China and Iran Target US Dollar Dominance in the Strait of Hormuz

Tehran and Beijing Leverage Conflict to Challenge Greenback’s Dominance

As the volatile conflict between the United States, Israel, and Iran enters a fragile two-week diplomatic pause, a new economic front has opened in the Strait of Hormuz. Iran and China are leveraging the geopolitical turmoil to mount one of the most direct challenges to the US dollar's global hegemony in recent history.

For decades, the "exorbitant privilege" of the US dollar has allowed Washington to exert significant pressure on its adversaries through sanctions. However, Tehran and Beijing are now utilizing Iran’s control over the Strait of Hormuz (the transit point for twenty percent of the world’s oil and liquefied natural gas) to mandate a shift in how the world pays for energy.

The Rise of the 'Petroyuan' toll

Reports indicate that Iran has begun implementing a de facto "toll booth" regime for commercial vessels passing through the strait, demanding transit fees be settled in Chinese yuan. According to data from Lloyd’s List, at least two vessels had complied with these yuan-denominated payments as of March 25, 2026.

Last week, China’s Ministry of Commerce appeared to endorse the move on social media, while the Iranian embassy in Zimbabwe explicitly called for the integration of the "petroyuan" into the global oil market.

“At one level, Iran is aiming to poke its thumb in the United States’s eye,” Kenneth Rogoff, an economics professor at Harvard University and former IMF chief economist, told Al Jazeera. “At another level, Iran is dead serious about preferring yuan to avoid US sanctions and to cultivate its ally, China.”

A Strategic Symbiosis

The shift toward the yuan serves the immediate interests of both nations:

• Sanctions Evasion: By bypassing the dollar-dominated SWIFT system, Iran can maintain trade flows despite US-led financial restrictions.
• Trade Efficiency: Under a 25-year "strategic partnership" signed in 2021, trade between the two has flourished. China currently buys over 80% of Iran's oil exports (often at discounted rates) while Iran imports essential Chinese machinery and chemicals.
• Multipolar Ambitions: For Beijing, the move aligns with President Xi Jinping’s stated goal of transforming the yuan into a global reserve currency to counterbalance American influence.

Despite the ongoing war, oil shipments from Iran to China have remained steady. In the first half of the conflict alone, Iran exported between 12 million and 13.7 million barrels of crude, the vast majority of which was destined for Chinese refineries.

Obstacles to De-dollarization

Despite the symbolic victory in the Strait of Hormuz, the yuan faces a steep uphill battle to unseat the dollar.

As of 2025, the US dollar still accounted for 57% of global foreign exchange reserves, while the yuan maintained a mere 2% share, according to IMF data. Furthermore, only 3.7% of cross-border trade was settled in yuan in 2024.

Economists point to several structural hurdles for China:

1. Capital Controls: Unlike the dollar, the yuan is not freely convertible, preventing businesses from moving it across borders at will.
2. Transparency Issues: Beijing’s tight control over financial institutions creates a perception of regulatory unpredictability.
3. The Gulf Factor: Significant de-dollarization would require the cooperation of major Gulf states like Saudi Arabia, which have priced oil in dollars since the 1970s.

A Manufacturing "One-Stop Shop"

While the yuan may not replace the dollar as a global reserve overnight, experts believe the current trend is "chipping away" at the status quo.

Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, notes that China’s position as the world’s leading manufacturer gives it an edge that former challengers like the Euro or Yen lacked. Because China can supply Iran with almost all its industrial needs, their bilateral trade can function effectively outside the dollar ecosystem.

As the two-week ceasefire continues, the use of the yuan in the Strait of Hormuz remains a potent symbol of a shifting financial landscape, one where the "petrodollar" is no longer the only game in town.