Key Takeaways:

• The AI revolution still depends on physical infrastructure, including data centres, supply chains, and industrial production.
• Oil plays a critical role in powering transportation, construction, and petrochemicals used in technology manufacturing.
• Geopolitical tensions in major oil-producing regions can influence energy prices and indirectly affect AI development costs.
• Data centres require enormous energy consumption, linking the growth of AI to global energy markets.
• AI is also transforming the oil industry, helping companies improve exploration, efficiency, and production.

The Illusion of a Fully Digital Economy

Artificial intelligence is often presented as the defining force of the 21st-century digital economy. Technology companies are investing hundreds of billions of dollars into advanced AI models, while governments around the world are accelerating efforts to build the digital infrastructure required to support this transformation.

As artificial intelligence expands across sectors ranging from healthcare and finance to logistics, manufacturing, and energy, the modern economy increasingly appears to be driven by algorithms, data, and computing power.

Global Data Centre Electricity Demand Growth

Data Centre Energy Consumption Breakdown

Key Data: Global Data Centre Electricity Consumption (2020–2035) According to IEA projections, data centre energy demand follows four primary sensitivity paths:

• Lift-Off (Accelerated Growth): Electricity demand is projected to reach approximately 1,750 TWh by 2035.
• Base Case: Forecasts a steady climb to roughly 1,200 TWh by 2035.
• High Efficiency: With advanced optimization, demand could be limited to just under 1,000 TWh.
• Headwinds (Stagnation): Constraints on growth could keep consumption near 700 TWh.

To many observers, this transformation suggests a departure from the traditional industrial economy. The digital world appears to operate independently from the physical systems that shaped earlier stages of economic development.

Yet this perception only captures part of reality.

Despite its digital nature, the artificial intelligence revolution does not operate in isolation from the traditional economy. Behind every algorithm and intelligent system lies a vast industrial framework composed of energy production, global supply chains, construction, and physical infrastructure.

At the centre of this framework remains one of the most important resources in the global economy: oil.

Why AI Scaling Depends on Heavy Industry and Diesel Fuel

Artificial intelligence may appear intangible, but the systems that power it are deeply physical. Advanced AI models rely on extensive computing infrastructure consisting of servers, specialised processors, and large-scale data centres.

Constructing a modern data centre is comparable to building a major industrial complex. These facilities require large quantities of cement, steel, and specialised equipment, along with heavy construction machinery that operates on diesel fuel. Hardware components and semiconductor equipment must travel through global logistics networks before reaching their final destination.

Once operational, data centres consume enormous amounts of electricity to support thousands of processors operating continuously. Maintaining stable operating temperatures also requires advanced cooling systems, which add further energy demands. As global adoption of artificial intelligence continues to expand, the energy requirements needed to support this digital infrastructure are rising rapidly.

The Petrochemical Foundation of AI: Using Oil to Build Hardware and Semiconductors

Oil remains deeply embedded within the industrial ecosystem that enables modern technology. Global transportation networks responsible for moving hardware, semiconductor components, and electronic equipment depend heavily on fossil fuels. At the same time, petrochemical industries derived from oil supply essential materials used throughout the technology sector.

Many components within modern electronics originate from petrochemical processes. Plastics used in devices, insulation materials that protect cables, and numerous structural elements within servers and computers all rely on oil-based derivatives. As a result, even the most advanced artificial intelligence systems ultimately depend on a network of industries closely tied to traditional energy resources.

Geopolitics, Oil Markets, and the Cost of Technology

Oil’s influence on the digital economy extends beyond infrastructure and manufacturing. Developments in global energy markets, particularly those shaped by geopolitical tensions, can significantly affect the broader economic environment in which technological systems operate.

Oil markets have historically been highly sensitive to geopolitical developments, especially in the Middle East, a region that contains some of the world’s largest oil reserves and plays a central role in global energy supply.

Recently, crude oil prices surged above $110 per barrel amid rising tensions in the region. Markets reacted quickly to concerns over potential supply disruptions and instability surrounding key energy corridors.

One of the most strategically important chokepoints is the Strait of Hormuz, through which roughly 20 million barrels of oil pass each day. This represents nearly 20 percent of global oil consumption, making it one of the most critical maritime routes for energy transportation. Any threat to this corridor introduces a geopolitical risk premium into oil prices, reflecting the possibility of supply disruption.

Satellite map showing vessel density in the Strait of Hormuz on 27 February 2026 vs 3 March 2026, highlighting the strategic maritime chokepoint

Source: BBC

When Energy Prices Rise, Technology Feels the Impact

Increases in oil prices rarely affect only the energy sector. Higher energy costs tend to ripple throughout the global economy by increasing transportation expenses, raising manufacturing costs, and pushing up the price of construction materials.

These sectors form the industrial base that supports the development of the digital economy. Data centres must be constructed, equipment must be manufactured and transported across continents, and large electrical systems must be installed to maintain reliable operations.

Consequently, fluctuations in energy prices can indirectly influence the cost of building and operating artificial intelligence infrastructure, including data centres, semiconductor manufacturing facilities, and the global supply chains that support the technology sector.

Even in an economy increasingly defined by data and algorithms, energy costs remain a fundamental factor shaping technological development.

Artificial Intelligence is Also Transforming the Oil Industry

The relationship between artificial intelligence and oil is not purely one of dependency. In recent years, the energy industry itself has begun adopting AI technologies to improve efficiency and optimise resource management.

Oil and gas companies increasingly use artificial intelligence to analyse geological data, identify promising drilling locations, and enhance reservoir modelling. Machine learning systems are also used to predict equipment failures before they occur, allowing operators to reduce downtime and avoid costly disruptions.

By improving operational efficiency and providing deeper analytical insights, artificial intelligence helps energy companies manage resources more effectively and optimise production processes.

A Symbiotic Relationship Between Old and New Economies

This dynamic highlights the mutually reinforcing relationship between the digital economy and traditional energy systems. Oil continues to support the industrial infrastructure that powers artificial intelligence, while AI provides advanced tools that allow the energy sector to operate more efficiently.

Rather than replacing the traditional industrial economy, artificial intelligence is evolving alongside it.

Major technological revolutions rarely emerge in isolation. Instead, they build upon existing economic systems and infrastructure that have developed over decades. The rise of artificial intelligence, therefore, represents not a break from the industrial past but an extension of it.

The Future: Technology Built on Energy

Artificial intelligence represents one of the most transformative technological developments of the modern era. Yet its rise does not mark the end of the industrial foundations that preceded it.

