Peter Cardillo, from Spartan Capital Securities, discussed the traditional safe-haven narrative surrounding the US dollar and the broader market implications.”Well, let me first address your guest and think about entering the dollar as a safe haven; that has always been the case, and the reason for that is that we are the reserve currency and the largest economy in the world. Currently, in terms of GDP growth, we are the leaders among the seven industrial countries. So yes, traditional hedges like gold and silver are clearly the real hedges, but the dollar is considered one of them, just like government bonds. If you look at what’s happening with government bonds, they are obviously the real hedges are down. Why? We see foreign purchases becoming a safe haven. So yes, the dollar is a safe haven in times of crisis.
Early moves in the currency and bond markets reflected that logic. The dollar strengthened as investors sought liquidity and relative safety, while U.S. Treasury yields fell due to foreign inflows – a classic flight-to-quality pattern.
The shock trade in oil
The more immediate and potentially disruptive impact is on energy markets.
Cardillo explained that the initial market reaction in the oil sector is typically driven by positioning and uncertainty, not just fundamentals.
“Now, in terms of what this means for oil prices, obviously the initial trade is always that shock trade. So you have a combination of three things happening. First, there are shorts running for cover. Second, you have the unknown of where prices might reach and eventually stabilize. And third, it’s true that Iran is producing 3%. But let’s take a step back and look back at what happened in the 1970s when the Strait of Hormuz was closed. It caused disruption, and that’s what it’s all about.”
The Strait of Hormuz remains the centerpiece. About a fifth of global energy trade passes through the narrow waterway. Even a temporary disruption could exaggerate ripple effects across supply chains and inflation expectations.
Cardillo pointed to the potential duration of the military operation as the critical variable.
“So the real emphasis here is on how long this operation will last. I just read a report that flashed over there that said President Trump said it could take four weeks. Well, if it takes four weeks and the price of oil goes to $100, that will be significant because you can be sure that gasoline prices around the world will rise and be inflationary, even though it’s probably a temporary factor.”
A sustained move towards $100 per barrel would likely complicate the global disinflation narrative that central banks have cautiously embraced in recent months. Higher fuel costs tend to be quickly reflected in transport, production and consumer prices.
India and China in a strategic tie
For energy-importing countries, especially in Asia, the stakes are considerably higher.
Closing the Strait of Hormuz for an extended period would choke off at least a fifth of the world’s total energy trade. For India, an estimated 45% to 50% of crude oil imports pass through the Strait, along with about 60% of natural gas and energy shipments. This creates a significant dilemma: the switch to cheaper Russian oil may seem economically attractive, but there is a risk that trade and diplomatic ties with the United States will come under pressure.
Cardillo acknowledged that Asian economies would bear the brunt of any sustained disruption.
“Well, there’s no question that India and China are going to suffer the most because most of the oil shipped through the Strait of Hormuz is shipped to India and China, so they’re probably going to have to come to the United States to buy oil. Let’s not forget that the Venezuelan situation means there’s plenty of supply in the short term, so that just means they’re going to pay for more oil. But remember, one of the promises India made in the last trade deal was to to buy oil from the United States and China. Not to buy oil from Russia, which is much cheaper. So if you have to pay for something more than you actually paid, that is obviously negative.”
The dilemma for India is great. Cheaper Russian crude has helped soften import bills in recent quarters. A disruption in Hormuz could prompt New Delhi to diversify further into US barrels, but at a higher cost – potentially widening the current account deficit and putting pressure on the rupee.
China faces similar calculations, albeit with greater strategic reserves and alternative supply routes.
Markets at a crossroads
In the short term, markets appear to trade on two intertwined variables: duration and disruption. If military action remains limited and shipping lanes remain operational, the shock could turn into volatility rather than a sustained crisis. But if the Strait of Hormuz experiences long-term instability, the consequences could extend far beyond the oil sector and impact inflation, monetary policy and global growth.
For the time being, the dollar and government bonds are absorbing flows from safe havens, stocks are faltering and oil remains the barometer of geopolitical risk. Whether this episode becomes a temporary peak or a structural turning point will depend less on headlines and more on how long the Strait remains threatened.
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