Iran conflict may weaken dollar dominance in oil trade, Deutsche Bank says

Deutsche Bank has warned that US and Israeli military operations targeting Iran may mark a turning point for the dominance of the dollar in global oil trade, potentially opening space for wider use of China’s yuan.

The bank said the unfolding conflict is testing the resilience of the petrodollar system and could, over time, contribute to a structural shift in how energy transactions are priced and settled.

Strategist Mallika Sachdeva stated that the escalation “could erode the dominance of the petrodollar and lay the groundwork for the emergence of what is increasingly referred to as the petro-yuan.”

Sachdeva pointed to reports indicating that Iran has allowed vessels to transit the Strait of Hormuz on the condition that oil payments are conducted in yuan, a move that, if sustained, would mark a significant departure from established market conventions.

Potential shift in petrodollar system carries global implications

In its report, Deutsche Bank said any weakening of the petrodollar framework could have far-reaching consequences for global trade, particularly in terms of the dollar’s role as the primary reserve currency.

The bank also noted that China has stepped up efforts in recent years to strengthen the yuan’s international standing, including expanding its use in cross-border trade and energy markets.

The petrodollar system was established in the 1970s after Saudi Arabia agreed to price oil in US dollars and invest its revenues in dollar-denominated assets, a framework underpinned by security guarantees from Washington.

More recent data, however, show that Saudi oil exports to China are now roughly four times higher than those to the US. Gulf countries have also begun experimenting with alternative, non-dollar payment mechanisms.

Military escalation disrupts energy supply and prices

Following US and Israeli strikes, Iran launched retaliatory actions against US targets in the Middle East. Several energy facilities in the region were affected, raising concerns over supply disruptions.

Tehran also initiated a blockade in the Strait of Hormuz, a critical chokepoint for global oil shipments.

The developments triggered a sharp surge in oil prices, with Brent crude rising above $100 per barrel for the first time in several years. Prices later retreated below that threshold after US President Donald Trump signaled that strikes on Iran would remain limited.