Oil prices rose on Thursday, extending their rally as the US–Israeli war against Iran expanded and disrupted supply and shipping routes, prompting some major producers to cut output while others took steps to secure supplies.

Brent crude rose by $1.72, or 2.1%, to $83.12 per barrel by 11:06 GMT, marking its fifth consecutive session of gains. US West Texas Intermediate crude also climbed $1.95, or 2.6%, to $76.61 per barrel.

John Evans, an analyst at PVM, said oil markets had become tighter, noting that the Chinese government had asked the country’s largest refining companies to suspend diesel and gasoline exports.

Two refineries in China and India also shut down crude processing units due to supply disruptions, as both countries rely heavily on oil imports from the Middle East.

Amid expectations of tighter fuel supplies, European diesel futures surged to their highest level since October 2022 at $1,130.

Analysts at ANZ Group said in a note on Thursday that oil markets remain tense due to ongoing risks to supplies following the attacks in the Middle East, with concerns focused on trade flows through the Strait of Hormuz.

Continued attacks on oil tankers

Attacks on oil tankers continued on Thursday, as the Bahamas-flagged crude tanker Sonangol Namibe reported a hull breach following an explosion near Iraq’s Khor Al-Zubair port.

According to vessel tracking data from Vortexa and Kpler, about 300 oil tankers remain inside the Strait of Hormuz, while traffic entering and leaving the vital waterway has nearly halted since the outbreak of the war, excluding some smaller vessels from the count.

In another development, Iran launched a wave of missiles at Israel early Thursday morning, forcing millions of residents into shelters as the conflict entered its sixth day, just hours after efforts in Washington to halt US attacks had failed.

A US submarine sank an Iranian warship off the coast of Sri Lanka on Wednesday, killing at least 80 people, while NATO air defenses intercepted an Iranian ballistic missile launched toward Turkey.

Risk of supply disruptions from Iraq and Kuwait

Analysts at JPMorgan warned that crude supplies from Iraq and Kuwait could begin to halt within days if the Strait of Hormuz remains closed, potentially cutting output by about 3.3 million barrels per day by the eighth day of the conflict.

Officials told Reuters that Iraq, the second-largest crude producer in the Organization of the Petroleum Exporting Countries (OPEC), had reduced production by about 1.5 million barrels per day due to a lack of storage capacity and the absence of export routes.

Meanwhile, QatarEnergy — the largest liquefied natural gas producer in the Gulf — declared force majeure on gas exports on Wednesday, with sources saying that returning to normal production levels could take at least a month.

The US dollar resumed its advance on Thursday after a brief pullback from its highest levels in three months, as the ongoing fallout from the conflict in the Middle East kept investors on edge and pushed them toward the US currency as a safe haven.

Earlier hopes for easing tensions faded after Iran warned that Washington would “deeply regret” the sinking of an Iranian warship off the coast of Sri Lanka.

As a result, demand for the dollar remained strong, with the euro falling 0.18% to $1.1610, while the British pound declined 0.1% to $1.3358.

The dollar index, which measures the US currency against a basket of six major peers, rose 0.18% to 98.99.

Nick Rees, head of macro research at Monex, said: “Everyone is operating in the dark.”

He added: “Most investors recognize that they do not have a high degree of confidence when it comes to forecasting these tensions, which makes markets extremely sensitive even to small developments in news headlines.”

Safe-haven behavior disrupted

As investors rushed toward safe assets amid the turmoil, renewed concerns about inflation further complicated the outlook, causing some traditional safe havens to behave unexpectedly and forcing investors to reassess which assets truly provide protection.

Germany’s benchmark 10-year government bond yield rose 6.1 basis points to 2.807% on Thursday, as bond prices declined.

Bas van Geffen, senior macro strategist at Rabobank, said: “It seems there is almost no escape. Traditional safe havens such as gold are not playing their usual role.”

He added: “With the sharp rise in the dollar index, dollar liquidity appears to be king.”

Dollar among the biggest winners this week

The dollar has risen about 1.37% since the start of the week, emerging as one of the few assets posting gains during volatile sessions that have seen stocks, bonds, and even precious metals — which are usually considered safe havens — move lower.

The surge in energy prices driven by the Middle East war has reignited fears of returning inflation, which could complicate interest rate expectations for major central banks.

According to the CME FedWatch tool from CME Group, traders are now pricing only a 31.5% probability of a Federal Reserve rate cut in June, compared with nearly 46% a week ago. This shift is partly due to stronger-than-expected US economic data released on Wednesday.

Expectations for rate cuts by the Bank of England have also been scaled back, while money markets have increased bets on the possibility that the European Central Bank could raise interest rates earlier this year.

Thierry Wizman, global FX and rates strategist at Macquarie Group, said: “Alongside market participants, monetary policymakers are also increasingly watching the possibility of inflation returning as a concern.”

He added: “US interest rate expectations are among the most sensitive to change if the world experiences a new wave of inflation in 2026 due to constrained energy supplies.”

Moves in other currencies

The Japanese yen also retreated after early gains, falling 0.2% to 157.35 per dollar.

In China, the government on Thursday set its economic growth target for 2026 in a range between 4.5% and 5%, slightly lower than last year’s 5% growth rate. The target leaves room for stronger — though not decisive — measures to curb industrial overcapacity and rebalance the economy.

