chair Kevin Warsh reaffirmed the Fed's commitment to a 2% inflation target amid rising national debt, reinforcing the Fed's cautious posture as the market awaits CPI data .

Key takeaway: The dollar's Monday gain was primarily a safe-haven and energy-cost move. Oil's rally — driven by the stalled Hormuz talks, the missile strike on a UAE tanker, and the Houthi refinery attack — overrode the prior Friday's weak jobs data, pushing the dollar higher, the yen to a one-week low, and the euro slightly lower in a risk-off, energy-shocked session.