Speed and decisive victory have become fantasy; Wall Street begins to ponder: how much longer can the petrodollar survive?

Editor’s Note: At the beginning of 2026, the conflict in the Middle East is crossing traditional geographical boundaries, reshaping the global capital landscape and reconstructing the risk pricing logic of global assets with unprecedented intensity. From the shutdown of oil tankers through the Strait of Hormuz to liquidity black holes lurking on Wall Street, the “butterfly effect” of the war is triggering shocks across various asset classes.

The collision of macro cycles and geopolitical tensions is testing the resilience of every market participant. In response to this complex systemic shock, Tencent Finance launches the series “The Global ‘Bill’ of the Middle East War,” reviewing supply chain disruptions and capital market volatility, shifting oil pricing centers, reallocation of safe-haven funds into precious metals, Fed policy constraints amid inflation and recession, and Dubai’s asset revaluation as a regional safe haven. Through ongoing in-depth observation, we aim to clarify macroeconomic trends and asset evolution logic.

By Zhou Ailin

Edited by Liu Peng

The Middle East war has now lasted three full weeks, and Wall Street traders are gradually losing their composure—where is the quick resolution promised? Where is the short-term spike and fall in oil prices?

This misjudgment is especially evident in the contrast between indices and reality—before last Friday, the S&P 500 only fell about 4% from its high, yet we are facing the largest-ever oil supply shock, 15 times the peak impact of the Russia-Ukraine conflict.

As a result, pent-up emotions erupted completely on March 21— the S&P 500 broke below the 200-day moving average, hedge funds sharply reduced leverage, and U.S. stocks experienced net selling for the fifth consecutive week. While oil prices rose, all other assets declined.

However, no hope appears on the horizon; instead, there is growing concern about a prolonged conflict. According to Xinhua News Agency, the U.S. Trump administration was reported on the 20th to have significantly increased troop deployments in the Middle East, including additional ground forces. This has fueled speculation that the U.S. military is considering seizing Iran’s oil export hub, Kharg Island. Several frontline market research professionals told Tencent News “Qianwang” that even if Trump repeatedly unilaterally TACO (terminate, abandon, cancel, or opt out), a quick resolution is impossible. Whether conceding or fighting a protracted war, it is bearish for dollar assets, and the risk of the petrodollar disintegrating is rising.

Trump’s unilateral TACO is unlikely

On March 23, local time, Trump stated that during negotiations, he would delay any U.S. attacks on Iran’s power plants by five days. He also claimed that dialogue with Iran was “perfect” and that an agreement had been reached on key points. However, at least from public statements, Iran seems to deny any progress in ending this war, now entering its fourth week.

“‘Quick resolution’ is basically impossible,” said Yuan Yuwei, senior global macro fund manager and director of Quant Investor, to Tencent News “Qianwang.” “TACO is entirely a U.S.-centric narrative, ignoring Iran’s demands.”

“Iran has no retreat (Israel wants to wipe it out, Trump refuses to recognize new leaders), and Trump’s backing down would mean ‘political suicide’ and the collapse of the petrodollar. Democrats are also scrutinizing. The recent push to seize Kharg Island is not a shortcut for the U.S., which would expose the military to low-cost drone attacks from Iran. Ultimately, more troops might be deployed or the front expanded, and Trump is clearly afraid of this outcome.”

Therefore, more traders are reaching a consensus—the probability of a prolonged war is increasing, which would lead to rising oil prices, inflation, U.S. debt accumulation, falling U.S. stocks, and possibly trigger crises in other areas including private credit. Traders have not fully priced in these risks.

As long as crude oil continues to rise, other major asset classes are unlikely to increase in value. This pattern has recently caused traders to give up on trading altogether.

“Trading has become very difficult now; it’s better to wait and see how things develop,” said Situ Jie, senior U.S. stock trader and hedge fund manager at Luoyan Private Equity, to Tencent News “Qianwang.” In early March, market sentiment was still more optimistic—regardless of how Iran-U.S. confrontation develops, negotiations are believed to be inevitable, because Iran, having been hit so hard, might eventually compromise if it can maintain a brief period of strong response. But now, traders seem to believe this was a misjudgment of Iran.

According to Xinhua News Agency, Iran’s Foreign Ministry issued a statement on March 22, saying the Strait of Hormuz has not been blocked, and ships can still navigate through the waterway under necessary measures taken due to the war situation. The statement said that ships belonging to the U.S., Israel, and other involved aggressor states do not meet normal and non-hostile passage conditions, and Iran will handle them according to law.

“Although some see this statement as a risk downgrade, it is actually Iran warning Europe, Japan, and others not to join the war,” said Situ Jie.

Rising risks of crude oil prices

Crude oil has become the only asset currently on the rise, which may also be why Trump wants to TACO.

According to Tencent News “Qianwang,” traders are still actively engaged in a high-probability trade—oil price spread trading, specifically going long Brent crude and short WTI crude.

Brent crude, originating from the North Sea, is the global benchmark for oil pricing; most oil trades in Europe, Asia, and the Middle East are based on Brent. WTI (West Texas Intermediate) is the U.S. benchmark, reflecting supply and demand in Cushing, Oklahoma. The spread between the two has recently approached $20, with WTI below $100 and Brent previously surpassing $120.

However, this refers only to financial futures prices; the physical cost of delivering crude to Asia exceeds $170 per barrel. With refined product prices soaring—jet fuel in Rotterdam reaching $220, and in Singapore up to $230.