The digital revolution remains supported by energy systems, global supply chains, and physical infrastructure that continue to underpin modern industry. Every AI model, data centre, and intelligent system ultimately depends on these material foundations.

The future of the global economy will therefore be shaped not by technology or natural resources alone, but by the interaction between them. In that evolving relationship, oil and artificial intelligence remain far more connected than many people realise.

The Big Questions

1. Does the growth of AI actually increase global oil demand?

While AI is digital, its existence depends on massive physical expansion. Building data centres requires heavy industrial production, and global supply chains rely on fuel-intensive logistics to move hardware. As AI scales, the industrial framework supporting it continues to draw heavily on traditional energy resources.

2. Why do data centres still rely on fossil fuels if they are moving to green energy?

Energy costs are a major factor in the total cost of ownership for technology. When tensions rise in regions like the Middle East or near chokepoints like the Strait of Hormuz, oil prices often spike. These higher costs ripple through the economy, making it more expensive to manufacture semiconductors, transport components, and power the infrastructure that AI runs on.

3. Is AI being used to make the oil industry more efficient?

The relationship is a two-way street. Energy companies are currently using machine learning to analyse geological data and identify drilling locations with higher precision. AI also helps predict equipment failures before they happen, which reduces expensive downtime and optimises overall resource management.

4. Why is oil still relevant in an increasingly digital economy?

The digital economy is an illusion if viewed as something separate from the physical world. Beyond just power, oil is the literal raw material for the tech industry; petrochemicals are used to create plastics, insulation, and internal components found in every server and computer. AI isn’t replacing the old economy; it is being built right on top of it.

5. Does AI increase oil demand?

Yes. AI growth requires physical data centres built with steel and cement, and global hardware logistics powered by diesel fuel.

6. How does AI help the oil industry?

AI uses machine learning to analyze geological data, identify drilling locations, and predict equipment failure to reduce downtime.

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Key Takeaways:

• A potential policy shift at the Federal Reserve under Kevin Warsh would favour delayed liquidity intervention rather than immediate market support.
• The US–Iran conflict could accelerate the liquidity cycle through oil shocks, stronger US dollar flows and tighter financial conditions.
• In the short term, this implies dollar strength and pressure on risk assets, including Bitcoin.
• Over the medium to long term, geopolitical stress and fiscal expansion increase the probability of renewed monetary easing.
• The core issue is the timing of liquidity, not whether it eventually returns.

A Monetary Debate Meets a Geopolitical Shock

Discussion around the future direction of the United States monetary policy has intensified following Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve, subject to confirmation by the United States Senate.

While the confirmation process is still ongoing, markets are already adjusting their expectations.

The policy debate is no longer taking place in isolation. Rising tensions between the United States and Iran add a geopolitical dimension to an already fragile macroeconomic environment. The question now is not simply whether a new monetary regime is emerging, but whether external shocks are speeding up its arrival.

The fundamental issue is not whether liquidity will return, for it always does. The focus is on timing, scale and the method of implementation. Geopolitical instability has a way of shortening those timelines.

A Shift in Monetary Philosophy

Kevin Warsh served as a Federal Reserve Governor from 2006 to 2011, placing him at the centre of policy decisions during the Global Financial Crisis. Since leaving the institution, he has consistently argued that financial markets have become overly reliant on central bank support.

Injecting liquidity too early, in his view, prevents necessary repricing and encourages excessive risk-taking under the assumption of a guaranteed rescue.

Warsh does not oppose lower interest rates outright. He acknowledges that structurally high debt levels and housing affordability pressures may require accommodative policies. What he resists is perpetual balance sheet expansion — the notion that every downturn must be smoothed immediately through asset purchases and liquidity facilities.

This contrasts with the approach associated with Jerome Powell, under whom the Federal Reserve has favoured rapid liquidity deployment to dampen volatility and stabilise markets.

Both frameworks ultimately increase liquidity. The difference lies in the distribution of pain:

• One cushions downturns early and gradually.
• The other tolerates stress, forces repricing, and intervenes decisively only when systemic risk emerges.

This distinction materially influences the behaviour of currencies, bonds, equities and digital assets.

Where the US–Iran Conflict Enters the Equation

Geopolitical escalation, particularly involving energy infrastructure or military confrontation, affects markets through three immediate channels:

1. Oil price volatility
2. Safe-haven flows into the US dollar
3. A tightening of global financial conditions

Heightened tensions between the United States and Iran increase the risk of supply disruptions in the Middle East, driving crude prices higher. Rising energy costs feed inflation expectations at a moment when central banks are striving to manage disinflation.

This creates a policy dilemma.

If inflation accelerates due to geopolitical supply shocks, justifying a liquidity-restrictive stance becomes more difficult. Yet if financial markets react violently, especially in credit or emerging markets, pressure mounts for intervention.

In effect, geopolitical stress shortens the period during which a “tolerate the pain” strategy can realistically function.

Implications for the US Dollar, Bitcoin and Precious Metals

US Dollar

During periods of geopolitical escalation, the US dollar typically strengthens as global capital seeks safety and liquidity. A Warsh-style reluctance to deploy immediate stimulus would amplify that near-term dollar strength.

However, if conflict-induced instability threatens the functioning of the financial system, liquidity facilities would likely be expanded swiftly. Once large-scale intervention resumes, the longer-term risk of purchasing power erosion once again becomes the dominant theme.

Bitcoin and Crypto Assets

Liquidity-sensitive assets, such as Bitcoin, are particularly exposed to shifts in the monetary regime.

A deliberate withholding of liquidity tends to weigh on speculative positions in the short term. Crypto markets contract when marginal liquidity dries up.

However, if geopolitical conflict forces an abrupt intervention, particularly through expanded repo facilities or balance-sheet tools, the rebound in risk assets could be swift. The path becomes more volatile, though not necessarily more bearish over the long term.

The key distinction lies in sequencing: pain first, liquidity later.

The same dynamics apply to precious metals such as gold and silver.

Gold and Silver

For gold and silver, timing matters less than inevitability. Whether liquidity is deployed early or late, sustained fiscal deficits, rising defence spending and geopolitical fragmentation ultimately require financing.

In a prolonged US–Iran conflict scenario, defence expenditure would rise, fiscal balances would deteriorate further, and the likelihood of future monetary accommodation would increase. Precious metals tend to price that forward.

What a Warsh-Led Framework Would Likely Emphasise

Under a Warsh-influenced Federal Reserve, the emphasis would likely shift away from permanent quantitative easing and toward balance-sheet-neutral tools.

