Trump’s ‘big present’ from Iran could be an even bigger present for China |
Trump’s ‘big present’ from Iran could be an even bigger present for China
March 31, 2026 — 12:04pm
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Last week, Donald Trump boasted Iran’s leaders had given him a “very big present” worth “a tremendous amount of money”, describing the “very significant prize” as “amazing”.
But what if that present wasn’t really gifted to Trump and the US, but to China?
The “gift,” it subsequently transpired, was Iran’s permission for 10 Pakistani-flagged tankers to pass through the Strait of Hormuz, which has been largely blocked by threats of missile and drone strikes since the US and Israeli assault on Iran began late last month.
With about 20 per cent of the world’s oil flowing through that strait each day, its effective closure is causing oil prices (and subsequently gasoline and diesel prices) to soar and threatening fuel shortages and large-scale global economic damage.
Trump’s “present” and the Iranian and Chinese vessels that Iran has allowed passage through the strait are carrying oil that has probably been paid for in China’s currency.
Iran is reportedly collecting a toll on the ships that it has allowed to pass through the strait (generally carrying oil destined for China) equivalent to about $US2 million ($2.9 million) per vessel, while insisting that settlement for its oil and the tolls is in yuan.
Oil has been a key pillar, arguably the key pillar, in the US dollar’s dominance of global trade and finance for the past half century.
That’s understandable, given that the country is subject to harsh US financial sanctions. US dollars are of no value to it. If the regime survives the conflict, the strait could become a permanent yuan-denominated tollway.
Far from being a gift to the US or, as Trump claimed, some sort of “tribute” to him made “out of respect”, Iran’s green light for oil shipments to one of its allies underscores the distinction it is making between the US and its western allies, for whom the strait is closed, and China and others, like Pakistan, with which it has good relations and which will pay for its oil in yuan rather than dollars.
This week, Trump told The Financial Times that he wants to “take the oil in Iran”, threatening to seize Kharg Island, the key hub where about 90 per cent of Iran’s oil is processed and exported.
“To be honest with you,” he told the FT, “my favourite thing is to take the oil in Iran, but some stupid people back in the US say: ‘why are you doing that?’ But they’re stupid people.” He’s also mused about “obliterating” the island and its facilities.
War set to last ‘weeks’ longer, Iran could permanently toll Hormuz, Rubio says
If the US were to “take” Iran’s oil, it would be akin to what the Trump administration has done to Venezuela where, after kidnapping its president, the Americans forced Venezuela to hand over control of its oil sales and their proceeds to the US, to be disbursed for Venezuela’s benefit, but with the US dictating when and where – and ensuring that the sales are transacted in dollars.
Venezuela, along with Iran and Russia (after it was sanctioned by the US-led West for its invasion of Ukraine), have been major suppliers of oil, at big discounts, to China, the world’s biggest oil importer. Those sales have been transacted in yuan.
If the US were to get control of Iran’s oil, between Washington and its traditional Middle Eastern ally, Saudi Arabia, it would have control or strong influence over about 60 per cent of the world’s oil production and more than 70 per cent of its reserves.
If there were a grand design to the ultra-aggressive actions of a self-proclaimed anti-war, peace-loving president, you might suspect the military operations against Venezuela and Iran are related to a grand plan to do just that.
Trump is floundering as he looks to chicken out
Stephen BartholomeuszSenior business columnist
Senior business columnist
Oil has been a key pillar, arguably the key pillar, in the US dollar’s dominance of global trade and finance for the past half century.
America’s weaponisation of that dollar dominance via sanctions on China, Russia, Iran, Venezuela and others – it seized Russia’s offshore foreign exchange reserves and froze it out of the SWIFT financial messaging system that is at the core of the architecture of the global financial system – has caused those countries, and others nervous about the precedents it set, to look for non-dollar-denominated trade and financial platforms.
Trump’s trade war on the rest of the world and his treatment of Ukraine, his threats to invade Greenland and blow up NATO, his disparagement of allies and interventions in their domestic politics have all provided further motivation for countries to look beyond America for trading partners and allies.
China, which has ambitions to internationalise the yuan and, perhaps, eventually challenge the dollar’s dominance - or at least weaken it - naturally sees that as an opportunity.
Both Russia and China (via its Cross-Border Interbank Payment System, or CIPS) have created their own platforms for international payments, and China has been conducting an increasing proportion of its trade in yuan, rather than dollars.
Most Russian trade with China is settled in yuan or, to a lesser extent, in roubles and, increasingly, the Global South economies and Asian countries are settling trade deals in yuan.
China is trying to force Australia’s iron ore miners to settle for some of their exports in its currency and even Saudi Arabia, the original linchpin for US dollar dominance, has expressed an openness to yuan settlements.
The foundations for the US dollar’s global primacy were laid at the Bretton Woods conference in New Hampshire towards the end of the Second World War, where delegates from 44 countries agreed to create a new international monetary system with the US dollar and gold at its centre.
The financial system that emerged from that conference remained intact until 1971 when, after persistent balance of payment deficits meant the stock of offshore dollars exceeded America’s gold reserves, Richard Nixon ended the dollar’s convertibility into gold.
To maintain the dollar’s central position in the global financial system and to finance its budget and balance of payments deficits, America needed an alternative.
Nixon negotiated a deal with Saudi Arabia under which it agreed to denominate all of its future oil sales in dollars and allowed the Saudis to use their dollar reserves to acquire US assets, like Treasury bonds, in exchange for American security guarantees and military equipment. Other Middle Eastern oil producers followed suit, and all oil became priced in dollars.
The recycling of those oil-related dollars – petrodollars – has enabled America to borrow more cheaply to finance its budget and trade deficits, maintain standards of living beyond what its economy might otherwise have afforded and has underpinned the dollar’s status as the world’s reserve currency.
‘Petroyuans’ may not topple the petrodollar and the US dollar’s dominance, but they could erode it
Until the shale revolution, America was the world’s largest importer of oil. Today it is self-sufficient and is one of the world’s biggest energy exporters.
China has displaced it as the oil industry’s biggest customer, and it is now seeking to use that status, and the relationships it has built via its Belt and Road initiative, to encourage countries to settle their transactions with it in yuan that can be recycled – as has been the case with the dollar – into foreign purchases of Chinese goods and financial assets.
“Petroyuans” may not topple the petrodollar and the US dollar’s dominance – China’s financial system is too shallow and controlled by Beijing to provide head-to-head competition – but they could erode it, particularly as Iran’s attacks on its oil-producing neighbours has highlighted the weaknesses in America’s security guarantees that gave the dollar its near-monopolistic hold over the oil trade.
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Thus, the stakes in Iran are high. If the US can seize control of Iran’s oil, as it did of Venezuela’s, it will shore up the dollar’s dominance and its ability to wield it as a weapon hardly costing it anything.
If it fails, China will be in a stronger position to fragment the dollar’s dominance and insulate itself, and others, from US financial sanctions in the process.
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