The global energy market is entering a sensitive phase as multiple geopolitical hotspots emerge across key oil-producing regions. From Latin America to escalating tensions between the United States and Iran, energy prices are becoming increasingly unpredictable in the short term.
Throughout modern economic history, oil has always played a strategic role not only in economic growth but also in geopolitical power. When oil prices fluctuate sharply, the spillover effects often extend across multiple markets, including crypto.
Key Takeaways
- Tensions in major oil-producing regions can disrupt global energy supply.
- The Strait of Hormuz transports around 20 percent of global oil, making it a critical chokepoint.
- Rising oil prices often strengthen the USD through the petrodollar mechanism.
- Energy crises can trigger safe haven flows and reshape financial cycles.
- High oil volatility creates trading opportunities on derivatives platforms.
1. Conflict Background and the Risk of Oil Supply Disruption
Global oil supply is currently dependent on several strategically important geographic regions, with the Middle East playing a particularly critical role. Any disruption along major oil transportation routes can create a chain reaction across the energy market.
One of the most important chokepoints is the Strait of Hormuz. This maritime route connects the Persian Gulf to global energy markets and transports roughly 20 percent of the world’s oil supply each day. This means that even a partial disruption in shipping activity can trigger strong market reactions.
In this context, many analysts are considering extreme scenarios. If conflicts escalate or significantly disrupt shipping through the Strait of Hormuz, oil prices could approach 200 USD per barrel. Since this route carries about 20 percent of global supply, even a partial interruption is enough to push the energy market into a state of shortage.
For traders, periods like this are characterized by strong oil price volatility, which is often accompanied by higher liquidity and wider price ranges. As a result, many derivatives trading platforms have expanded their energy-related products to allow traders to access this market.
For example, on MEXC, oil trading products such as USOIL are listed to enable users to track and trade oil price movements in real time.
2. Financial Power Cycles and the Role of the US Dollar
To better understand how energy crises impact the global financial system, many analysts rely on the framework of long-term economic power cycles.
One of the most widely discussed models is the Big Cycle developed by Ray Dalio, founder of Bridgewater Associates. According to Dalio, major economic powers go through long cycles that include phases of growth, prosperity, decline, and restructuring.
This cycle typically consists of six main stages:
Stage 1: New Order After a major conflict, a new world order is established by the winning side. Financial and political systems are restructured, and society enters a phase of stability and recovery.
Stage 2: Building Foundation The economy grows steadily, productivity improves, and trade expands. Financial institutions function efficiently, creating a foundation for long-term prosperity.
Stage 3: Prosperity Economic, military, and financial power reach their peak. However, excessive confidence, rising spending, and early signs of imbalance begin to appear.
Stage 4: Bubbles and Debt Excess capital leads to growing debt levels. The cost of maintaining dominance increases, while asset markets begin forming speculative bubbles.
Stage 5: Decline and Polarization Growth slows down, public and private debt become burdens, wealth inequality increases, and political tensions rise.
Stage 6: War or Crisis The existing order begins to fracture. Major crises or geopolitical conflicts emerge, paving the way for a new global order.
According to Dalio’s interpretation, the current global environment shows many signs that the financial system is approaching the sixth stage. The modern geopolitical order established after World War II, centered around the US dollar, still plays a dominant role. The USD accounts for roughly half of global payment systems such as SWIFT and nearly 60 percent of global foreign exchange reserves, making it a key instrument for maintaining US influence in the international financial system.
3. Energy Competition and the Strategy of Oil Control
To maintain the dominance of the US dollar in the global financial system, some analysts argue that US financial and political elites have pursued a bold strategy: reinforcing global demand for USD through control of the world’s energy supply.
At the center of this strategy is oil. This energy source accounts for approximately 30 percent of global energy demand and fuels nearly all transportation systems. As long as most oil transactions are priced in USD, controlling oil supply effectively reinforces the central role of the dollar in the global financial system.
Venezuela: Control of the Largest Oil Reserves
The first phase of this strategy is believed to involve direct actions targeting Venezuela. On March 1, a special operation reportedly aimed to detain President Nicolas Maduro and his spouse, bringing them to the United States under charges related to drug trafficking.
Behind this political event lies a strategic resource objective. Venezuela holds approximately 303 billion barrels of oil reserves, accounting for about 17 to 20 percent of global reserves, making it the largest in the world. Controlling Venezuela would allow the US to establish a strong position in regulating oil supply across Latin America.
