Cracks widen in US petro-dollar regime- How Iran’s Hormuz leverage is reshaping global oil trade?

Iran has pulled off one of the most consequential geopolitical heists of the 21st century, a bifurcation of the oil trade. As of early April 2026, the war in West Asia continues. The US-Israeli coalition launched an attack on Iran with the prospective goal of regime change, but it seems the war has evolved into a crack in the petrodollar regime of the US.

As the war widens, Iran has managed to cope with the US-Israeli attack, even after significant damage to its leadership and has been able to assert strategic control over the Strait of Hormuz. Now Iran has been accepting payment in Chinese Yuan, particularly in relation to oil transit through the Strait of Hormuz. At least two vessels have settled the transit fees in Yuan. Whereas a Chinese maritime services company is acting as an intermediary and handling payment to the Iranian authorities.

This is a structurally significant eventhough analysts debate if it can ultimately become decisive in the longer run. The de-dollarisation rhetoric has circulated for years, without materialising into meaningful change. Now, if one of the vital choke points through which one-fifth of the world's petroleum passes becomes conditional on currency denomination. The practical consequence, even if it was partially adopted, would be a bifurcated global oil market. One where yuan-denominated barrels flowing through Hormuz for payment in China's currency in the Chinese payment system CIPS ( Cross-Border Interbank Payment System) and dollar-denominated barrels are rerouted at a high additional cost and time for those who are not using Chinese currency. Further, Iran is employing a broader mechanism employing informal transactions in cryptocurrency to effectively circumvent the US financial system. Wang Yiwei, director of the Institute of International Affairs at Renmin University, said that the yuan-for-passage is more likely to gain international acceptance than a complete blockade. Though Chinese analysts remain sceptical about its effect on the US-China relations.

Also Read: UK to lead talks on reopening Strait of Hormuz amid rising tensions with Iran

The Petrodollar regime and how it's crucial to fund US debts

The Petrodollar regime was born out of the 1974 deal struck between Saudi Arabia and the then-US President Richard Nixon. Saudi Arabia agreed to price oil in US dollars and invest the surplus in US assets. Nixon decided that the dollar would not be valued at the gold standard, but it would be backed by the oil trade, and in return US would provide military support to its Gulf allies. What the deal did was create an artificial global demand for dollars. Oil is the lifeblood of the global economy, the primary energy to fuel transportation, manufacturing, agriculture, and industrial production. Every country needs oil for its economy, so they need to hold dollars in exchange for trade. So the US could fund its social welfare scheme, sophisticated living standard of its middle class and focus on financialisation of the economy. It did not have to worry about the Current Account Deficit; it would just print more money, and the global economy would absorb it as inflation. The US exploited this by having a $39 trillion debt. But all of this was based on social contracts, a contract between the US and its allies in Europe and in the Gulf, that the US would provide security. Specifically, countries like the UAE, Saudi Arabia, Qatar, Kuwait and Bahrain are not traditional nation-states. They do not have food production, nor proper groundwater to sustain life. The cities were built on the social contract that they are safe, for tourism, finance and tech. But that illusion has been shattered by both Iran and the US itself. Iran has attacked several energy facilities, and the US has failed or, at times, seemed not interested in defending its allies. The US was betraying the system that was making it an empire. It was challenging the very rule-based order that was at the base of the global economy.

Meanwhile, China emerges as an alternative, the largest trading partner for Saudi Arabia, military/tech sales without conditions, and currency swaps in yuan. If Gulf States abandon the petrodollar, global dollar demand collapses. Rising interest rates would force impossible budgetary choices on the US, $700 bn per year per 2 per cent rate increase. This does not imply a direct collapse, but an inevitable decline. This would need a major structural change among the elites to avert the course.