The closure of the Strait of Hormuz, prompted by US President Donald Trump's ultimatum demanding Iran reopen it, has fueled fears of a total blockage on oil transit. However, the passage of some vessels and the use of an alternative currency in transactions could potentially undermine the mighty US dollar. This is because amid the escalation of military conflict in the Middle East, one term has re-entered the global financial radar: petroyuan. Although not a new invention or a last-minute occurrence, the pressure from Iran on ship passage and China's role as a major oil buyer have revived the use of this currency, and thus the challenge to the dominant currency. While there are no immediate signs that the dollar can be displaced, the situation in Hormuz shows that the Chinese yuan is not just a strategic aspiration of Beijing for the energy market, but a tool that some actors are using in a real crisis. What are petroyuan? The term 'petroyuan' is used to describe the buying and selling of oil in yuan, instead of dollars. The concept took institutional form in China with the launch in March 2018 of crude oil futures denominated in renminbi on the Shanghai International Energy Exchange, a market that Beijing opened even to foreign participants. For years, the petroyuan was seen more as a political signal than a serious threat to the petrodollar, but the war has changed the tone. South China Morning Post reported that a debate has emerged in China based on reports suggesting Iran might allow oil tankers to pass through Hormuz if trade is conducted in yuan, an idea that would have been met with caution even by Chinese analysts precisely because it mixes commerce, sanctions, and military security into a single equation. Hormuz, a bottleneck The Strait of Hormuz is not just any route; about a fifth of global oil and gas flows pass through this chokepoint, and when this passage is blocked or paralyzed, it affects prices, marine insurance, energy supply, and global financial nerves. International agencies report that the war has kept transit through Hormuz practically paralyzed or severely restricted at various points this month. This is where the petroyuan stops sounding like academic theory and starts to seem like a lever of economic warfare. AP reported that despite the conflict, about 90 ships, including 16 oil tankers, crossed Hormuz between March 1 and 15, and that Iran continues to export millions of barrels, mostly to China. The same report adds that some transit was conducted in the shadows, with maneuvers to evade Western sanctions, while India and Pakistan maintain diplomatic contacts with Tehran to secure passage. How would petroyuan work? If this strategy consolidates, the mechanism would be relatively straightforward: oil is sold in yuan; payment is processed through China's financial infrastructure; and trade largely avoids exposure to the dollar-dominated system and Washington's sanctions. The structural piece of that model has existed for years: China already has crude oil contracts in RMB in Shanghai, designed precisely to provide a petroleum benchmark outside the traditional dollar circuit. The main attraction for sanctioned countries or those in conflict with the US is that selling oil without depending on the dollar reduces financial vulnerabilities, and for China, the incentive is also to convert the yuan into a more used currency in energy, reinforcing its global weight at a time of geopolitical fragmentation. The IMF reported in 2025 that the dollar remains the dominant currency in world trade, but it also noted that the use of the renminbi has grown steadily, albeit still on a modest scale. Countries and governments in the game The clearest protagonists are Iran and China. The former because it controls the geographical and political factor around Hormuz, while China is the world's largest oil buyer and the most logical partner to accept payments in yuan. According to Reuters reports, China has held talks with Iran to ensure passage for its oil tankers and related energy shipments. Additionally, AP noted that India and Pakistan have established diplomatic activity with Tehran linked to maritime transit, while Bloomberg confirmed that some of the traffic that does manage to move through Hormuz has Iranian or Chinese links. However, this does not mean all these countries are formally embracing the petroyuan, but it does show that emergency energy trade in the region is being reorganized around actors less aligned with Washington. There is also a technical signal that the deliverable crudes in the Shanghai oil contract include references from the United Arab Emirates, Oman, Qatar, Yemen, Iraq, and China, revealing that the design of the Chinese market was indeed intended from the start to connect with key Gulf producers and its periphery. So, is the dollar in danger? The reality is no, the dollar is still far from falling from the throne. In fact, the IMF maintains that its dominance in global trade invoicing remains 'broadly stable,' while the renminbi grows but still occupies a modest share. The BIS, for its part, points out that the yuan has strengthened as an 'emerging' currency and already represents a significant portion of the foreign exchange market, but this does not equate to replacing the dollar as the axis of the system. Brookings has also warned for years that petroyuan face very concrete obstacles, such as China's capital controls, lower convertibility, exchange rate risks, and producers' reluctance to leave the dollar ecosystem. That is, the petroyuan can grow as a political and commercial tool in sensitive niches, but it does not yet have the muscle to retire the greenback.