The Standing Repo Facility would take centre stage. Rather than engaging in continuous bond purchases, banks would access overnight liquidity against high-quality collateral as needed. Liquidity would act as emergency oxygen — available, but not constantly flooding markets.

This framework relies heavily on adjustments to the Supplementary Leverage Ratio (SLR), introduced after the 2008 crisis, which require banks to hold capital against total balance-sheet exposure. Relaxing SLR constraints during periods of stress would allow private balance sheets to expand without immediate central bank asset purchases.

In theory, this preserves market discipline while preventing systemic collapse. In practice, however, geopolitical shocks may shorten the tolerance threshold.

Is the Liquidity Regime Shift Being Accelerated?

The emerging regime shift is not a question of whether liquidity returns. It is about whether policymakers allow volatility to cleanse excess before intervening.

The US–Iran conflict raises the likelihood that stress will arrive sooner than intended.

If energy prices spike, inflation complicates rate decisions. If markets sell off sharply, financial stability risks increase. If fiscal deficits expand due to defence spending, the case for monetary accommodation grows over time.

Geopolitical escalation, therefore, acts as a catalyst. It does not alter the underlying philosophy, but it may force earlier execution.

The paradox is this: a leader advocating discipline may ultimately oversee even more dramatic intervention, simply because the external environment demands it.

A Possible 2026 Outlook

Looking towards 2026, a two-phase scenario emerges — but tensions between the United States and Iran may influence the duration of each phase.

Phase One: Liquidity Discipline

If Kevin Warsh follows the approach outlined, liquidity restraint would dominate early in the year. Quantitative tightening or limited intervention would strengthen the US dollar, weigh on exports, and trigger a correction in risk assets, potentially around mid-year.

However, geopolitical escalation, like spikes in oil prices or defence-driven fiscal expansion, could shorten this phase. Rising energy costs would complicate inflation dynamics, while market volatility might force earlier intervention. In this sense, the US–Iran conflict may not prevent tightening, but it could accelerate the point at which discipline gives way to support.

Phase Two: Liquidity and Legitimacy

In the second phase, liquidity returns, whether through expanded repo facilities or broader intervention if markets begin to fracture.

At the same time, a rejection of central bank digital currency frameworks, combined with formal recognition of Bitcoin, repositions crypto from a purely speculative instrument to a strategic asset. Within this framework, Bitcoin benefits less from excess liquidity and more from institutional legitimacy amid a fragmented geopolitical landscape.

Conclusion

Ultimately, the outcome depends less on ideology than on execution.

One possibility is that Trump tolerates market pain to prioritise domestic growth and structural reform. Another is more tactical: Warsh provides credibility, rate cuts follow, and if markets break under geopolitical strain, aggressive intervention resumes.

In both scenarios, the conclusion converges. Short-term liquidity discipline may strengthen the US dollar and weigh on Bitcoin. Yet if geopolitical tension accelerates fiscal expansion and financial instability, the return of liquidity could arrive sooner than intended.

The path may be volatile, but the destination, renewed monetary expansion, remains difficult to avoid.

For more market commentary, explore the latest Analysts’ report on VT Markets.

Frequently Asked Questions (FAQ)

1) How does the US–Iran conflict affect global liquidity?

Escalating tensions between the United States and Iran can tighten global liquidity through higher oil prices, increased market volatility, and stronger demand for the US dollar. If conflict disrupts energy supply or increases defence spending, fiscal deficits may widen — increasing the likelihood of future monetary expansion.

In short, geopolitical conflict can initially drain liquidity, but over time it may accelerate the return of monetary support.

2) What is a liquidity regime shift?

A liquidity regime shift refers to a structural change in how central banks manage money supply and financial stress. Under the current system, the Federal Reserve has often deployed liquidity early to stabilise markets.

A regime shift would involve tolerating market volatility first, allowing asset repricing, and only intervening when systemic risk emerges. The difference lies in timing — not the eventual return of liquidity.

3) Why would Kevin Warsh change Federal Reserve policy?

Kevin Warsh has argued that financial markets have become overly dependent on central bank support. His framework suggests limiting continuous quantitative easing and relying more on emergency facilities such as repo operations.

If confirmed, policy may initially emphasise discipline and reduced balance sheet expansion — though history suggests intervention remains likely during systemic stress.

4) Would the US–Iran conflict strengthen the US dollar?

Historically, geopolitical tensions increase demand for safe-haven assets. The US dollar often strengthens during global uncertainty because it remains the primary reserve currency and funding currency for global trade.

However, if prolonged conflict expands fiscal deficits and forces monetary accommodation, longer-term purchasing power erosion could follow.

5) How would Bitcoin react to a liquidity regime shift?

Bitcoin is highly sensitive to global liquidity conditions.

• During liquidity restraint, Bitcoin may face short-term pressure due to reduced speculative flows.
• If market stress forces renewed monetary expansion, Bitcoin could benefit from increased liquidity and its perception as a scarce asset.

Geopolitical fragmentation may also increase Bitcoin’s strategic relevance beyond pure speculation.

6) Could war accelerate money printing?

War itself does not automatically trigger money printing. However, conflict increases government spending, raises borrowing needs, and heightens financial instability. If markets struggle to absorb rising debt issuance, central banks may eventually intervene to stabilise conditions.

This is why geopolitical escalation can accelerate — rather than prevent — a liquidity cycle.

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Key Points

• S&P 500 fell 1.74%, with futures now attempting a rebound.
• Trump delays action by 10 days, easing immediate risk sentiment.
• Rising yields and energy prices continue to drive stagflation concerns.

U.S. equity futures edged higher on Friday, with the S&P 500 attempting to stabilise after a 1.74% drop in the previous session.

The rebound follows a heavy selloff across major indices, with the Dow falling 1.01% and the Nasdaq dropping 2.38%, led by weakness in technology stocks.

Treasury yields moved higher during the session, putting pressure on valuations, particularly in growth sectors.

Any recovery may remain fragile as yields and macro risks continue to weigh on sentiment.

Geopolitical Delay Offers Temporary Relief

Markets found some relief after President Donald Trump extended the deadline for potential strikes on Iranian energy infrastructure by 10 days.

The move suggests ongoing negotiations, reducing the immediate risk of escalation.

In addition, Trump stated that Iran allowed 10 oil tankers to pass through the Strait of Hormuz, easing concerns over a complete disruption in supply.

However, Iran has rejected the U.S.’s 15-point proposal and presented its own conditions, including control over the Strait, keeping tensions unresolved.