The Chinese yuan recovered from a one-month low to trade little changed at 6.8951 per dollar, after the People’s Bank of China set the daily reference rate for the currency at its strongest level in nearly three years.

Cryptocurrencies

In the cryptocurrency market, both Bitcoin and Ethereum fell by less than 1% each, following strong gains recorded in the previous session.

Gold prices rose in the European market on Thursday, extending gains for a second consecutive session, supported by strong demand for the metal as a safe haven amid the escalating conflict in the Middle East.

However, those gains were limited by the renewed rise of the US dollar against a basket of global currencies, supported by continued buying as the most attractive available investment, as expectations for Federal Reserve interest rate cuts during the first half of this year continued to fade.

Price Overview

Gold prices today rose by 1.05% to $5,195.13, up from the opening level of $5,140.93, while recording a session low of $5,121.10.

At Wednesday’s settlement, gold prices posted gains of more than 1.0%, as part of a recovery from a two-week low of $4,996.10 per ounce.

The Iran war

Israel launched a wave of large-scale airstrikes on Tehran on Thursday, targeting what it described as infrastructure belonging to Iranian authorities, after Iranian missiles forced millions of Israelis to take shelter.

The US dollar

The US Dollar Index rose by 0.25% on Thursday, resuming gains that had temporarily paused in the previous session, approaching once again its highest levels in four months, reflecting renewed strength of the US currency against a basket of global currencies.

This rise comes as investors continue to favor the dollar as the most attractive available investment, amid fading expectations that the Federal Reserve will cut interest rates during the first half of this year.

US interest rates

On Wednesday, US President Donald Trump officially nominated former Federal Reserve Governor Kevin Warsh to lead the US central bank.

In its latest Beige Book report released on Wednesday, the Federal Reserve said US economic activity expanded slightly, prices continued to rise, while employment levels remained largely stable in recent weeks.

According to the CME Group’s FedWatch tool, markets are pricing a 97% probability that US interest rates will remain unchanged at the March meeting, while the probability of a 25 basis-point rate cut stands at 3%.

To reassess those expectations, traders are awaiting the release of weekly US jobless claims later today, followed by the US February employment report on Friday.

Gold outlook

Hamad Hussein, economist at Capital Economics, said that on one hand, safe-haven demand for gold could increase amid the conflict in the Middle East. On the other hand, the risk of persistently high energy prices, which could eliminate the possibility of rate cuts and increase the likelihood of further tightening, may limit additional gains.

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, declined by around 18 metric tons on Wednesday, marking the second consecutive daily drop, bringing the total to 1,081.04 metric tons, the lowest level since February 19.

The euro fell in European trading on Thursday against a basket of global currencies, resuming losses that paused temporarily yesterday against the US dollar and moving toward retesting a four-month low, as surging global energy prices driven by the Iran war weigh on Europe’s economic outlook.

The crisis is expected to push prices higher and accelerate inflation across the eurozone, placing growing inflationary pressure on policymakers at the European Central Bank.

At the same time, the European economy may require additional monetary support to limit the slowdown in economic activity, creating a complex policy dilemma between containing inflation and supporting growth.

Price Overview

Euro exchange rate today: the euro declined by 0.25% against the dollar to $1.1605, down from the opening level of $1.1633, after touching a session high of $1.1647.

The euro ended Wednesday’s trading up by 0.2% against the dollar, marking its first daily gain in the past three sessions as part of a recovery from a four-month low of $1.1530.

US Dollar

The dollar index rose by 0.25% on Thursday, resuming gains that paused temporarily in the previous session and approaching the highest levels in four months, reflecting renewed strength in the US currency against a basket of major and secondary currencies.

The advance comes as investors continue to favor the dollar as a preferred alternative investment amid growing fears that the war in the Middle East could widen, which would negatively affect global trade and the world economy.

Markets are awaiting the release of the US monthly employment report on Friday, which is expected to provide strong and decisive evidence regarding the Federal Reserve’s interest rate path during the first half of this year.

Global energy prices

Global oil and gas prices surged due to the fallout from the US-Israeli war on Iran, which disrupted energy exports from the Middle East. Tehran’s attacks on ships and energy infrastructure led to the closure of shipping routes in the Gulf and halted production from Qatar to Iraq.

Brent crude rose more than 16% this week and reached a 20-month high of $85.07 per barrel, while European gas prices jumped 70% since the end of last week.

Views and analysis

Analysts at Wells Fargo said in a note that the euro faces a difficult situation. Europe’s natural gas storage refill season is about to begin, and the European Union is entering the season with record-low gas levels in storage, meaning it will need to purchase large amounts of energy at a time when prices could rise significantly.

George Saravelos, head of global FX research at Deutsche Bank, said the impact of the Iran war on EUR/USD revolves around one key factor: energy.

Saravelos added that a negative supply shock is currently forming, effectively acting as a direct tax on Europeans that must be paid to foreign producers in US dollars.

Analysts at ING wrote in a research note that the European Central Bank’s position has suddenly come into question, and they doubt the issue can be resolved in the very near term.

They added that the possibility of the ECB raising interest rates poses a serious risk to interest rate carry trades and could lead to a significant widening in eurozone government bond spreads.