This is the most severe oil supply shock in history. Source: Wall Street investment bank reports, Tencent Finance production.

Supply disruptions continue. In the Strait of Hormuz, tanker traffic has plummeted 97% from normal levels, currently maintaining only about 600,000 barrels per day. Considering pipeline rerouting, the total loss of Persian Gulf oil flow is estimated at 17.6 million barrels per day—18 times the peak loss during the Russia-Ukraine war in April 2022.

Goldman Sachs’ historical data shows that four years after a large-scale oil supply shock, average production declines by about 42%, with infrastructure damage being a major factor.

Recently, Middle Eastern energy infrastructure has suffered ongoing bombings, damaging several key facilities:

• Kuwait’s two refineries shut down, with a combined capacity of 800,000 barrels per day;
• Saudi Arabia’s Yanbu Samra refinery (40,000 barrels/day) was attacked, and Yanbu port temporarily halted loading;
• UAE’s Babu oil field was hit, causing nearby natural gas facilities to cease operation.

Qatar Energy disclosed that previous attacks may have damaged 17% of Qatar’s LNG capacity, with effects lasting 3 to 5 years, threatening the normal production of gas-dependent regional oil fields.

Policy measures are nearly futile—U.S. Treasury officially confirmed that authorizations for Russian offshore oil sales (including “shadow fleet”) will be extended until April 11; Treasury Secretary Janet Yellen hinted that exemptions for sanctioned Iranian offshore oil are under evaluation.

However, Wall Street banks have poured cold water: currently, Russia has about 131 million barrels of floating oil, and Iran about 105 million barrels, totaling approximately 236 million barrels— even if fully released, this can only offset about two weeks of Hormuz Strait disruption. Previously accumulated buffers from non-sanctioned oil markets have been exhausted.

As a reference, during the three previous oil crises (1973, 1979, 1990), crude prices doubled. Since the outbreak of the U.S.-Iran war, oil prices have risen less than 40%. Iran even warned that prices could reach $200 per barrel. Of course, if the war stops, these fears may subside, but this is not something Trump can achieve unilaterally through TACO.

Risks of the petrodollar disintegration

A severe oil shock not only hits growth and inflation but could also trigger liquidity tightening.

UBS believes that even without aggressive rate hikes, markets may price in a more hawkish stance from central banks, tightening financial conditions. This pressure could spill over into private credit and high-yield bonds, exposing vulnerabilities and forcing deleveraging.

On Friday, the S&P 500 closed below the critical 6,600 level, a level it hasn’t fallen below for a long time, closing beneath the 200-day moving average. Nasdaq also plunged below its recent lows, closing under the 200-day moving average.

More critically, Wall Street is beginning to price in a larger shift—the gradual weakening of the petrodollar’s dominance.

The core logic of the 1974 agreement was that Saudi Arabia (and OPEC) committed to pricing oil exclusively in dollars, with the U.S. promising military protection for the Saudi royal family and open channels for U.S. debt purchases. This embedded dollar demand permanently into global energy trade.

Yuan Yuwei told Tencent News “Qianwang” that whether Iran concedes or fights a prolonged war, the current pattern is bearish for dollar assets; quick resolution is impossible. The key is that the risk of the petrodollar disintegrating is rising. Middle Eastern countries are suddenly realizing that U.S. military bases are of little help and may even pose greater threats.

“If the U.S. unilaterally stops the war, the Gulf states will become victims and casualties of this farce. The petrodollar system will face even more severe disintegration risks, such as withdrawing from U.S. debt and equities, triggering U.S. debt risks; canceling U.S. AI infrastructure investments, destroying the financing cash flow of the U.S. AI ecosystem, and accelerating an AI debt crisis,” he said.

Meanwhile, rising inflation expectations are bearish for U.S. Treasuries. “G7’s strategic petroleum reserves will be exhausted in about 20 days. If the war isn’t resolved after 20 days, the G7 faces a short squeeze. During the Russia-Ukraine conflict, U.S. inflation peaked at 9%. If U.S. bond yields hit 9%, it would trigger a crash. 5% is a critical threshold; surpassing it would intensify shocks.”

For Asia, industry insiders note that South Korea’s dependence on the Strait of Hormuz is about 70%, Japan’s is 90%, and China’s is 42%; TSMC’s power supply is about 53% from natural gas, Samsung’s is 27%. However, poor relations between Japan, South Korea, and Iran mean that if the strait remains blocked, these companies’ capacities could decline, potentially disrupting chip production and collapsing AI supply chains.

For China, the short-term outlook is somewhat bearish, but long-term factors are positive. The impact is that the high valuations of the AI sector, which surged earlier, might be affected. But the market is quick to respond—new energy, electric vehicles, and solid-state batteries are already showing gains (BYD surged 8% at open on March 23).

In the face of current developments, risk management has become more challenging. Traders are beginning to realize: risk is never just a numbers game. It’s a matter of human nature.

U.S. Army General H.R. McMaster once quoted a line from “the greatest military historian of the 20th century,” John Keegan, which perhaps best captures this moment:

“Studying campaigns is always a study of fear and courage, of leadership and obedience, of doubt, error, and misjudgment, of faith and vision; it is a study of violence, sometimes of cruelty and compassion. But above all, it is a study of cohesion—often also of disintegration.”