Euro falls to 2026 low as Middle East oil crisis pressures Europe

Friday 13 March 2026 - 14:50

By: Dakir Madiha

Euro falls to 2026 low as Middle East oil crisis pressures Europe

The euro weakened for a fourth consecutive session on Thursday, sliding to its lowest level of 2026 as the U.S. and Israeli military campaign against Iran continued to disrupt global energy markets and weigh on Europe’s energy dependent economy.

The European Central Bank’s reference rate for EUR/USD stood at 1.1547 on March 12, with the pair opening even lower on Friday morning near 1.1512. At the same time, the U.S. dollar index climbed to 100.05, its highest level in more than three months, according to Trading Economics.

The greenback has strengthened more than 3.2 percent over the past month as investors shifted toward safe haven assets amid rising geopolitical tensions, higher crude prices and falling equity markets. Expectations that the Federal Reserve will maintain restrictive monetary policy have also supported the dollar.

Energy markets have been a major driver of the currency move. Brent crude rose back above $100 per barrel on Thursday after attacks on oil tankers near Iraq intensified concerns about broader supply disruptions. Earlier in the week, prices briefly exceeded $119 per barrel.

The conflict, now in its 13th day, has effectively shut down the Strait of Hormuz, a strategic route through which about 20 percent of the world’s oil normally passes.

In response to the supply shock, the International Energy Agency approved a record release of 400 million barrels from emergency reserves held by member countries. The U.S. Department of Energy said it would contribute 172 million barrels from the Strategic Petroleum Reserve.

Despite these interventions, oil prices rose more than 5 percent following the announcement, reflecting market skepticism that the releases can offset prolonged disruptions to shipping through the Strait of Hormuz.

European natural gas prices have also surged, rising more than 50 percent since the war began, although they remain below the extreme levels seen during the 2022 energy crisis.

Analysts say currency movements are closely tied to energy costs. According to Barclays, a 10 percent increase in oil prices typically pushes the U.S. dollar up by about 0.5 to 1 percent, while a similar rise in natural gas prices tends to weaken the euro by a comparable margin.

Europe’s structural reliance on imported energy has made the eurozone particularly vulnerable to the shock. The European Union still depends on fossil fuels for roughly 58 percent of its energy consumption, leaving the region exposed to rising costs and stagflation risks.

Higher energy prices could drive inflation in the eurozone significantly higher than in the United States, particularly in heavily import dependent economies such as Italy.

The European Commission is considering measures including a potential cap on natural gas prices to limit the impact on consumers and businesses. However, high public debt levels following pandemic era spending may restrict governments’ ability to deploy large scale support programs similar to those introduced during the 2022 energy crisis.

Currency strategists say the euro may face further downside. Colin Ford, strategist at ING, told Reuters that EUR/USD could fall toward 1.14 as foreign exchange markets increasingly price in a scenario similar to the economic shock experienced during the Russia Ukraine war in 2022.