Strait of Hormuz Tensions Weigh on Risk Sentiment as Oil Prices Surge

Geopolitical tensions in the Strait of Hormuz continue to rattle forex markets as IMO chief Dominguez warned that military naval escorts are not a sustainable or fully reliable solution to ensuring safe passage through the critical waterway. Speaking to the Financial Times, Dominguez noted that escorts "reduce the risk, but the risk is still there," underscoring the persistent threat to global oil supply chains. The Strait of Hormuz handles approximately 20% of the world's oil supply, and any disruption has direct implications for crude prices, which have been elevated amid the ongoing US-Iran conflict. Rising oil prices are providing a tailwind to commodity-linked currencies such as CAD and NOK, while safe-haven flows are boosting JPY and CHF demand. Risk-sensitive currencies like AUD and NZD face headwinds from elevated geopolitical uncertainty. Traders should monitor further escalation signals, as prolonged disruptions could amplify stagflation concerns, putting additional pressure on central banks navigating already challenging inflation dynamics.