Source: Fortune
Summary
Deutsche Bank analysts warn that the US-Iran conflict could lead to a decline in the US dollar’s dominance in global trade and reserves, potentially paving the way for China’s currency, the yuan, to gain prominence. The “petrodollar” regime, which has been in place since 1974, relies on Saudi Arabia pricing its oil in dollars and investing surpluses in US assets. However, the conflict could expose fault lines in the US security umbrella for Gulf infrastructure and maritime security for global trade in oil.
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Deutsche Bank notes that the petrodollar regime has come under pressure due to US sanctions on oil from Russia and Iran, which has created an illicit trade relying on other currencies like the yuan. Saudi Arabia has also joined China’s central bank digital currency initiative, mBridge project, which takes on the dollar-payment infrastructure.
The conflict may challenge the US security umbrella for Gulf infrastructure and maritime security for global trade in oil, potentially leading to a shift away from the dollar. Deutsche Bank warns that damage to Gulf economies could encourage an unwind in their foreign asset savings, which could lead to a loss of the dollar’s “exorbitant privilege” and ripple through other areas of global finance.
The situation is reframed as: “A world that becomes more self-sufficient in defense and energy could also be a world that holds less USD reserves.”
Author: Evan Null