Relief rallies may be short-lived unless there is clear progress toward de-escalation.

Rising Yields and Energy Prices Drive Stagflation Fears

The broader market reaction reflects growing concern over stagflation.

A sharp rise in energy prices is feeding into inflation expectations, while higher Treasury yields tighten financial conditions.

This combination is particularly challenging for equities, as it raises discount rates while also threatening economic growth.

Technology stocks, which are sensitive to interest rate changes, led the decline in the previous session.

Continued pressure from yields may limit upside in equities, especially in rate-sensitive sectors.

Technical Outlook Shows Downtrend Pressure

The S&P 500 (SP500) is trading around 6505, attempting a mild rebound after a sharp sell-off that drove price down to the ~6439 low. The broader structure has shifted from a prior range into a clear short-term downtrend, and this bounce looks corrective rather than impulsive so far.

Trend Structure and Momentum

Price has broken below all key moving averages, with:

• MA5: 6556
• MA10: 6598
• MA20: 6687
• MA30: 6752

All moving averages are now sloping downward and stacked bearishly, confirming sustained downside pressure. The recent candles show lower highs and lower lows, which is classic trend continuation behaviour.

The current bounce is testing the underside of the short-term averages, particularly the MA5 and MA10 zone (6550–6600), which now acts as dynamic resistance.

Volume increased during the sell-off phase and has eased slightly during the bounce. That tells you buyers are not fully committed yet.

Key Levels to Watch

• Immediate Resistance: 6550 → 6600
• Stronger Resistance: 6685 → 6750
• Support: 6439 → 6400
• Breakdown Level: Below 6400 opens 6300 region

The 6439 low is the key near-term floor. A clean break below that level would likely accelerate downside momentum.

On the upside, price needs to reclaim 6600 first, then 6685 (MA20 zone) to shift sentiment back toward neutral.

Price Behaviour Insight

The rejection from the 7017 high earlier has led to a full structure shift. What used to be a sideways market has now transitioned into a distribution phase, followed by a breakdown.

The recent bounce shows:

• Smaller candles
• Less aggressive buying
• Resistance holding quickly

This is typical of a bearish pullback, not a reversal.

What to Watch Next

Watch how price reacts around 6550–6600:

• Rejection here: Likely continuation lower toward 6439 and potentially 6400
• Break and hold above 6600: Opens a squeeze toward 6685

Also keep an eye on:

• US yields (higher yields pressure equities)
• USDX strength (strong dollar often weighs on risk assets)

Cautious Outlook

The short-term bias remains bearish while below 6600, with rallies likely to be sold into. Momentum only shifts if price can reclaim and hold above the 20-day average (~6685). Until then, the structure favours lower highs and continued pressure on support zones.

What Traders Should Watch Next

Markets remain driven by a mix of geopolitical and macro forces. Key areas to monitor include:

• Progress in U.S.–Iran negotiations
• Movement in Treasury yields
• Oil price stability and supply flows through Hormuz
• Performance of technology stocks

For now, the S&P 500 is attempting to find footing, but the balance between easing geopolitical risk and tightening financial conditions remains finely poised.

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The $5,000 Reset: Is Gold’s 2026 Rally Just Getting Started?

Gold‘s price action in 2026 has been somewhat erratic and left many confused. While the macro environment of geopolitical tensions and slowing global growth suggests further upside, gold has unexpectedly dipped during risk-off moments. Understanding this requires looking past short-term noise to the structural reset currently in progress.

Why Gold Falls in Risk-Off Moments

Traditionally, gold thrives when fear and uncertainty enter the markets. However, in recent months, sharp selloffs in risk assets have not always translated into immediate gold strength. This comes from liquidity dynamics rather than a breakdown in gold’s safe-haven role.

When markets turn risk-off abruptly, institutions often look for liquidity. This means selling what they can, not necessarily what they want to. Gold is one of the most liquid global assets and one that is easy to liquidate and therefore becomes a source of quick cash. In these moments, it becomes more of a funding tool than a hedge or store of value.

Additionally, the threat of margin calls across equities and derivatives increase and this means larger players need to unwind positions across the board. Gold gets caught in this cross-asset liquidation cycle which results in short-term downside pressure, even if the environment is fundamentally bullish for gold.

For retail investors, this creates confusion as it deviates from the norms as to what they are told to expect. But the reality is that the first phase of fear is often liquidation, not accumulation.

The USD and the Fiscal Time Bomb

The USD remains a dominant short-term variable, as global demand for safety often flows into dollar-denominated assets first, tightening liquidity and suppressing gold prices. However, this strength is often temporary. Once the initial liquidity squeeze passes, institutions often rotate back into gold as a strategic hedge against monetary instability and currency debasement.

While the USD offers immediate safety, the long-term fiscal pressures across major economies limit the ability of policymakers to maintain tight monetary conditions indefinitely. This creates a fiscal environment where gold eventually outperforms fiat currencies as a core strategic asset.

Institutional Targets vs Retail Fears

One of the clearest divides in the gold market now is between institutional positioning and retail sentiment.

Retail investors react emotionally to price volatility. Sharp pullbacks create fear, leading many to exit positions prematurely as they feel that the rally is over.

Institutions, on the other hand, operate with longer time horizons and allocation strategies. They see dips as opportunities to accumulate at better levels rather than a signal of failure. They take a view on the wider macro-outlook, taking into consideration real interest rates, central bank policy, and long-term inflation expectations.

Institutions do not see volatility as a threat but just part of the market cycle.

Oil as a Leading Inflation Indicator

Whilst oil and gold are both commodities, the main drivers of each are significantly different.

Oil is closely tied to economic activity and supply-demand dynamics, whereas gold is driven by monetary conditions and investor psychology.

Where there is some correlation is through inflation. Rising oil prices can contribute to higher inflation expectations, which in turn supports gold. When energy costs surge, central banks face increased pressure, often leading to policy shifts that favour gold over time.

Before the conflict in the Middle East, periods of declining oil prices had signalled weakening global demand, triggering risk-off sentiment, which, as mentioned, can initially weigh on gold due to liquidity-driven selling.

Sustained higher prices in oil, which we have seen since the War started, can reintroduce the inflation issue for Central Banks, which in the long-term could support gold.

So, whilst oil does not drive gold directly, it does significantly influence the macro backdrop, which impacts gold prices.

Is 2026 Still the Year of the Bull?

