Chinese Yuan Could Replace Dollar in Hormuz Oil Trade as Iran Conflict Deepens, Deutsche Bank Says

The bank’s March research note, authored by strategist Mallika Sachdeva, frames the ongoing US-Israel-Iran conflict as what she calls “a perfect storm for the petrodollar.” The analysis arrives as crude oil markets process fresh volatility and policymakers watch one of the world’s most consequential shipping corridors for signs of structural change.

The petrodollar arrangement dates to 1974, when Saudi Arabia agreed to price its oil exports in U.S. dollars in exchange for American security guarantees. That agreement created consistent global demand for dollars and positioned them as the primary reserve currency worldwide. The system held even as Saudi Arabia shifted its biggest customer, and today, it sells roughly four times more oil to China than to the United States.

The Strait of Hormuz carries about one-fifth of global oil and gas flows. Since the conflict escalated in late February 2026, Iran has threatened vessels supporting what it describes as aggression against it. Reports from multiple outlets confirm Iran has been negotiating tanker passage only when transactions are settled in yuan — a policy the Deutsche Bank note flags as a potential watershed moment.

China is Iran’s largest oil buyer and has long promoted yuan-based energy invoicing through mechanisms like Project mBridge. At least 11.7 million barrels have moved through Chinese-linked tankers since late February, with many vessels going dark to avoid tracking. Discussions with at least eight non-Middle Eastern countries on yuan-based oil trade for safe transit have also been reported.

Sachdeva writes that the conflict “could be the catalyst for erosion in petrodollar dominance and the beginnings of the petroyuan.” That language is deliberate. Deutsche Bank is not predicting a collapse of dollar dominance but is pointing to incremental, structurally significant erosion if yuan-based energy flows gain traction.

Sanctioned Iranian and Russian oil already accounts for roughly 13 million barrels per day — about 14% of global supply — and most of that volume has traded outside dollar rails for years. The Iran conflict widens that channel.

Sachdeva’s note identifies several downstream risks. Gulf economies absorbing damage from the conflict may unwind dollar-denominated asset holdings. Sovereign wealth funds and central banks could diversify away from greenbacks faster if U.S. security guarantees in the region appear weakened. Other producers — including Russia and Venezuela — may find additional reasons to route energy sales outside the dollar system.

West Texas Intermediate crude has traded above $90 per barrel in recent trading sessions, reflecting market tension around Hormuz risk. Currency markets have shown modest yuan strength in select sessions, though analysts note no structural shift has been confirmed.

The broader de-dollarization context matters here. BRICS nations have pushed non-dollar trade agreements. Russia and China settled energy contracts in yuan before the current conflict. Central banks globally have been increasing gold and non-dollar reserve holdings. The Iran situation accelerates a trend already in motion.

Deutsche Bank’s note is careful to acknowledge the dollar’s durability. Its dominance rests on deep liquidity and global network effects that no single geopolitical event is likely to quickly dismantle. Some analysts note that past oil shocks, including those of the 1970s, ultimately reinforced dollar strength rather than eroding it.

Still, Sachdeva frames the war as a historic stress test. “The long-term legacy of the Iran conflict for the dollar,” she writes, “could be the way it tests the foundations of the petrodollar regime.” The bank is watching yuan-denominated oil flows through Hormuz as the key indicator to monitor going forward.

Whether the conflict de-escalates before permanent structural damage occurs remains an open question. Markets as of Wednesday reflect cautious optimism on that front, though Deutsche Bank’s analysis suggests the monetary pressure is already being applied.

FAQ 🇺🇸🇮🇷

• What is the petrodollar system? The petrodollar system is a 1974 arrangement in which Saudi Arabia agreed to price oil exports in U.S. dollars, creating sustained global demand for dollars as the world’s primary reserve currency.
• Why is Iran demanding yuan payments at the Strait of Hormuz? Iran has reportedly conditioned safe tanker passage through the strait on yuan-denominated oil settlements, leveraging China as its largest buyer and primary financial partner amid the ongoing conflict.
• What does Deutsche Bank predict for the U.S. dollar? Deutsche Bank does not forecast an immediate dollar collapse but warns that yuan-based energy flows through Hormuz could produce incremental, structurally significant erosion of dollar dominance in global trade and reserves.
• How much sanctioned oil already trades outside the dollar system? Iranian and Russian sanctioned oil combined total roughly 13 million barrels per day — about 14% of global supply — and most of it has settled in non-dollar currencies for years.

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