[Global IB Report] "King Dollar" Unfazed

Subtitle: The Fatal Limitations of the IEA's Historic Action and the Test of National Fundamentals (ING & MUFG)

Original Report Publication Date: March 12, 2026

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3-Line Summary

• Fatal Limitations of Strategic Petroleum Reserve (SPR) Release: The IEA announced an unprecedented release of 400 million barrels of SPR, but this is merely a 'temporary measure,' woefully insufficient to fill the massive daily supply gap of 15-20 million barrels that would arise from a blockade of the Strait of Hormuz.

• Energy Shock Fuels 'Strong Dollar': The U.S. Dollar (USD), with its high energy independence and status as the ultimate safe-haven asset, is solidifying its strong upward trend, rising in tandem with oil prices (positive correlation).

• Extreme Polarization in FX Markets: The Euro (EUR) and Japanese Yen (JPY), highly dependent on energy imports, are directly hit and plummeting, while resource-rich currencies like the Australian Dollar (AUD) and Canadian Dollar (CAD) are fully benefiting from high oil prices and emerging as winners.

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In-Depth Report Analysis

Recently, the International Energy Agency (IEA) took an unprecedented step, announcing the 'release of 400 million barrels of Strategic Petroleum Reserves (SPR)' – the largest in history – to calm panic in the global crude oil market. This massive coordinated effort involved major nations including the United States (172 million barrels), Japan (80 million barrels), and South Korea (22.5 million barrels).

However, market reaction has been lukewarm. Oil prices remain elevated, and in the foreign exchange market, the U.S. Dollar is once again demonstrating absolute strength. Through reports published by ING and MUFG on March 12, we will examine the key reasons why the market views this historic measure pessimistically and how it is reshaping the global FX landscape.

1. Why the 400 Million Barrel Release is a 'Drop in the Ocean'

The IEA's 400 million barrel release easily surpasses the previous record set during the 2022 Russia-Ukraine war (183 million barrels). However, MUFG warns that the implications of this figure must be soberly assessed. Even this enormous quantity is barely enough to cover just 'four days' of global daily crude oil demand.

The core of the problem is the de facto closure of the Strait of Hormuz, which accounts for 20% of global seaborne crude oil traffic. If it is blocked, a daily supply gap of 15-20 million barrels would emerge. To make matters worse, evacuation orders have been issued for major export ports in Oman (Mina al Fahal) and Iraq, which served as alternative routes outside the Strait of Hormuz, due to drone attack threats, shaking even the last line of defense.

According to MUFG's calculations, assuming the 400 million barrels are released over 120 days, the daily release would be only 3.3 million barrels. Considering the physical limitations of the system, the actual volume reaching the market is estimated to be only 2-4 million barrels per day. Even if the release period is squeezed to one month, it would amount to 13 million barrels per day, which is absolutely insufficient to compensate for the volume lost due to a Strait of Hormuz blockade.

Ultimately, ING assessed that the urgent decision by national leaders to release SPRs itself sent a "fatal signal to the market that a resolution to the Middle East conflict is not possible in the short term." This is why market participants fear that 'the worst of the oil price surge is yet to come.'

2. Energy Shock Drives 'King Dollar' and the Euro's Crisis

Soaring oil prices and an unaddressed supply shock are providing strong tailwinds for the U.S. Dollar (USD) in the foreign exchange market. The U.S. possesses overwhelming domestic energy production capabilities and is the ultimate safe-haven asset that investors instinctively seek during global geopolitical crises.

According to MUFG, while oil prices and the dollar historically tended to move in opposite directions (negative correlation), this correlation coefficient has recently risen to 0.3-0.4, clearly indicating a phenomenon where the dollar and oil prices rise in tandem. The 25 basis point (0.25%p) surge in U.S. 2-year swap rates due to renewed inflation concerns also firmly supports the 'King Dollar.'

Conversely, the Euro (EUR) is plummeting, directly hit by the energy shock. ING diagnoses that the current EUR/USD exchange rate has completely lost its usual sensitivity to 'interest rate differentials,' instead reflecting only the fear of rising oil prices.

Although Europe may not face a structural gas crisis, having increased gas inventories and renewable energy ratios compared to 2022, a weak stock market and suppressed investor sentiment are holding back the Euro. ING predicts that if the downward momentum continues, the key psychological support level of $1.150 could collapse, with the next defense line at $1.140. (MUFG also recommended a Euro selling strategy.)

The situation for the Pound Sterling (GBP) is also severe. The UK faces greater concerns about entrenched inflation compared to other regions, critically tying the Bank of England's (BoE) monetary policy to energy prices. The market has withdrawn expectations for a BoE rate cut, pushing up 2-year Pound swap rates by a significant 50 basis points.

3. Worst Performer 'Yen (JPY)' and Soaring 'Australian Dollar (AUD)'

This energy shock has drawn clear lines between winners and losers in the foreign exchange market. The most severely impacted loser is the Japanese Yen (JPY).

Given the Japanese economy's characteristic reliance on energy imports, soaring oil prices mean a surge in import prices and a fatal deterioration in terms of trade. Since the outbreak of the Middle East conflict, the Yen has plummeted by approximately 2% against the dollar, approaching the psychological resistance level of 159.50 seen in January. Interestingly, Japanese authorities, who previously intervened verbally to defend the 160 Yen level, are now silent. MUFG analyzes that this Yen weakness is not merely an attack by speculative forces but stems from a fundamental shock of 'increased energy costs,' forcing authorities to tolerate short-term depreciation.

Furthermore, this shock has derailed the Bank of Japan's (BoJ) expected rate hike steps, which were anticipated in April. If the ECB and BoE proceed with preemptive rate hikes while the BoJ freezes rates, the Yen risks a vertical drop, compounded by the unwinding of Yen carry trades.

Conversely, the currency smiling brightest in this brutal market is the Australian Dollar (AUD). Armed with the powerful weapon of being an 'energy exporter,' the Australian Dollar is monopolizing the massive benefits of rising oil prices. Moreover, there is a 70% probability that the Reserve Bank of Australia (RBA) will raise interest rates by 25 basis points (0.25%p) on March 17 to combat inflation, giving its strength a rocket boost. ING forecasts that the AUD/USD exchange rate could rise unhindered to the 0.720 level, provided the stock market does not collapse significantly.

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StockHub Insight & Comments

The fact that even the largest-ever SPR release failed to quell market fears underscores the depth of market concern regarding the current erosion of fundamentals (actual supply). The 'renewed inflation concerns' triggered by soaring oil prices are completely breaking the traditional FX betting formulas based on interest rate differentials. Investors must meticulously select currencies and assets based on 'national energy independence.' It is time to reduce exposure to assets in energy-poor Eurozone and Japan, and significantly strengthen portfolio macro-hedging capabilities through strategic overweighting of 'U.S. Dollar (USD)' assets, which serve as a strong defensive shield with domestic production capacity, and commodity currencies like the 'Australian Dollar (AUD) and Canadian Dollar (CAD)' that benefit from the situation.

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Disclaimer

This report summary is prepared for informational purposes only and should not be construed as an investment solicitation or stock recommendation under any circumstances. Due to financial market volatility, the report's predictions may differ from actual results, and all investment decisions and their consequences are solely the responsibility of the investor.