Is 2026 still the year of the bull? Despite volatility, the case for a $5,000 reset is supported by central banks shifting away from fiat reliance and the persistent erosion of real returns. Current dips appear to be part of a liquidation cycle and a reset that allows the market to build a stronger foundation.

The 2026 Investor Playbook

1. Ignore the Liquidation Noise: Recognise that initial price drops during crises often force sales, not a loss of value.
2. Watch Real Rates: Inflation expectations continue to erode real returns, making gold’s lack of yield irrelevant compared to the loss of purchasing power in fiat.
3. Follow the Institutions: Treat sharp pullbacks as strategic accumulation points, mirroring the behaviour of central banks and professional allocators.

Gold is no longer just a defensive asset; it is becoming increasingly strategic in an unpredictable world. Beneath the surface of 2026 volatility, the structural drivers for gold’s performance remain firmly in place.

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Key Takeaways

• China’s digital yuan is evolving beyond payments into a core financial asset.
• Digital Yuan 2.0 integrates with banking systems and offers deposit-like features.
• Cross-border settlement via mBridge reduces reliance on the US dollar.
• Global CBDC development is accelerating in response to China’s progress.
• The FX market is shifting toward a more decentralised, multi-currency structure.

The Rise of the Digital Yuan

China’s digital yuan (e-CNY) remains the world’s most advanced large-economy central bank digital currency, having transitioned in 2026 from a retail pilot to a core pillar of the national financial system. By early 2026, cumulative transactions had surged to over RMB 16.7 trillion (≈US$2.3 trillion), with the currency now integrated into the deposit insurance system and supporting high-value cross-border trade through the mBridge platform.

If payment infrastructure remained in private hands, the system could become too large to fail while lacking transparency. The digital yuan emerged as a strategic response, allowing the state to reclaim control over the financial backbone.

Since pilot programmes began in 2019, adoption has expanded rapidly. Today, the digital yuan is widely used across China for daily transactions.

But its significance goes far beyond payments. Its rise signals a structural shift in the global foreign exchange system, with implications for trade, capital flows, and monetary sovereignty.

Digital Yuan Adoption Progress (Official PBOC Data)

Source: PBOC Statistical Report (Nov 2025); Ledger Insights / Xinhua.

Digital Yuan 2.0: From Payment Tool to Financial Asset

The transition from Digital Yuan 1.0 to 2.0 marks a fundamental shift in its role.

Previously, it functioned as digital cash. Now, under new regulations introduced in 2026, it has evolved into a hybrid monetary instrument that combines characteristics of deposits and currency.

Key changes include:

• Integration into commercial bank balance sheets and reserve systems
• Legal protection equivalent to traditional bank deposits
• Ability for verified wallets to earn interest similar to demand deposits

This transformation blurs the line between bank accounts and digital wallets. Users can spend directly without manual top-ups, while individuals without bank accounts can still participate in the financial system through wallet-based access.

The addition of programmability introduces another layer of control. Funds can carry conditions through smart contracts, enabling targeted spending, improved compliance, and automated financial flows.

At the same time, the development of mBridge has extended the digital yuan into cross-border settlement, allowing it to move beyond domestic payments into global trade infrastructure.

A New Cross-Border Settlement System

The global financial system remains heavily anchored to the US dollar and the legacy SWIFT network. While effective, this structure creates friction, including multi-day settlement delays, intermediary costs, and geopolitical vulnerabilities where financial access can be restricted.

China’s response has not been to replace SWIFT directly, but to develop a parallel infrastructure. Through mBridge, a multi-CBDC platform built with the BIS Innovation Hub, participating central banks can settle transactions peer-to-peer on a shared ledger, enabling real-time cross-border payments without relying on correspondent banking networks.

By the end of 2025, digital yuan transactions had surpassed US$2.3 trillion, while mBridge processed more than 4,000 cross-border transactions worth over US$55 billion. The digital yuan accounted for roughly 95% of activity, highlighting its central role in the system.

The significance of this development lies in its ability to enable direct settlement between local currencies, removing the need to convert through a vehicle currency such as the US dollar. This reduces settlement costs and dramatically increases transaction speed.

For global markets, this shift signals the emergence of a more multi-channel financial architecture, where cross-border capital flows can operate through networks that are increasingly independent of traditional Western-led systems.

A Catalyst for Global Monetary Change

The rise of the digital yuan is accelerating the global race toward central bank digital currencies.

• Countries such as India, Brazil, and the Bahamas are already operational
• The EU and UK are progressing through regulatory and technical phases
• The United States is focusing on regulating private stablecoins instead of issuing a CBDC

While stablecoins still dominate digital transactions, they lack sovereign backing and deposit protection. This creates a structural difference between privately issued digital dollars and state-backed currencies like the digital yuan.

As more countries adopt CBDCs, cross-border financial systems are likely to become cheaper, faster, and more transparent, gradually reducing reliance on the dollar in certain sectors.

mBridge Performance

Source: Atlantic Council / BIS Innovation Hub / PYMNTS (Jan 2026).

What This Means for the FX Market

The digital yuan does not replace the dollar overnight. Instead, it introduces a parallel layer of financial infrastructure that changes how capital moves globally.

Its key advantages include:

• Instant settlement capability
• Reduced dependency on intermediary currencies
• Programmable money for targeted financial flows
• Strong state backing and regulatory integration

Over time, these features could reshape parts of the FX market, especially in commodity trade, regional partnerships, and emerging market transactions.

The long-term outcome is likely a multi-currency system, where efficiency and political alignment determine usage rather than legacy dominance alone.

The Big Questions

1. Will the digital yuan replace the US dollar?

Not in the near term. The dollar remains dominant, but the digital yuan introduces an alternative system that reduces reliance over time.

2. Why is mBridge important?

It allows direct cross-border settlement without using the dollar, lowering costs and improving efficiency.

3. How is Digital Yuan 2.0 different?

It functions more like a bank deposit than cash, offering interest, legal protection, and integration into the banking system.

4. Why are other countries developing CBDCs?

China’s progress is accelerating global competition, pushing countries to modernise their monetary systems.

5. What is the biggest impact on FX markets?

The shift toward faster, cheaper, and decentralised settlement systems that reduce reliance on traditional intermediaries.

6. What is the difference between Digital Yuan 1.0 and 2.0?

The transition to Digital Yuan 2.0 in 2026 marks its evolution from a simple retail payment tool into a core financial asset. While version 1.0 functioned as digital cash, 2.0 is integrated into commercial bank balance sheets and reserve systems, offering legal protections and interest-bearing features similar to traditional demand deposits.

