MW The Iran conflict could feed a defense boom. Why a rearming world needs more dollars.
By Isabel Wang
There are practical reasons for the dollar's strength in the Iran conflict: There's a need for many of our top exports
The dollar has pushed higher since the start of the Iran conflict.
Gold prices have whipped around and Treasurys sold off sharply, yet the dollar has climbed since the start of the Iran conflict.
On the fifth day of hostilities, with no end in sight, investors have been asking a more practical question: What's the ultimate way to ride out this particular storm? In a world where even safety has a price, the early answer in this conflict seems to be the U.S. dollar.
A widely followed gauge of the greenback was surging toward its highest level in over a month and a half this week. The ICE U.S. Dollar Index DXY, a gauge of the U.S. currency against a basket of six rivals, has risen 1.3% so far this week, before giving back some gains to trade at $98.88 on Wednesday afternoon.
This week's rally already delivered the largest two-day gain since February 2023 for the dollar index, according to Dow Jones Market Data. Previously, the greenback hit a four-year low on Jan. 29.
That might signal a change of heart around the dollar. It lost ground with investors after President Donald Trump shocked the world last year with his "liberation day" tariffs.
Yet a stronger dollar during a time of combat suggests interest in one of the U.S.'s biggest exports.
"In currencies, the dollar has value for a more traditional reason: You're going to need to fund things, buying armaments, and since we are the largest purveyor of those, you probably want dollars," said Bob Savage, head of markets macro strategy at BNY.
U.S. companies produced $371 billion in arms revenue in 2023, half the total revenue of the world's top 100 arms companies, according to the most recent data from the Stockholm International Research Institute.
Arms revenues from sales of military goods/services to military customers.
Furthermore, the U.S. is home to the world's top five arms producers: Lockheed Martin (LMT), RTX $(RTX)$, Northrop Grumman $(NOC)$, Boeing $(BA)$ and General Dynamics (GD), according to the report.
To be sure, oil prices (CL.1) near $75 for West Texas Intermediate crude and around $81.50 for Brent crude (BRN00) are more immediate drivers of the dollar's strength, according to Steven Blitz, chief economist at GlobalData TS Lombard.
"Oil trades in dollars and the price of oil is up. You need more dollars to buy the oil - first and foremost. It's a reflection in the price of oil," Blitz told MarketWatch.
Higher energy prices tend to support the dollar because the U.S., as a major oil producer and exporter, is less hurt than energy-importing regions such as Europe and Japan, which puts downward pressure on the euro (EURUSD) and yen (USDJPY), according to FX strategists at JP Morgan.
U.S. stocks SPX were pushing higher Wednesday on hopes that the Trump administration might provide a way for oil-tanker and other shipping traffic to resume through the Strait of Hormuz, a crucial chokepoint for crude and other products out of the Middle East.
See: Oil could hit $100 if volumes from this key passageway don't ramp soon, says Goldman Sachs
The dollar's traditional safe-haven role and its use in dollar-denominated commodity transactions could provide further support to the greenback, said Gary Schlossberg, lead wealth-investment solutions analyst at the Wells Fargo Investment Institute.
He sees the impact of potentially rising defense exports on the dollar as likely limited because the U.S. already has seen large increases in defense sales. "I think it may be coming into play, but I don't think that's an overriding reason for the dollar strength," he told MarketWatch in a phone interview.
The real boost to the dollar is still coming from financial transactions, Schlossberg said, adding that the greenback's safe-haven demand is also reinforced by a more guarded outlook for Federal Reserve interest-rate cuts in the wake of this conflict.
Joy Wiltermuth contributed
-Isabel Wang
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(END) Dow Jones Newswires
March 04, 2026 15:42 ET (20:42 GMT)
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