Oil and crop prices save Milei from surging demand for dollars

Dollar demand in Argentina has returned to levels seen during a market sell-off last year, even as the war in Iran unexpectedly helped President Javier Milei keep the currency stable. 

Argentines’ purchases of US banknotes jumped 35 percent in July on a monthly basis to US$3.4 billion, the highest monthly figure since investors panicked ahead of last year’s midterm elections, according to Central Bank data. Dollar sales, meanwhile, fell 13 percent to just US$608 million.

Remarkably, the peso has emerged largely untouched – an unusual feat for the historically volatile currency. Analysts say higher oil and agricultural prices stemming from the war in Iran provided Argentina with an unexpected boost of export dollars that were needed to counterbalance strong demand locally in order to stabilise the currency. 

“The war saved us this year,” said Sebastián Menescaldi, a director at consultancy Eco Go. The Middle East conflict “sharply improved the outlook by pushing up prices for Argentina’s main commodity exports.” 

Some one-time factors made July an especially strong month for dollar demand. Argentines received their midyear bonuses and some 64,000 travelled to the United States, mostly to see Lionel Messi and the Argentine national team make a dramatic run to the World Cup final. 

Beyond hard cash, Argentines also buy greenbacks through capital markets, known locally as ‘Dollar MEP’ transactions. Including those purchases and credit-card spending abroad, total dollar demand spiked to about US$6 billion, according to the same Central Bank report.

The official exchange rate has also looked relatively cheap in recent months after the peso strengthened against inflation, helped in part by restrictions and foreign-exchange interventions that the government still maintains. The peso has only lost six percent against the dollar over the past year, despite 34 percent annual inflation. 

After Milei ended years of strict controls in 2025, Argentine citizens are now free to buy as much as they want, even though companies still face restrictions. For individuals, the system is reminiscent of Mauricio Macri’s presidency, which ended in a market meltdown in 2019. So as polls show Milei’s approval ratings are shaky – albeit a tick higher than Macri at the same point in his term – investors prefer to buy dollars now while they still can. 

“This is a logical response from Argentines after seeing the failure of Mauricio Macri’s government,” said Juan Manuel Pazos, chief economist at local broker One618. “People believe this is an exceptional window to buy dollars that could close at any moment.”

The data show a mismatch emerging. When Argentina’s FX market was fully free under Macri, there was roughly an equal amount of dollars being bought and sold. Under today’s partial controls, individual dollar sales amount to only about 20 percent of what’s being bought.

“Dollar purchases are relatively high for the same reason we see sovereign risk above 500 basis points,” said Gabriel Caamaño, a partner at local consultancy Outlier. “People are still not fully convinced that this model is politically sustainable.”

Even so, the effects of Argentines’ obsession with saving in dollars look less alarming for now than the country’s long history of currency runs might suggest.

Beyond a record level of exports, the market remains balanced thanks to a flood of dollars coming in from companies and provinces issuing debt abroad. The peso was stable in July and weakened just 1.5 percent in August. Foreign reserves rose by US$5.9 billion over those two months to more than US$50 billion, supported by Central Bank purchases as well as loans from international organisations and government debt issuance.

The concern ahead is what happens when those unusually favourable flows fade away.

Agricultural dollar supply is seasonal. Corporate and provincial debt issuance is dissipating against a challenging global backdrop. Argentina is also nearing the 2027 presidential election, a period of greater uncertainty that typically encourages Argentines to dollarise their savings.

So far, Argentina has enough dollars to meet demand, partly because investors see Milei well positioned to win re-election. The bigger risk is an abrupt change in election expectations. 

“Argentines seem to believe Milei will win, and that is what makes the situation sustainable,” Pazos said. “But given Argentina’s history, they still prefer to buy dollars as insurance, just in case.”