Reportedly, an unnamed Iranian official is being quoted as saying that Iran is considering making an offer regarding the reopening of the Strait of Hormuz, the narrow maritime corridor through which roughly one-fifth of the world’s oil supply passes every day. Startling as the news, but the condition attached to this proposal is equally dramatic: oil cargo moving through the strait must be traded only in Chinese yuan, not in U.S. dollars, not in euros, but exclusively in China’s currency. Regardless of this happening, it does offer food for thought for thinkers, which, if implemented, could directly challenge the five-decade dominance of the petrodollar system that has underpinned the global energy market since the 1970s. Yet the issue is not simply about oil shipments or shipping lanes. The deeper question is why Iran would pursue such a strategy, how the United States might respond, and how the wider international system could react if the global oil market were to begin splitting into two competing currencies.
In 1974, following the oil crisis that shook global markets, the United States reached a historic arrangement with Saudi Arabia, a straightforward but strategically powerful one. Washington offered security guarantees, military protection, and privileged access to global financial markets. In return, Saudi Arabia agreed to price its oil exports in U.S. dollars. This arrangement gradually evolved into what became known as the petrodollar system. From that point forward, any country needing to purchase oil in international markets required access to U.S. dollars. Japan needed dollars. Germany needed dollars. India needed dollars. China needed dollars. Even governments that strongly disagreed with American policies still required the U.S. currency to secure energy supplies. It resulted in an enormous and continuous global demand for dollars, affording the United States with extraordinary financial leverage. Washington could impose sanctions, freeze financial assets, exclude states from banking systems, and pressure governments through currency markets. For decades, this structure formed one of the pillars of American global influence.
By linking the reopening of the Strait of Hormuz to yuan-denominated oil trade, Iran is choking the financial architecture that underpins global energy markets.
Over time, however, some countries began searching for ways to reduce their dependence on this system. Given its history with the USA since the 1979 revolution, Iran emerged as one of the most persistent challengers. This Iranian yearning stemmed from successive American administrations imposing stringent sanction regimes, targeting Iranian oil exports, Iranian banking institutions, and international companies, including shipping companies, conducting business with Iran. Oil exports, being the spine of Iran’s national revenue, were impacted the most as selling oil in the global financial system became increasingly complicated despite having high production capacity. Governments around the world feared secondary sanctions if they engaged in trade with Tehran.
Faced with these constraints, Iran began searching for alternative economic arrangements. One country quickly became central to that effort: China. As the world’s largest energy importer, China’s industrial economy requires enormous quantities of oil. Iran, meanwhile, has abundant crude reserves but a limited pool of buyers due to sanctions. This convergence of needs created a natural partnership. In 2021, the two countries signed a twenty-five-year strategic cooperation agreement that included major investments and long-term energy cooperation. Under this framework, China pledged to invest billions of dollars into Iranian infrastructure, technology, and energy development. In exchange, Iran agreed to supply China with discounted oil over extended periods. Yet this was not merely an arrangement but a strategic partnership for the long run. China has long sought to expand the international use of its currency, the yuan. Beijing has gradually promoted alternatives to dollar-based financial systems, particularly in sectors tied to energy and commodities. Major BRICS nations are in support of this alternative. If oil is to be traded in yuan, the implications for global finance are bound to be significant.
Iran appears to understand this dynamic clearly. Major exporters, including Saudi Arabia, Iraq, Kuwait, the United Arab Emirates, Qatar, and Iran itself, depend heavily on Hormuz. Any disruption to shipping through the Strait immediately affects global energy markets. Oil prices rise, insurance costs surge, and inflationary pressures spread across economies worldwide. Recent military tensions in the region have already demonstrated how quickly markets react to instability. Iran still occupies a geographic position that allows it to influence this critical chokepoint in global energy trade, which is a weapon for asymmetric warfare for Iran against the USA. By linking the reopening of the Strait of Hormuz to yuan-denominated oil trade, Iran is choking the financial architecture that underpins global energy markets.
Iran’s attempt to enforce a yuan-based oil trade through the Strait of Hormuz can escalate the crisis further. The USA initially had the option of expanding its naval presence through carrier deployments, tanker escorts, and mine-clearing operations, but was constrained following heavy Iranian missile and drone strikes on key naval assets such as USS Abraham Lincoln and USS Gerald Ford, which are reportedly limping back home. Ratcheting economic pressure on Iran remains another viable option for the USA, by targeting Chinese entities buying Iranian oil, and pushing banks to reject yuan settlements. Diplomatic pressure on Saudi Arabia, the UAE, and Kuwait to sustain dollar-based oil trade and preserve the petrodollar system is yet another option. Iran has forced a strategic energy response, with emergency oil reserves released, and alternative, expensive and limited routes, such as the Red Sea pipeline, augmented with drained liquefied gas channels, have to be activated. Hormuz disruptions continue.
Some analysts, therefore, speculate that the global energy system could gradually evolve into a dual structure. One segment of the market might continue trading oil primarily in dollars, while another increasingly relies on alternatives such as the yuan. Such a development would introduce a new layer of fragmentation into the global economy. Others debate that Iran’s strategy also carries significant risks for Tehran itself due to the prolonged disruption of Hormuz. But for now, the unfolding situation in the Persian Gulf can ultimately alter the international financial system and thus the world order. The Iranian offer for “Yuan for Oil” manifests the sheer force of its economic counterpunch; a hook indeed.
The writer is a freelance columnist and can be reached at [email protected]