7. How does mBridge reduce reliance on the US Dollar?

mBridge enables direct, peer-to-peer cross-border settlement between participating central banks without the need for an intermediary currency like the US dollar. Bypassing the traditional SWIFT network, it reduces settlement costs, increases transaction speeds, and limits the effectiveness of international financial sanctions.

8. Is the Digital Yuan a threat to global monetary sovereignty?

The e-CNY introduces a parallel financial infrastructure that allows for decentralised, multi-currency trade. While it does not replace the dollar overnight, it provides an alternative for commodity trade and emerging markets, allowing nations to settle transactions based on political alignment and efficiency rather than legacy dominance.

9. What are the benefits of “Programmable Money” in FX markets?

The digital yuan uses smart contracts to add a layer of programmability to financial flows. This allows for targeted spending and automated compliance, ensuring that funds are used for their intended purpose and reducing the risks associated with manual settlement and currency conversion.

10. What is the current adoption rate of the Digital Yuan in 2026?

By early 2026, the digital yuan became the world’s most advanced large-economy CBDC, with cumulative transactions surging over RMB 16.7 trillion (approx. US$2.3 trillion).

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Key Takeaways:

• The AI revolution still depends on physical infrastructure, including data centres, supply chains, and industrial production.
• Oil plays a critical role in powering transportation, construction, and petrochemicals used in technology manufacturing.
• Geopolitical tensions in major oil-producing regions can influence energy prices and indirectly affect AI development costs.
• Data centres require enormous energy consumption, linking the growth of AI to global energy markets.
• AI is also transforming the oil industry, helping companies improve exploration, efficiency, and production.

The Illusion of a Fully Digital Economy

Artificial intelligence is often presented as the defining force of the 21st-century digital economy. Technology companies are investing hundreds of billions of dollars into advanced AI models, while governments around the world are accelerating efforts to build the digital infrastructure required to support this transformation.

As artificial intelligence expands across sectors ranging from healthcare and finance to logistics, manufacturing, and energy, the modern economy increasingly appears to be driven by algorithms, data, and computing power.

Global Data Centre Electricity Demand Growth

Data Centre Energy Consumption Breakdown

Key Data: Global Data Centre Electricity Consumption (2020–2035) According to IEA projections, data centre energy demand follows four primary sensitivity paths:

• Lift-Off (Accelerated Growth): Electricity demand is projected to reach approximately 1,750 TWh by 2035.
• Base Case: Forecasts a steady climb to roughly 1,200 TWh by 2035.
• High Efficiency: With advanced optimization, demand could be limited to just under 1,000 TWh.
• Headwinds (Stagnation): Constraints on growth could keep consumption near 700 TWh.

To many observers, this transformation suggests a departure from the traditional industrial economy. The digital world appears to operate independently from the physical systems that shaped earlier stages of economic development.

Yet this perception only captures part of reality.

Despite its digital nature, the artificial intelligence revolution does not operate in isolation from the traditional economy. Behind every algorithm and intelligent system lies a vast industrial framework composed of energy production, global supply chains, construction, and physical infrastructure.

At the centre of this framework remains one of the most important resources in the global economy: oil.

Why AI Scaling Depends on Heavy Industry and Diesel Fuel

Artificial intelligence may appear intangible, but the systems that power it are deeply physical. Advanced AI models rely on extensive computing infrastructure consisting of servers, specialised processors, and large-scale data centres.

Constructing a modern data centre is comparable to building a major industrial complex. These facilities require large quantities of cement, steel, and specialised equipment, along with heavy construction machinery that operates on diesel fuel. Hardware components and semiconductor equipment must travel through global logistics networks before reaching their final destination.

Once operational, data centres consume enormous amounts of electricity to support thousands of processors operating continuously. Maintaining stable operating temperatures also requires advanced cooling systems, which add further energy demands. As global adoption of artificial intelligence continues to expand, the energy requirements needed to support this digital infrastructure are rising rapidly.

The Petrochemical Foundation of AI: Using Oil to Build Hardware and Semiconductors

Oil remains deeply embedded within the industrial ecosystem that enables modern technology. Global transportation networks responsible for moving hardware, semiconductor components, and electronic equipment depend heavily on fossil fuels. At the same time, petrochemical industries derived from oil supply essential materials used throughout the technology sector.

Many components within modern electronics originate from petrochemical processes. Plastics used in devices, insulation materials that protect cables, and numerous structural elements within servers and computers all rely on oil-based derivatives. As a result, even the most advanced artificial intelligence systems ultimately depend on a network of industries closely tied to traditional energy resources.

Geopolitics, Oil Markets, and the Cost of Technology

Oil’s influence on the digital economy extends beyond infrastructure and manufacturing. Developments in global energy markets, particularly those shaped by geopolitical tensions, can significantly affect the broader economic environment in which technological systems operate.

Oil markets have historically been highly sensitive to geopolitical developments, especially in the Middle East, a region that contains some of the world’s largest oil reserves and plays a central role in global energy supply.

Recently, crude oil prices surged above $110 per barrel amid rising tensions in the region. Markets reacted quickly to concerns over potential supply disruptions and instability surrounding key energy corridors.

One of the most strategically important chokepoints is the Strait of Hormuz, through which roughly 20 million barrels of oil pass each day. This represents nearly 20 percent of global oil consumption, making it one of the most critical maritime routes for energy transportation. Any threat to this corridor introduces a geopolitical risk premium into oil prices, reflecting the possibility of supply disruption.

Satellite map showing vessel density in the Strait of Hormuz on 27 February 2026 vs 3 March 2026, highlighting the strategic maritime chokepoint

Source: BBC

When Energy Prices Rise, Technology Feels the Impact

Increases in oil prices rarely affect only the energy sector. Higher energy costs tend to ripple throughout the global economy by increasing transportation expenses, raising manufacturing costs, and pushing up the price of construction materials.

These sectors form the industrial base that supports the development of the digital economy. Data centres must be constructed, equipment must be manufactured and transported across continents, and large electrical systems must be installed to maintain reliable operations.

Consequently, fluctuations in energy prices can indirectly influence the cost of building and operating artificial intelligence infrastructure, including data centres, semiconductor manufacturing facilities, and the global supply chains that support the technology sector.

Even in an economy increasingly defined by data and algorithms, energy costs remain a fundamental factor shaping technological development.

Artificial Intelligence is Also Transforming the Oil Industry

The relationship between artificial intelligence and oil is not purely one of dependency. In recent years, the energy industry itself has begun adopting AI technologies to improve efficiency and optimise resource management.

