Iran war could boost China’s ‘petroyuan’ and weaken US dollar dominance, analysts say
Disruptions from the war could accelerate a shift in the oil trade, threatening the US dollar’s long-held dominance, analysts say
Fallout from the nearly month-long conflict was testing the “foundations of the petrodollar regime”, while damage to Gulf economies “could encourage an unwind in their foreign asset savings”, Deutsche Bank analysts said in a research note published on Tuesday.
“If the Gulf moves closer to Asia in its trade and investment relationships and eventually prices less oil in dollars, there could be significant downstream effects to the dollar’s usage in global trade and savings,” they added.
Most globally traded oil is priced and invoiced in US dollars under a system dating back to the 1974 petrodollar pact. Under that deal, Saudi Arabia agreed to price oil in the American currency and invest surpluses in US dollar assets in exchange for security guarantees.
This arrangement helped dollarise global value chains, given oil’s central role in global manufacturing and transport, the analysts said.
But pressures on that system have grown in recent years. Sanctioned Russian and Iranian oil already trades in non-dollar units, and Saudi Arabia has experimented with non-dollar payments for infrastructure projects, the Deutsche Bank analysts said.