Karishma Vanjani
Higher prices of crude oil are a headache for foreign importers, but their pain can be passed onto U.S. portfolios.
The cost to import oil has moved higher globally after the U.S. and Israel attack on Iran while currencies of most major economies have taken a hit against the dollar. The dual blow creates an environment where countries and companies abroad might eventually turn to their growing pile of U.S. stocks and bond holdings as they hunt for dollars to pay for the suddenly more expensive oil.
It's a risk worth monitoring, especially as foreign countries and governments hold a growing share of the U.S. market. U.S. longer term securities held by foreigners have increased by 52% in the past three years to $36.8 trillion in January, according to the latest Treasury data released Wednesday.
Stocks account for the greatest portion of the assets held abroad, swelling 76% to $22.4 trillion over the same period. Foreigners also now own 24% more long-dated Treasuries while corporate and other U.S. bond holdings have risen by 32%. U.S. Stocks have climbed until recently, and the recent rise in the dollar makes American assets more valuable to foreign holders.
Now, consider the cost to import crude oil for countries like Japan, which has imported 24,281 thousand metric tons of crude oil in the current quarter so far, the fifth-largest amount globally.
In yen terms, Japan paid roughly Yen17,329.13 per barrel of Brent oil on Thursday, the highest amount ever recorded based on data back to 1989, according to FactSet. That historic cost reflects the yen's depreciation of 0.8% against the dollar and gain of 52.32% in Brent prices in yen terms since the war started.
South Korea, at 161,144.30 per barrel of oil, is also paying a record amount as the price of Korean won has declined 4.1% against the dollar since the war started. The country has imported 30,797 thousand metric tons of crude oil, third-highest total globally this quarter.
"So far, foreign investors have not needed to liquidate U.S. assets to finance higher energy costs," wrote Brij Khurana, portfolio manager at Wellington Management in a LinkedIn post on Monday.
"However, if elevated oil prices persist, these countries [Japan and South Korea] may need to reduce holdings of U.S. stocks and bonds to fund energy imports."
Japan owns $2.96 trillion worth of U.S. securities while South Korea owns $889.3 billion of U.S. assets.
Punitive oil prices are also a burden for China, which is the world's largest crude oil importer and India, which ranks second. The Indian Rupee is down 1.8% against the dollar while the Chinese Renminbi is down 0.7%.
Of course, there are some nuances to note. The Treasury data accounts for where U.S. securities are held, not necessarily which foreigner has bought them. For example, a Chinese hedge fund could be utilizing Luxembourg as a hub for its U.S. securities, obscuring the true extent of geographic demand.
U.K., Ireland, Belgium, and Cayman Islands could be holding assets for other investors (both U.S. and non-U.S.), Deutsche Bank's strategist Steven Zeng told Barron's.
Also note that dollar reserves are a source of liquidity in times of crunch, meaning selling U.S. holdings probably wouldn't be the first move by a foreign country or company. "Private importers of commodities probably hold reserves in cash and T-bills" or short-term U.S. debt, Khurana told Barron's.
Write to Karishma Vanjani at karishma.vanjani@dowjones.com.
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 02:00 ET (06:00 GMT)
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