Iran and China challenge US dollars dominance in Middle East trade

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Iran and China have announced plans to boost the status of the Chinese yuan as an alternative to the US dollar. The move comes amid ongoing tensions between the United States and Iran, which has led to a pause in diplomatic talks for two weeks.

According to reports, Iranian officials have implemented a system where commercial vessels are charged transit fees in yuan, rather than the US dollar. This is part of China’s efforts to promote the use of its currency in international trade.

A 2023 estimate by JP Morgan Chase found that about 80% of global oil transactions are settled in dollars. However, Iran and China have identified a potential opportunity to challenge this dominance.

China buys over 80% of Iran’s oil exports, receiving discounted rates on purchases widely believed to be facilitated in yuan. In return, Iran imports large quantities of Chinese machinery, electronic equipment, chemicals, and industrial components.

The use of the yuan as an alternative to the dollar is seen as a way for China and Iran to skirt US sanctions imposed via the dollar-dominated financial system. It also simplifies and reduces the cost of trade between the two countries, which have strengthened their economic ties under a 25-year “strategic partnership” signed in 2021.

China’s Ministry of Commerce has acknowledged reports of vessels using yuan to settle payments, while Iran’s embassy in Zimbabwe has stated that it is time to add the “petroyuan” to the global oil market. The move aligns with China’s aim of creating a “multipolar financial world” where the US dollar’s central role is counterbalanced by the growing influence of emerging powers.

As tensions between the United States and Iran continue, both countries are exploring ways to reduce their reliance on the dollar. However, it remains unclear how widespread the use of yuan in international trade will become.

Source: Al Jazeera