Deutsche Bank said the Iran conflict could test the petrodollar system and the US Dollar’s role as the world’s reserve currency. It said changes in Middle East oil trade, sanctions, and alternative payment systems could reduce Dollar use in trade and savings over time. The bank said pressure on the petrodollar system existed before the conflict, as most Middle East oil is now sold to Asia rather than the US. It said oil from Russia and Iran has been traded outside Dollar channels due to sanctions, and that Saudi Arabia has localised defence and trialled non-dollar payment systems such as Project mBridge.

Risks To The Petrodollar Structure

It said the conflict may strain US-backed protection for Gulf infrastructure and maritime routes used for oil shipments. It added that damage to Gulf economies could lead to a sell-down of foreign asset savings. The bank noted reports that ships passing through the Strait of Hormuz may be allowed through in exchange for oil payments in yuan. It said this could support a shift from petrodollar use towards use of the yuan in oil trade. The article said it was created with an Artificial Intelligence tool and reviewed by an editor. The long-term legacy of the Iran conflict is testing the foundations of the petrodollar regime. We are watching for downstream effects on the dollar’s use in global trade and savings. This situation has the potential to fundamentally alter the dollar’s role as the world’s primary reserve currency.

Portfolio Positioning And Market Hedges

These pressures were building even before the recent escalations we saw throughout 2025. Data released for the first quarter of 2026 shows that non-dollar oil trades, primarily in yuan, now account for over 20% of global volume, a sharp increase from just 12% at the start of last year. This trend is accelerating as most Middle East oil now flows to Asia, not the US. For the coming weeks, we should consider positioning for higher currency volatility, specifically in the USD/CNY pair. Buying long-dated put options on the dollar against a basket of Asian currencies could serve as an effective hedge against this structural shift. The VIX currency index for the yuan has already climbed 5% this month, indicating the market is starting to price in these risks. The direct challenge to maritime security in the Strait of Hormuz remains a critical factor for oil prices. We should look at buying out-of-the-money call options on Brent crude futures to protect against sudden supply shocks. This strategy is prudent given the 10% price spike we witnessed during the shipping interruptions in the final quarter of 2025. A world that is becoming more self-sufficient in defense and energy will likely hold fewer USD reserves. Recent reports from February 2026 show several central banks have continued to increase their gold holdings at the expense of U.S. Treasuries for the sixth consecutive month. This suggests we should anticipate greater volatility in US interest rates, making options on Treasury futures an attractive play. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account