Kharg Island Strike: Targeting Iran’s Oil Lifeline
Just 14 days after the Venezuela event, the focus shifted to the Middle East. The United States carried out a large-scale strike on Iran’s Kharg Island, located about 25 kilometers off the northern coast of the Persian Gulf. Despite its relatively small size of around 20 to 22 square kilometers, Kharg Island serves as the core of Iran’s oil export infrastructure.
According to the US Energy Information Administration, this is Iran’s largest oil export terminal, with a loading capacity of up to 7 million barrels per day. The island is equipped with advanced infrastructure capable of handling the world’s largest oil tankers.
The attack on Kharg Island not only disrupts Iran’s economy but also acts as a catalyst for escalating tensions across the Middle East. As shipping routes are threatened and supply tightens, global oil prices face upward pressure, forcing many countries to rely more heavily on the USD-based financial system to maintain stability.
4. Why Rising Oil Prices Often Strengthen the USD?
Rising oil prices are often accompanied by a stronger US dollar, which can be observed through movements in the U.S. Dollar Index. One key reason is the petrodollar system, where most global oil transactions, particularly West Texas Intermediate and Brent crude, are priced in USD.
In recent weeks, WTI oil prices have surged following geopolitical events in the Middle East. After reaching a short-term peak around 120 USD per barrel, prices corrected significantly before recovering to the 95 to 100 USD range.
At the same time, the Dollar Index has shown a clear upward trend, rising from around 96 to 97 points in early February to above 100 points in March. This represents a notable increase amid heightened global financial volatility.
Beyond trade settlement dynamics, geopolitical tensions also trigger demand for safe haven assets. The US dollar and US Treasury bonds are often seen as preferred destinations for capital during periods of uncertainty.
Additionally, rising oil prices can increase global inflationary pressure. As energy costs rise, central banks may maintain tighter monetary policies for longer periods. This often pushes US bond yields higher and further strengthens the attractiveness of the USD for global capital flows.
Overall, the relationship between oil prices and USD strength is driven by three main factors:
- Energy settlement demand, as most oil transactions are denominated in USD
- Safe haven flows, as investors move into USD during geopolitical instability
- Interest rate differentials, as higher inflation leads to tighter monetary policy and higher yields on USD assets
When these factors occur simultaneously during geopolitical crises, the USD often benefits directly. This explains why, during periods of global tension, oil prices and the USD can rise together instead of moving inversely as they typically do in normal commodity cycles.
5. The Downside of High Oil Prices for the Global Economy
Although rising oil prices can benefit energy exporting countries and major oil corporations, for most of the global economy, this is typically a negative shock.
Oil is a key input for many economic activities. When oil prices rise sharply, costs across transportation, logistics, manufacturing, and agriculture also increase. This leads to widespread increases in the prices of goods and services, creating inflationary pressure across many economies.
According to estimates from the International Monetary Fund, a sustained 10 percent increase in oil prices can reduce global economic growth by approximately 0.1 to 0.2 percent, while increasing inflation by around 0.4 percentage points.
Another concern is the heavy dependence of global energy trade on the Strait of Hormuz. Around 20 percent of the world’s oil supply passes through this route, meaning any disruption can trigger a global energy shock.
Amid current tensions, global leaders have expressed concerns about the risk of disruption to this critical route. US President Donald Trump has called on multiple countries to participate in protecting and reopening the Strait of Hormuz, highlighting its importance to the global economy.
If this route is disrupted for an extended period, many economies could face:
- Rising energy inflation
- Increasing global transportation costs
- Slowing economic growth
- Risk of recession or stagflation
In other words, while some oil-exporting nations may benefit from higher prices, the majority of the global economy bears the cost of the oil shock.
7.Conclusion
At this stage, the most important question for investors is the duration of the conflict. If tensions are resolved quickly, oil prices may cool down and financial markets will shift their focus back to familiar macro factors such as interest rates, inflation, and economic growth.
On the other hand, if the conflict continues or spreads to key energy-producing regions, oil prices could exceed 100 USD per barrel and in extreme scenarios approach 200 USD. In that case, the impact would extend beyond the energy market and affect the entire global financial system. Inflation could rise again, monetary policy may remain tight for longer, and risk assets such as equities and crypto could face heightened volatility.
For investors, it is important not only to monitor geopolitical developments but also to observe movements in oil prices and the strength of the US dollar. These two factors often reflect the level of stress in the energy market and can become key variables shaping the next financial cycle.
Disclaimer: This content does not constitute investment, tax, legal, financial, or accounting advice. MEXC provides this information for educational purposes only. Always do your own research, understand the risks, and invest responsibly.