USD: Petrodollar foundations tested by Iran conflict – Deutsche Bank

Deutsche Bank’s Mallika Sachdeva argues that the Iran conflict could test the foundations of the petrodollar regime and, by extension, the Dollar’s role as the world’s reserve currency. The bank highlights how shifts in Middle East oil trade, sanctions, and alternative payment systems may gradually erode Dollar dominance in global trade and savings.

Iran conflict and petrodollar pressures

"The long-term legacy of the Iran conflict for the dollar could be the way it tests the foundations of the petrodollar regime. If fault lines are further exposed, there could be significant downstream effects to the dollar’s use in global trade and savings, and the dollar’s role as the world’s reserve currency."

"The foundations of the petrodollar regime have been under pressure even before this conflict. Most Middle East oil is now sold to Asia not the US; sanctioned oil from Russia and Iran has already been trading off dollar rails; Saudi Arabia has been localizing defence, and experimenting with forms of non-dollar payment infrastructure such as Project mBridge."

"The current conflict may expose further fault lines, by challenging the US security umbrella for Gulf infrastructure and the maritime security for global trade in oil. Damage to Gulf economies could encourage an unwind in their foreign asset savings. In this context, reports that the passage for ships through the Strait of Hormuz may be granted in exchange for oil payments in yuan should be closely followed."

"The conflict could be remembered as a key catalyst for erosion in petrodollar dominance, and the beginnings of the petroyuan."

"A world that becomes more self-sufficient in defence and energy could also be a world that holds less USD reserves."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)