The PetrodollAr system has propped up the US economy for 50 years - picture: sbcgold.com
In spite of the very fragile ceasefire in the conflict between the USA / Israel alliance and Iran, the theocratic regime of the Muslim nation has opened a new front in the war by weaponising the Strait of Hormuz against The Petrodollar.
Having made ths strait a de facto toll gate at the entrance to the Persian Gulf, the Irania's are demanding that commercial vessels pay hefty transit fees in yuan or Bitcoil, according to multiple reports form news organisations in the middle east. As well as signalling a further deepening of Chinese-Iranian economic cooperation it brings a new dimension to Ian's asymmetric warfare. A huge proportion of the world's hydrocarbons supply passes through the Strait of Hormuz and signififant reductions in shippping movments will trigger a global crisis.
China, Russia and Iran along with their BRICS partners have been threatening currency wars with the aim of replacing or at least offering a serious rival to the US Dollar as the primary global reserve curency.
For years, Russia and the two Asian allies have accused Washington of using the dollar's dominance in global trade as a weapon, imposing sanctions and inflicting economic pain on rivals through the dollar-dominated financial system.
Now the ongoing war aound The Gulf - and lets not fool ouselves that the current ceasefire wil turn into lasting peace - is forcing a fundamental reassessment of the petrodollar system that has underpinned US financial hegemony for decades. This informal arrangement, in which Gulf oil producers price crude in dollars and reinvest revenues in US assets, emerged as a cornerstone of American economic power in the 1970s and has held since then. But with the US-Israeli campaign against Iran now in its second month, the strait’s uncertain fate is raising urgent questions about whether that order can survive.
Iran has so far managed to withstand the US-Israeli attack and inflict some damage on Israel and US allies around The Gulf, even after significant casualties aming its leadership, and has been able to assert strategic control over the Strait of Hormuz. Thus they have added a currency war to the shooting war.
This means Iran has been able to insist it will only accept payment for pasage through the strait in Chinese Yuan or crypto currencies, particularly in relation to oil transit through the Strait of Hormuz. At least two vessels have so far settled the transit fees in Yuan via a Chinese maritime services company which is acting as an intermediary and handling payment to the Iranian authorities.
This is a significant even though analysts debate if it can ultimately become decisive in the longer run. The de-dollarisation rhetoric has emanated from China, Russia, Iran and their BRICS partners for years, without materialising into meaningful change. Now, if one of the vital choke points through which one-fifth of the world's petroleum passes becomes conditional on currency denomination that is meaningful.
The practical consequence, even if it was partially adopted, would be a bifurcated global oil market. One where yuan-denominated barrels flowing through Hormuz for payment in China's currency in the Chinese payment system CIPS ( Cross-Border Interbank Payment System) and dollar-denominated barrels are rerouted at a high additional cost and time for those who are not using Chinese currency.
Further, Iran is employing a broader mechanism employing informal transactions in cryptocurrency to effectively circumvent the US financial system. Wang Yiwei, director of the Institute of International Affairs at Renmin University, said that the yuan-for-passage is more likely to gain international acceptance than a complete blockade.
Of far more concern to banks and businesses in the west if oil shipments through the strait are to be transacted in currencies other than the dollar, particularly the Chinese yuan and the Iranian rial the Gulf states, driven by security concerns, begin to distance themselves from the dollar-based energy trade, the ripple effects could be profound: reduced demand for the greenback, waning appetite for US Treasury debt, and a gradual erosion of the dollar’s reserve currency status.
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