Chilean Peso Plummets as Iran Tensions Fuel Dollar Surge to 2025 Highs

The Chilean peso suffered a significant blow Thursday, as the dollar surged to a 2026 high amid escalating tensions in the Middle East. The currency closed at $917.5, a jump of $20 and its highest level since December 17, 2025, fueled by renewed concerns over potential disruptions to global oil supplies. The rally in energy prices, triggered by recent attacks near the Strait of Hormuz and pronouncements from Iran’s new supreme leader, ignited a flight to safety among investors.

Iran’s Stance and Oil Market Reaction

Mojtaba Jamenei, Iran’s newly elected supreme leader, stated Thursday that the Strait of Hormuz should remain closed, signaling a continued willingness to disrupt oil flows. This, coupled with ongoing attacks on U.S. And Israeli military bases in the region, has ratcheted up geopolitical risk. According to reports, Jamenei also indicated a potential for expanding the conflict if hostilities persist.

The immediate impact was felt in the oil market, with Brent crude climbing 10.2% to $101.4 per barrel. Conversely, copper prices on the Comex exchange fell 0.9% to $5.84 per pound, while global stock markets declined. The dollar index rose 0.5% alongside increasing short-term U.S. Interest rates. Chile’s peso was the worst-performing emerging market currency during the session.

Chile’s Vulnerability and Market Dynamics

Patricio Jaramillo, Director of Financial Risk at PwC Chile, explained that Chile’s vulnerability is partially amplified by its status as a net importer of petroleum. “A sustained increase in crude oil prices tends to worsen the country’s energy terms of trade and increases the demand for dollars to finance imports,” he told DF. This dynamic contributed to the peso’s sharp depreciation.

Hernán Campos, CIO of Aurea Group, emphasized the role of market liquidity. “There’s a lot of flow in a relatively small market,” he noted, suggesting that the peso’s volatility is exacerbated by its less-developed foreign exchange market compared to larger economies. He cautioned, however, against expecting a catastrophic market collapse, suggesting the conflict could persist for months without triggering a widespread financial crisis.

Foreign Exchange Positioning

Data from the Central Bank of Chile reveals that foreign agents quickly established bullish positions on the dollar through forwards contracts following the outbreak of the crisis, pushing the currency to levels not seen since 2020. This indicates a strong expectation of continued dollar appreciation in the near term.

Supply Chain Concerns and Global Impact

BBVA strategists, led by Alejandro Cuadrado, highlighted the expanding scope of the conflict. “The evacuation of Oman’s main oil export terminal at Mina Al Fahal, located outside the Strait of Hormuz, as well as the impact on two tankers in Iraqi waters, demonstrate how the conflict is spreading,” they wrote. “The disruption in Oman represents a new step that intensifies fears that the global energy supply could be affected beyond the Strait of Hormuz.” The team also noted that the world is facing a potential major oil supply disruption, even after the International Energy Agency (IEA) announced a record release of 400 million barrels of crude.

Copper’s Role and Peso Stabilization

Despite the overall negative sentiment, Jaramillo pointed to the relatively stable performance of copper, Chile’s primary export, as a mitigating factor. “The relatively contained depreciation of the peso, considering the magnitude of the geopolitical shock, is partly explained by the behavior of copper, which has shown moderate declines in international markets. The relative stability of the metal acts as a cushioning factor for the local currency,” he said.

The peso’s performance also reflects broader trends in emerging market currencies. The dollar’s strength is not limited to Chile; it’s impacting currencies across the region as investors seek safe-haven assets. CNN Chile reported that the dollar closed higher globally, with a jump of nearly $15 following the Iranian leader’s statements.

Looking Ahead: Monitoring Geopolitical Developments

While Campos believes a full-scale market collapse is unlikely, he advises maintaining safeguards against further volatility. The situation remains fluid, and the peso’s trajectory will depend heavily on the evolution of the conflict in the Middle East and its impact on oil prices. Market participants will be closely watching for any signs of escalation or de-escalation, as well as any further interventions by the IEA to stabilize oil supplies. The next key data point will be the release of Chilean inflation figures next month, which could further influence the central bank’s monetary policy decisions and, the peso’s exchange rate.