The ongoing Iran conflict has the potential to significantly impact the petrodollar system, which has long underpinned the US dollar’s role in global trade and reserves. As oil is increasingly traded outside of the US dollar, Middle Eastern flows are shifting towards Asia, and alternative payment systems emerge, the foundations of the petrodollar system were already weakening.

If the conflict exposes the limits of US security support or disrupts Gulf energy flows, it could accelerate de-dollarization, with more oil trade taking place in yuan. In the long term, a shift away from oil towards domestic and alternative energy sources would reduce the need to hold dollars altogether.

The bottom line is that the conflict risks speeding up the erosion of dollar dominance, both through currency shifts in energy trade and a broader move towards energy independence. This could have significant implications for the global economy and the role of the US dollar in international transactions. (DB Macro)