Deutsche Bank: The dominance of the "Petrodollar" has been weakened, and the era of "Petro-Renminbi" may be beginning

Ask AI · How does the Iran conflict accelerate the transformation of the petrodollar system?

“This (Iran) conflict could serve as a catalyst for the disintegration of the dominance of the ‘petrodollar’ and the beginning of the ‘petroyuan’ era.”

On March 24 local time, Deutsche Bank wrote in a report titled “What Iran Means for the Dollar: The ‘Petrodollar’ Faces a Perfect Storm.”

The report pointed out that the dollar’s dominance in cross-border trade can be said to be built on the “petrodollar”: for a long time, global oil transactions have almost all been priced in dollars.

The so-called “petrodollar” system was formed in the 1970s, established gradually by the United States through strategic arrangements with Saudi Arabia after the collapse of the Bretton Woods system.

The core of the “petrodollar” system is that the U.S. provides Saudi Arabia with military protection, weapons supplies, and political support. In exchange, Saudi Arabia commits to pricing and settling its oil exports in dollars and invests a large portion of its oil revenues in U.S. Treasury bonds and other dollar assets, creating dollar repatriation.

Even before the outbreak of the Iran conflict, the foundation of the “petrodollar” mechanism was already under pressure. Most Middle Eastern oil is sold to Asia rather than the U.S.; sanctioned oil from Russia and Iran is traded through non-dollar channels; Saudi Arabia continues to promote defense localization and experiments with various forms of non-dollar transactions.

The suddenly escalated US-Israel-Iran conflict introduces new instability factors to the “petrodollar.” As retaliation, Iran attacked U.S. military bases and infrastructure in several Middle Eastern countries. The U.S. security umbrella faces fundamental damage, and with the Strait of Hormuz effectively blocked, maritime security for oil trade can no longer be guaranteed.

The report believes that the US-Israel-Iran conflict could undermine the dollar’s status as the world’s reserve currency. Although the U.S. is energy independent and far from conflict zones, factors such as increased military spending and rising fiscal risks mean that the dollar has not clearly strengthened amid the Iran conflict.

The report states that the deeper impact of Middle East tensions on the dollar may be a challenge to its long-term foundation—namely, whether the world still wants to price trade goods and services in dollars and whether it still wants to hold trade surpluses in dollar assets.

At a time when cracks in the “petrodollar” have appeared, the “petroyuan” is seen as having a historic opportunity.

Earlier, multiple foreign media reports indicated that Iran is negotiating with several countries to allow some oil tankers to pass through the Strait of Hormuz, provided that the oil cargoes carried are settled in yuan.

Deutsche Bank believes that “this report warrants close attention,” emphasizing that this development could very likely mark the disintegration of the “petrodollar” dominance and the start of the “petroyuan” era.

Over the past years, a wave of “de-dollarization” has emerged worldwide, and the concept of “petroyuan” has gained increasing attention.

In 2018, crude oil futures priced in yuan were officially listed on the Shanghai International Energy Exchange, marking the first time globally that an oil futures market in yuan appeared after the “petrodollar.”

Some analysts suggest that unstable global energy supplies and the frequent use of the dollar as a tool for sanctions are prompting more oil-producing countries to recognize the risks of relying on a single currency, pushing energy trade settlement toward diversification. With China’s massive oil imports and stable currency value, the yuan is expected to take a larger share in this process.

Deutsche Bank’s report also depicts a possible scenario: Middle Eastern oil shipped through the Strait of Hormuz could be priced in yuan for Asia, while oil sold across the Atlantic and Pacific to U.S. allies in the Western Hemisphere could be priced in dollars.

“A world where countries are more self-sufficient in defense and energy will also be a world holding fewer dollar reserves,” the report states.

This article is an exclusive piece by Observer.com. Unauthorized reproduction is prohibited.