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Geopolitical Score 97 Bearish

Morgan Stanley Warns Dollar Rally Amid Escalating Iran-Israel Conflict

Mar 25, 2026 20:10 UTC
CL=F, ^VIX, XLE
Immediate term

A major escalation in the Middle East, triggered by Iran’s missile and drone attacks on Israeli cities and U.S. military bases, has prompted Morgan Stanley to caution that the recent dollar rally is unsustainable. The conflict has intensified geopolitical risk and disrupted energy markets.

  • Iran launched missile and drone attacks on Tel Aviv, Eilat, Dimona, and U.S. bases on March 24, 2026
  • Blast damage was reported at an apartment block in Tel Aviv
  • Morgan Stanley warns the dollar rally is unsustainable amid the escalation
  • CL=F and XLE are experiencing volatility due to energy supply concerns
  • VIX spiked as geopolitical risk increased
  • The conflict marks a significant escalation in Middle East tensions

A sudden and severe escalation in the Middle East has sent shockwaves through global financial markets. On March 24, 2026, Iran launched coordinated missile and drone attacks on Tel Aviv, Eilat, and Dimona in Israel, as well as on U.S. military installations in the region. The strikes caused significant blast damage to an apartment block in Tel Aviv, underscoring the growing threat to regional stability. In response to the heightened geopolitical tensions, Morgan Stanley has issued a warning that the recent strength in the U.S. dollar is unlikely to persist. The firm argues that the surge in safe-haven demand is temporary, driven by immediate fear rather than long-term fundamentals. As the conflict unfolds, the market may shift toward risk-on sentiment if the situation stabilizes, undermining the dollar’s gains. The crisis has already impacted energy markets, with CL=F seeing increased volatility due to concerns over the security of oil supply routes. Additionally, the broader energy sector, reflected in XLE, is experiencing upward pressure amid fears of disrupted supply chains. The VIX, a key measure of market volatility, spiked as investors priced in the potential for prolonged conflict and economic disruption.

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