Oil and gas companies increasingly use artificial intelligence to analyse geological data, identify promising drilling locations, and enhance reservoir modelling. Machine learning systems are also used to predict equipment failures before they occur, allowing operators to reduce downtime and avoid costly disruptions.

By improving operational efficiency and providing deeper analytical insights, artificial intelligence helps energy companies manage resources more effectively and optimise production processes.

A Symbiotic Relationship Between Old and New Economies

This dynamic highlights the mutually reinforcing relationship between the digital economy and traditional energy systems. Oil continues to support the industrial infrastructure that powers artificial intelligence, while AI provides advanced tools that allow the energy sector to operate more efficiently.

Rather than replacing the traditional industrial economy, artificial intelligence is evolving alongside it.

Major technological revolutions rarely emerge in isolation. Instead, they build upon existing economic systems and infrastructure that have developed over decades. The rise of artificial intelligence, therefore, represents not a break from the industrial past but an extension of it.

The Future: Technology Built on Energy

Artificial intelligence represents one of the most transformative technological developments of the modern era. Yet its rise does not mark the end of the industrial foundations that preceded it.

The digital revolution remains supported by energy systems, global supply chains, and physical infrastructure that continue to underpin modern industry. Every AI model, data centre, and intelligent system ultimately depends on these material foundations.

The future of the global economy will therefore be shaped not by technology or natural resources alone, but by the interaction between them. In that evolving relationship, oil and artificial intelligence remain far more connected than many people realise.

The Big Questions

1. Does the growth of AI actually increase global oil demand?

While AI is digital, its existence depends on massive physical expansion. Building data centres requires heavy industrial production, and global supply chains rely on fuel-intensive logistics to move hardware. As AI scales, the industrial framework supporting it continues to draw heavily on traditional energy resources.

2. Why do data centres still rely on fossil fuels if they are moving to green energy?

Energy costs are a major factor in the total cost of ownership for technology. When tensions rise in regions like the Middle East or near chokepoints like the Strait of Hormuz, oil prices often spike. These higher costs ripple through the economy, making it more expensive to manufacture semiconductors, transport components, and power the infrastructure that AI runs on.

3. Is AI being used to make the oil industry more efficient?

The relationship is a two-way street. Energy companies are currently using machine learning to analyse geological data and identify drilling locations with higher precision. AI also helps predict equipment failures before they happen, which reduces expensive downtime and optimises overall resource management.

4. Why is oil still relevant in an increasingly digital economy?

The digital economy is an illusion if viewed as something separate from the physical world. Beyond just power, oil is the literal raw material for the tech industry; petrochemicals are used to create plastics, insulation, and internal components found in every server and computer. AI isn’t replacing the old economy; it is being built right on top of it.

5. Does AI increase oil demand?

Yes. AI growth requires physical data centres built with steel and cement, and global hardware logistics powered by diesel fuel.

6. How does AI help the oil industry?

AI uses machine learning to analyze geological data, identify drilling locations, and predict equipment failure to reduce downtime.

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Key Takeaways:

• A potential policy shift at the Federal Reserve under Kevin Warsh would favour delayed liquidity intervention rather than immediate market support.
• The US–Iran conflict could accelerate the liquidity cycle through oil shocks, stronger US dollar flows and tighter financial conditions.
• In the short term, this implies dollar strength and pressure on risk assets, including Bitcoin.
• Over the medium to long term, geopolitical stress and fiscal expansion increase the probability of renewed monetary easing.
• The core issue is the timing of liquidity, not whether it eventually returns.

A Monetary Debate Meets a Geopolitical Shock

Discussion around the future direction of the United States monetary policy has intensified following Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve, subject to confirmation by the United States Senate.

While the confirmation process is still ongoing, markets are already adjusting their expectations.

The policy debate is no longer taking place in isolation. Rising tensions between the United States and Iran add a geopolitical dimension to an already fragile macroeconomic environment. The question now is not simply whether a new monetary regime is emerging, but whether external shocks are speeding up its arrival.

The fundamental issue is not whether liquidity will return, for it always does. The focus is on timing, scale and the method of implementation. Geopolitical instability has a way of shortening those timelines.

A Shift in Monetary Philosophy

Kevin Warsh served as a Federal Reserve Governor from 2006 to 2011, placing him at the centre of policy decisions during the Global Financial Crisis. Since leaving the institution, he has consistently argued that financial markets have become overly reliant on central bank support.

Injecting liquidity too early, in his view, prevents necessary repricing and encourages excessive risk-taking under the assumption of a guaranteed rescue.

Warsh does not oppose lower interest rates outright. He acknowledges that structurally high debt levels and housing affordability pressures may require accommodative policies. What he resists is perpetual balance sheet expansion — the notion that every downturn must be smoothed immediately through asset purchases and liquidity facilities.

This contrasts with the approach associated with Jerome Powell, under whom the Federal Reserve has favoured rapid liquidity deployment to dampen volatility and stabilise markets.

Both frameworks ultimately increase liquidity. The difference lies in the distribution of pain:

• One cushions downturns early and gradually.
• The other tolerates stress, forces repricing, and intervenes decisively only when systemic risk emerges.

This distinction materially influences the behaviour of currencies, bonds, equities and digital assets.

Where the US–Iran Conflict Enters the Equation

Geopolitical escalation, particularly involving energy infrastructure or military confrontation, affects markets through three immediate channels:

1. Oil price volatility
2. Safe-haven flows into the US dollar
3. A tightening of global financial conditions

Heightened tensions between the United States and Iran increase the risk of supply disruptions in the Middle East, driving crude prices higher. Rising energy costs feed inflation expectations at a moment when central banks are striving to manage disinflation.

This creates a policy dilemma.

If inflation accelerates due to geopolitical supply shocks, justifying a liquidity-restrictive stance becomes more difficult. Yet if financial markets react violently, especially in credit or emerging markets, pressure mounts for intervention.

In effect, geopolitical stress shortens the period during which a “tolerate the pain” strategy can realistically function.

Implications for the US Dollar, Bitcoin and Precious Metals

US Dollar

During periods of geopolitical escalation, the US dollar typically strengthens as global capital seeks safety and liquidity. A Warsh-style reluctance to deploy immediate stimulus would amplify that near-term dollar strength.

However, if conflict-induced instability threatens the functioning of the financial system, liquidity facilities would likely be expanded swiftly. Once large-scale intervention resumes, the longer-term risk of purchasing power erosion once again becomes the dominant theme.

