The Sunset of the Petrodollar and the Dawn of the Petroyuan
Jennifer Montoya[1] , OBELA[2]
The escalation of war against Iran, ignited on 28 February 2026, has sharpened global concerns over the stability of the international energy and monetary system. After the Yom Kippur War (1973), rising oil profits led to the term ‘petrodollar’. That year, the US made agreements for Saudi surpluses to be reinvested in US assets, a scheme later extended to OPEC. This boosted the global dollar supply, solidified its status as a reserve currency, and triggered global credit expansion.
Since then, the US has used the petrodollar as a sanctioning tool by restricting dollar-denominated energy markets, applying these measures to 15 oil-producing countries on the US Treasury Department’s current sanctions list. Sanctions include financial restrictions, asset freezes, bans on dollar transactions, and trade limits. This has contributed to higher international oil prices.
In 2012, Iran began accepting yuan for its oil exports, a move China exploited to become a major supplier. Transactions were further facilitated by the launch of the Cross-border Interbank Payment System (CIPS) in 2015, which facilitates payments in renminbi. Russia adopted its use and stepped it up in 2022 following US sanctions over the invasion of Ukraine, whilst redirecting much of its energy trade from Europe to Asia, primarily to China and India. By 2023, the yuan had become one of the Kremlin's main currencies for international transactions. In the case of Venezuela, it began receiving yuan in 2010, but 50% of its oil market was the US, followed by the Caribbean and Central America, Europe and, to a lesser extent, China. In 2017, following the imposition of US sanctions prohibiting it from exporting in dollars, it redirected its exports to Asia and made China, India, Iran and Turkey its main oil buyers.
In 2013, China established the Shanghai International Energy Exchange (SHFE), which allows domestic and foreign investors to participate under regulatory requirements, with initial margins of around 5% of the contract value that rise as the contract approaches expiry. It operates with risk controls, such as position limits and price bands of ±7% to ±9%. Prices remain correlated with international benchmarks, such as Brent Crude and West Texas Intermediate, with variations due to regional factors. In 2014, yuan-denominated crude oil futures contracts were launched, offering a formal alternative to the petrodollar in the trading and pricing of energy commodities. This helps mitigate the risk of dollar instability and the volatility of international financial markets.
Following the United States' conflict with Iran in February 2026, the Persians closed the Strait of Hormuz. By March, they strictly controlled maritime passage, only allowing ships to enter if they paid tolls in yuan or cryptocurrencies. In the short term, these measures drove rapid oil price increases, making the petrodollar the main beneficiary, as most oil contracts are dollar-denominated (see charts 1 and 2). However, the conflict's aftermath increased energy transactions in yuan, a currency regarded as more stable for buying and selling energy products.
Chart 1. Dollar Index November 2025 to April 2026
Source: OBELA using data from Investing
Chart 2. 6-month oil price, November 2025 to April 2026
Source: OBELA using data from Investing
In conclusion, the petrodollar retains its dominance due to the continued use of the dollar in energy trade. However, recent developments point to a gradual transformation of the international financial architecture. US sanctions, geopolitical conflicts, and the creation of an alternative financial infrastructure are opening up opportunities for the yuan in the oil trade. In this context, the petro-yuan is emerging as a viable and expanding alternative within the global energy market.
[1] Faculty of Economics. Member of OBELA
[2] Dr. Oscar Ugarteche, Dr. José Carlos Díaz, Gabriela Ramírez, Carlos Madrid, Jesús Córdoba, Nate Chávez
