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Hao Nan

In the span of a few days earlier this month, developments that usually sit in separate policy compartments began to converge.
Abu Dhabi’s crown prince arrived in Beijing as President Xi Jinping used the visit to set out China’s four-point position on the Iran war. Pakistan, now central to keeping US-Iran diplomacy alive, said no date was fixed for the next round of talks. Washington escalated pressure on buyers of Iranian oil and the banks handling related funds. Reports circulated of yuan use in connection with payments tied to passage through the Strait of Hormuz.
These developments raise a question that has hovered over global energy markets for years but now looks harder to dismiss: is a “petroyuan” taking shape?
The starting point is the right one: the petrodollar remains deeply entrenched. The dollar still dominates official reserves, international payments and foreign exchange turnover. US dollars make up nearly 57 per cent of disclosed global official reserves while the yuan accounts for less than 2 per cent. The dollar’s structural advantages – deepest pool of safe assets, unrivalled financial liquidity and overwhelming presence in foreign currency markets – do not disappear because one regional war has exposed new strains.
The petrodollar has never been just the invoice currency of oil cargoes. It is a system linking energy pricing, cross-border finance, reserve accumulation and security. Gulf producers earn dollar revenues, recycle part of that into dollar assets and operate within a regional order underwritten by American military power. That arrangement gave the dollar strategic depth. It tied the world’s most important commodity to the world’s most important reserve currency and then wrapped both inside a security bargain.
That bargain is no longer as solid as it once looked.


The first reason is structural. Gulf hydrocarbons increasingly flow east. China has become the key buyer of sanctioned Iranian oil, and Asian markets now absorb the overwhelming share of crude oil moving through the Strait of Hormuz. The demand centre of the energy system has shifted towards Asia, while the monetary and security architecture remains anchored in the Atlantic order. That mismatch matters.
The second reason is geopolitical. The current war has tested the credibility of the US security umbrella in ways that go directly to the foundations of the old bargain. Gulf states are not leaving the American orbit nor are they suddenly dismantling their dollar pegs or selling dollar assets. But they are hedging more openly – in diplomacy, security relationships and financial infrastructure.
Abu Dhabi’s turn to Beijing during a wartime energy crisis was telling. So was Pakistan’s growing centrality in mediation efforts the United Arab Emirates (UAE) clearly did not want to watch from the sidelines. When regional actors become less confident that one external power can guarantee stability, they begin to value redundancy elsewhere. Finance usually follows strategy.
That is where the petroyuan enters the discussion. A petroyuan is more than a few oil trades settled in the Chinese currency. It requires a usable circuit: pricing, settlement, payment rails and some capacity to hold or recycle proceeds in yuan assets. China has been building pieces of that circuit for years.
Shanghai’s crude futures contract offers a yuan-denominated benchmark. The Cross-border Interbank Payment System (CIPS) has expanded steadily as a yuan clearing platform. China and the UAE have also been experimenting with more direct payment connectivity, including central bank digital currency arrangements. None of this adds up to a rival global currency. But the infrastructure for a narrower, China-centred energy payment circuit is no longer hypothetical.


The Iran war has given that circuit sharper strategic relevance. When Washington signals that buyers of Iranian oil and banks handling related payments may be punished, using the dollar becomes not merely expensive but dangerous. Non-dollar settlement turns from a political aspiration into a practical workaround. Reports of yuan use in connection with Hormuz-related payments matter for the same reason.
Even if those transactions remain limited, opaque or highly contingent, they move the discussion from abstract de-dollarisation rhetoric into a wartime use case. That is a qualitatively different development from headline-grabbing but largely symbolic talk about pricing oil in yuan.
None of this points to an imminent monetary revolution. The yuan lacks the dollar’s reserve-currency ecosystem: asset depth, convertibility, legal familiarity and broad-based willingness by countries to hold it at scale. Most Gulf producers also face constraints. Their exchange-rate regimes, asset portfolios and sovereign wealth structures remain heavily tied to the dollar. Any abrupt move away from dollar revenues would raise immediate questions about peg stability and capital confidence. The Gulf may want options but it still has strong reasons to avoid a disorderly break from the dollar system.
The more plausible outcome is a dual-track system. The dollar would remain the primary currency for global oil pricing, reserves and safe-asset recycling. Alongside it, a narrower yuan-based channel would grow for China-bound energy trade, sanctioned suppliers and transactions exposed to political or military disruption. That prospect fits the current moment better than predictions of a dollar collapse or claims that a petroyuan order has arrived.
The larger shift is subtler and no less consequential. The old petrodollar order rested on the assumption that the dollar’s role in energy was functionally irreplaceable. The Iran war has started to chip away at that assumption. Under enough pressure, the world does not abandon the dollar overnight. It begins by building ways to rely on it less absolutely.


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Talk of a dollar collapse or ‘petroyuan’ order arriving amid the Iran war misses the mark. The larger shift is subtler and no less consequential


Talk of a dollar collapse or ‘petroyuan’ order arriving amid the Iran war misses the mark. The larger shift is subtler and no less consequential.


Currencies

Yuan

US-Israel war on Iran

United Arab Emirates (UAE)

Banking & finance

Iran

Energy

Cross-border Interbank Payment System (CIPS)

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


For the US dollar, a subtler shift than a ‘petroyuan’ order is underfoot

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Talk of a dollar collapse or ‘petroyuan’ order arriving amid the Iran war misses the mark. The larger shift is subtler and no less consequential

Talk of a dollar collapse or ‘petroyuan’ order arriving amid the Iran war misses the mark. The larger shift is subtler and no less consequential