Vessels in the Strait of Hormuz, Musandam, Oman, April 27, 2026. REUTERS\/Stringer TPX IMAGES OF THE DAY<\/p>\n
The Strait of Hormuz Crisis Is Cracking the Petrodollar System<\/p>\n
LONDON, May 18 (Reuters)\u00a0\u2013\u00a0The U.S. dollar-dominated global oil trading system is being tested by the Iran war and the closure of the<\/p>\n
, as governments in major consuming nations turn to increasingly opaque deals with Tehran and Gulf producers to secure supplies.<\/p>\n
Since the outbreak of\u00a0the war\u00a0on February 28, roughly a fifth of global oil supplies from the Gulf have been disrupted, dealing a tough blow to economies, particularly in Asia, which depends on the Middle East for about 60% of its imports.<\/p>\n
With the\u00a0Hormuz blockade\u00a0now in its 13th week, there are growing signs that major Asian importers are adapting to the new reality by striking\u00a0direct arrangements\u00a0with Gulf producers, often with Tehran\u2019s consent, to allow vital flows of crude, chemicals and fertilizer through the Strait.<\/p>\n
In recent days,\u00a0several oil tankers\u00a0have crossed Hormuz, frequently sailing with their tracking systems switched off to avoid detection, following direct contacts between leaders in the purchasing countries and Iran.<\/p>\n
Last week, a Panama-flagged tanker carrying 2 million barrels of Kuwaiti and Emirati crude passed through the Strait en route to Japan following\u00a0discussions\u00a0between Prime Minister Sanae Takaichi and Iranian President Masoud Pezeshkian. Iran has also struck arrangements with\u00a0China, Iraq and\u00a0Pakistan\u00a0to move oil and liquefied natural gas out of the Gulf.<\/p>\n
The precise structure of these bilateral and trilateral deals remains largely opaque. But it is highly likely that many are being settled outside the traditional oil trading system, either through currencies other than the U.S. dollar or through informal barter arrangements.<\/p>\n
Regardless of whether these trades include explicit transit fees to Tehran \u2013 something Tokyo has denied \u2013 the pattern reinforces Iran\u2019s de facto control over traffic through the critical waterway.<\/p>\n
Iran seeks to enshrine this influence in any future settlement with Washington, a demand President Donald Trump has firmly rejected.<\/p>\n
However the standoff is ultimately resolved, the current disruption is likely to leave\u00a0a lasting imprint\u00a0on oil trade patterns.<\/p>\n
Crossing Hormuz is now likely to carry a persistent geopolitical risk premium. That\u00a0will embed higher costs into Middle East crude, forcing importers to rethink supply security.<\/p>\n
In turn, that\u00a0may encourage more direct, government-backed deals with regional producers\u00a0to clinch supplies, create pricing mechanisms that insulate buyers from volatility and help secure transit through Hormuz.<\/p>\n
Signs of that shift are already emerging. Indian Prime Minister Narendra Modi\u00a0visited\u00a0the United Arab Emirates on Friday to discuss long-term supply agreements and expand strategic storage. The timing of the trip \u2013 in the middle of a regional war \u2013 underscores the urgency of New Delhi\u2019s situation and may signal a broader turn toward bilateral energy diplomacy across Asia.<\/p>\n
\u201cIn the current circumstances, there is every reason to expect China, India, Japan, South Korea, and other import-dependent countries to extend the network of bilateral relationships they already have with Gulf states \u2013 including a post-war regime in Iran \u2013 and with other oil and gas exporters around the world,\u201d consultancy Dragoman said in a note on Friday.<\/p>\n
PETRODOLLAR UNDER THREAT<\/p>\n
These evolving trade patterns add to the slow erosion of the\u00a0dollar\u2019s dominance\u00a0in global oil trade.<\/p>\n
Modi\u2019s talks in Abu Dhabi followed\u00a0a 2023 agreement\u00a0between India and the UAE to settle bilateral trade in rupees and dirhams rather than dollars, part of a broader push by emerging economies to diversify their payment systems.<\/p>\n
Today\u2019s oil trading architecture was designed in the 1970s and 1980s to avoid such fragmentation. The creation of crude futures markets in New York and London brought transparency and liquidity to a system previously dominated by producer-set prices.<\/p>\n
Crucially, it also entrenched the U.S. dollar as the system\u2019s core currency.<\/p>\n
The dominance of the \u201cpetrodollar\u201d gave Washington unparalleled leverage over global finance, enabling it to impose sanctions that effectively exclude countries, companies and individuals from the international trading system.<\/p>\n
Over recent decades, the\u00a0U.S.\u00a0has dramatically expanded the use of sanctions, targeting countries such as Iran, Venezuela, Russia and China in pursuit of geopolitical and economic objectives.\u00a0Those measures drove\u00a0the development of a\u00a0vast oil trading network\u00a0that bypassed the dollar and\u00a0Western shipping.<\/p>\n
The risk of falling foul of U.S. sanctions prompted major emerging economies to explore alternative trading mechanisms. So far, those efforts have had only limited success: even today, just 10% to 20% of global oil trade is estimated to occur in non-dollar currencies.<\/p>\n
But the shock of the Iran war and the partial shutdown of one of the world\u2019s most important energy arteries, which has forced buyers to rethink their energy security strategies, could accelerate that shift.<\/p>\n
With Asia accounting for over a third of global oil consumption and more than half of global imports, any move toward bilateral, state-driven trading relationships in this region would\u00a0push the market toward a\u00a0much more\u00a0fragmented\u00a0global energy trading system.<\/p>\n
To be sure, the Middle East supply disruption has also reinforced the U.S. as the world\u2019s\u00a0premier oil\u00a0and gas producer, and\u00a0Washington is\u00a0likely to remain dominant in the global economy for decades to come.\u00a0No\u00a0single currency is expected to take the dollar\u2019s place.<\/p>\n
But the fallout from the Iran war could nevertheless lead to the fragmentation of oil pricing, reducing transparency and weakening Washington\u2019s grip over the financial architecture that has underpinned the global oil trade for decades.<\/p>\n
(The opinions expressed here are those of<\/p>\n
, a columnist for Reuters.)<\/p>\n
(Ron BoussoEditing by Marguerita Choy)<\/p>\n