Nearly a month after coordinated US and Israeli strikes on Iran, the human toll continues to rise. Yet beyond the battlefield, a more consequential struggle is unfolding — one that could reshape the global economic order.
At the heart of this conflict lies energy. Iran’s disruption of supply chains — particularly through pressure on the Strait of Hormuz and attacks on Gulf infrastructure — has revived fears of a global slowdown.
Oil prices have surged, shipping risks have intensified and uncertainty has returned to markets already strained by geopolitical fragmentation. For an interconnected global economy still navigating post-pandemic shocks, the stakes are considerable.
In the short term, the answer to who benefits appears straightforward: the US dollar. As energy prices rise and risks intensify, countries require more dollars to secure imports, reinforcing the US currency’s dominance.
This pattern echoes earlier crises — including the Russia-Ukraine war — where geopolitical shocks strengthened both oil prices and the dollar’s global role. In moments of uncertainty, investors and governments alike continue to turn to dollar-denominated assets, not only for transactions but for safety and liquidity.
This dominance, however, is not accidental. It is rooted in the postwar monetary order shaped by the Bretton Woods Agreement and later reinforced after the Nixon Shock through the petrodollar system.
Oil priced in dollars created a self-sustaining loop: global demand for energy translated into global demand for US financial assets, enabling Washington to finance deficits at relatively low cost. Over time, this system embedded the dollar deeply into global trade, finance and reserve structures.
Iran is not simply disrupting oil supply — it is quietly challenging the currency structure underpinning global energy trade. Under sanctions, Tehran has developed alternative channels, exporting oil through barter arrangements, informal networks and increasingly through settlements in Chinese yuan. This shift is not merely tactical; it reflects a broader strategic alignment with efforts toward de-dollarization.
China’s role is central. As a major buyer of Iranian oil, Beijing provides both a market and a monetary alternative. Yuan-based settlements, coupled with the expansion of cross-border payment systems and digital financial infrastructure, point to the gradual construction of a parallel architecture — one that operates alongside, rather than entirely within, the dollar system.
While still limited in scale, these developments signal a growing willingness among some states to hedge against dollar dependence. This creates a paradox at the heart of the current conflict. The Iran war strengthens the dollar in the short run, but may simultaneously accelerate the search for alternatives in the long run.
Each sanctioned transaction settled in yuan, each bypass of dollar clearing systems and each bilateral arrangement outside traditional frameworks incrementally reduces reliance on the dollar. What begins as necessity — driven by sanctions or geopolitical risk — can evolve into structural change.
History suggests that such transitions are rarely abrupt. Dominant currencies do not collapse overnight; they erode gradually as alternatives become viable. The key question is whether current developments remain fragmented responses or evolve into a more coherent alternative system.
If Iran succeeds in institutionalizing yuan-based oil trade, the implications could extend well beyond sanctions evasion. Energy markets have long anchored dollar dominance. Even partial diversification in pricing and settlement mechanisms could begin to weaken that foundation.
Should other producers — particularly in the Gulf — experiment with non-dollar settlements, even on a limited scale, the symbolic and structural impact could be significant.
This raises deeper questions about the future of the global monetary system. Can de-dollarization move beyond fragmented, sanction-driven arrangements into a coordinated framework?
Can the Chinese yuan — despite capital controls and institutional constraints — offer the depth, liquidity and trust required of a reserve currency? And perhaps most critically, will major energy exporters begin to hedge by accepting alternative currencies for oil trade?
The answers remain uncertain. If the response to these questions is largely negative, the dollar’s dominance will endure, supported by its unmatched liquidity, institutional credibility and entrenched network effects. The inertia of the existing system is powerful, and switching costs remain high.
But if even a partial shift begins to take hold — through yuan-based oil trade, BRICS settlement mechanisms or digital currency platforms — the erosion may be gradual yet irreversible. The outcome may not be the replacement of the dollar by a single currency, but the emergence of a more fragmented, multipolar monetary system.
For now, the dollar is clearly benefiting from the crisis. Rising oil prices, capital flows into safe assets and persistent global demand for energy imports all reinforce its position. But wars do not simply redistribute power — they redefine systems.
The Iran conflict may not immediately dethrone the dollar. But it is forcing policymakers, markets and states to confront a new possibility: that the future of global finance may no longer revolve around a single currency.
The real question, then, is not whether the dollar wins this war — but whether this war marks the beginning of a world where it no longer needs to.
Dr. Kashif Hasan Khan is a professor of economics, dean of the School of Graduate Studies and head of Economics Department at Paragon International University, Phnom Penh, Cambodia.