Bitcoin and Crypto Assets

Liquidity-sensitive assets, such as Bitcoin, are particularly exposed to shifts in the monetary regime.

A deliberate withholding of liquidity tends to weigh on speculative positions in the short term. Crypto markets contract when marginal liquidity dries up.

However, if geopolitical conflict forces an abrupt intervention, particularly through expanded repo facilities or balance-sheet tools, the rebound in risk assets could be swift. The path becomes more volatile, though not necessarily more bearish over the long term.

The key distinction lies in sequencing: pain first, liquidity later.

The same dynamics apply to precious metals such as gold and silver.

Gold and Silver

For gold and silver, timing matters less than inevitability. Whether liquidity is deployed early or late, sustained fiscal deficits, rising defence spending and geopolitical fragmentation ultimately require financing.

In a prolonged US–Iran conflict scenario, defence expenditure would rise, fiscal balances would deteriorate further, and the likelihood of future monetary accommodation would increase. Precious metals tend to price that forward.

What a Warsh-Led Framework Would Likely Emphasise

Under a Warsh-influenced Federal Reserve, the emphasis would likely shift away from permanent quantitative easing and toward balance-sheet-neutral tools.

The Standing Repo Facility would take centre stage. Rather than engaging in continuous bond purchases, banks would access overnight liquidity against high-quality collateral as needed. Liquidity would act as emergency oxygen — available, but not constantly flooding markets.

This framework relies heavily on adjustments to the Supplementary Leverage Ratio (SLR), introduced after the 2008 crisis, which require banks to hold capital against total balance-sheet exposure. Relaxing SLR constraints during periods of stress would allow private balance sheets to expand without immediate central bank asset purchases.

In theory, this preserves market discipline while preventing systemic collapse. In practice, however, geopolitical shocks may shorten the tolerance threshold.

Is the Liquidity Regime Shift Being Accelerated?

The emerging regime shift is not a question of whether liquidity returns. It is about whether policymakers allow volatility to cleanse excess before intervening.

The US–Iran conflict raises the likelihood that stress will arrive sooner than intended.

If energy prices spike, inflation complicates rate decisions. If markets sell off sharply, financial stability risks increase. If fiscal deficits expand due to defence spending, the case for monetary accommodation grows over time.

Geopolitical escalation, therefore, acts as a catalyst. It does not alter the underlying philosophy, but it may force earlier execution.

The paradox is this: a leader advocating discipline may ultimately oversee even more dramatic intervention, simply because the external environment demands it.

A Possible 2026 Outlook

Looking towards 2026, a two-phase scenario emerges — but tensions between the United States and Iran may influence the duration of each phase.

Phase One: Liquidity Discipline

If Kevin Warsh follows the approach outlined, liquidity restraint would dominate early in the year. Quantitative tightening or limited intervention would strengthen the US dollar, weigh on exports, and trigger a correction in risk assets, potentially around mid-year.

However, geopolitical escalation, like spikes in oil prices or defence-driven fiscal expansion, could shorten this phase. Rising energy costs would complicate inflation dynamics, while market volatility might force earlier intervention. In this sense, the US–Iran conflict may not prevent tightening, but it could accelerate the point at which discipline gives way to support.

Phase Two: Liquidity and Legitimacy

In the second phase, liquidity returns, whether through expanded repo facilities or broader intervention if markets begin to fracture.

At the same time, a rejection of central bank digital currency frameworks, combined with formal recognition of Bitcoin, repositions crypto from a purely speculative instrument to a strategic asset. Within this framework, Bitcoin benefits less from excess liquidity and more from institutional legitimacy amid a fragmented geopolitical landscape.

Conclusion

Ultimately, the outcome depends less on ideology than on execution.

One possibility is that Trump tolerates market pain to prioritise domestic growth and structural reform. Another is more tactical: Warsh provides credibility, rate cuts follow, and if markets break under geopolitical strain, aggressive intervention resumes.

In both scenarios, the conclusion converges. Short-term liquidity discipline may strengthen the US dollar and weigh on Bitcoin. Yet if geopolitical tension accelerates fiscal expansion and financial instability, the return of liquidity could arrive sooner than intended.

The path may be volatile, but the destination, renewed monetary expansion, remains difficult to avoid.

For more market commentary, explore the latest Analysts’ report on VT Markets.

Frequently Asked Questions (FAQ)

1) How does the US–Iran conflict affect global liquidity?

Escalating tensions between the United States and Iran can tighten global liquidity through higher oil prices, increased market volatility, and stronger demand for the US dollar. If conflict disrupts energy supply or increases defence spending, fiscal deficits may widen — increasing the likelihood of future monetary expansion.

In short, geopolitical conflict can initially drain liquidity, but over time it may accelerate the return of monetary support.

2) What is a liquidity regime shift?

A liquidity regime shift refers to a structural change in how central banks manage money supply and financial stress. Under the current system, the Federal Reserve has often deployed liquidity early to stabilise markets.

A regime shift would involve tolerating market volatility first, allowing asset repricing, and only intervening when systemic risk emerges. The difference lies in timing — not the eventual return of liquidity.

3) Why would Kevin Warsh change Federal Reserve policy?

Kevin Warsh has argued that financial markets have become overly dependent on central bank support. His framework suggests limiting continuous quantitative easing and relying more on emergency facilities such as repo operations.

If confirmed, policy may initially emphasise discipline and reduced balance sheet expansion — though history suggests intervention remains likely during systemic stress.

4) Would the US–Iran conflict strengthen the US dollar?

Historically, geopolitical tensions increase demand for safe-haven assets. The US dollar often strengthens during global uncertainty because it remains the primary reserve currency and funding currency for global trade.

However, if prolonged conflict expands fiscal deficits and forces monetary accommodation, longer-term purchasing power erosion could follow.

5) How would Bitcoin react to a liquidity regime shift?

Bitcoin is highly sensitive to global liquidity conditions.

• During liquidity restraint, Bitcoin may face short-term pressure due to reduced speculative flows.
• If market stress forces renewed monetary expansion, Bitcoin could benefit from increased liquidity and its perception as a scarce asset.

Geopolitical fragmentation may also increase Bitcoin’s strategic relevance beyond pure speculation.

6) Could war accelerate money printing?

War itself does not automatically trigger money printing. However, conflict increases government spending, raises borrowing needs, and heightens financial instability. If markets struggle to absorb rising debt issuance, central banks may eventually intervene to stabilise conditions.

This is why geopolitical escalation can accelerate — rather than prevent — a liquidity cycle.

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