War In Iran And The Future Of Dollar Dominance |
The U.S.-Israel war against Iran has created a defining paradox for the global financial system. While the conflict has accelerated long-term de-dollarisation trends, it has simultaneously triggered a short-term surge in demand for the U.S. dollar. Analysts describe this as a "bumpy ride": the dollar's dominance is being gradually eroded, yet its status as the world's primary safe-haven remains intact.
When the Israel-U.S. war against Iran broke out, investors rushed into USD-denominated assets in a classic "flight to quality." The dollar index rose nearly 2% in the weeks following the initial strikes, despite having declined 9.4% over the course of 2025. Unlike past conflicts, the U.S. is now the world's top producer of oil, gas, and weapons.
This transformation insulates its economy from energy shocks that weaken major importers such as Japan, India, and the European Union. Higher oil prices now improve the U.S. trade balance rather than draining it. Yet this resilience masks profound structural strain. The mechanisms that have sustained dollar dominance for decades—particularly the petrodollar system—are under unprecedented pressure.
Iran has directly targeted the financial architecture of U.S. energy dominance. The country has reportedly demanded that vessels passing through the Strait of Hormuz—a chokepoint for 20% of global oil—settle transit fees in Chinese yuan or cryptocurrency rather than dollars. If major importers like Japan or India are forced to hold yuan to purchase Gulf oil, global demand for the dollar would diminish significantly.
The erosion extends beyond Iran. The 1974 U.S.-Saudi security and economic framework, which expired on 9 June 2024, was not formally renewed. This has enabled a seismic shift in Gulf financial policy. Saudi Arabia is now officially open to selling oil in yuan, euros, and yen, and has joined the mBridge project to facilitate cross-border digital currency payments outside Western banking systems.
Russia and China are reportedly coordinating with Riyadh to settle energy trades in........