By Suresh Unnithan
In the strategic waters of the Strait of Hormuz—through which roughly one-fifth of global oil and liquefied natural gas flows—a calculated shift is accelerating. Amid heightened geopolitical tensions, Iran has instituted a de facto “toll booth” regime, conditioning safe passage for oil tankers on payments or transit fees settled in Chinese yuan. Reports confirm that some vessels have already complied, with fees reportedly around $1 per barrel in certain cases, paid via China’s financial channels. This move not only helps Tehran bypass U.S. sanctions but also aligns with broader BRICS efforts to reduce reliance on the U.S. dollar in international trade, particularly in energy markets.
Iran’s pivot builds directly on years of BRICS coordination. The expanded bloc—now including original members Brazil, Russia, India, China, and South Africa, plus newer additions like Iran, Saudi Arabia, the UAE, Egypt, Ethiopia, and Indonesia—has prioritized local-currency settlements. Intra-BRICS trade exceeded $1 trillion in 2025, with over 67% conducted in national currencies. Russia and China settle nearly 90% of bilateral trade in rubles and yuan, while India has explored yuan and dirham routes for Russian and Iranian oil. China’s Cross-Border Interbank Payment System (CIPS) and oil futures on the Shanghai exchange have provided the infrastructure, turning bilateral deals into a structural trend.
The Role of BRICS Infrastructure in De-Dollarization
BRICS de-dollarization is not merely rhetorical; it is gaining operational depth. The mBridge project—a multi-central bank digital currency (CBDC) platform involving China, Hong Kong, Thailand, the UAE, and Saudi Arabia—has scaled rapidly. By late 2025, it had processed thousands of transactions worth over $55 billion, enabling instant, dollar-free cross-border settlements. Discussions within BRICS also include concepts like a potential “Unit” for trade settlement, possibly backed by a basket of local currencies and gold (around 40% gold in some proposals), aimed at facilitating intra-bloc commerce without dollar intermediation.
These initiatives gained urgency from U.S. sanctions on Russia and Iran, which incentivized alternative payment rails. Sanctioned producers turned to yuan for oil exports to China, their largest buyer. Iran’s Hormuz strategy amplifies this: by linking passage to yuan settlements, it creates real-time incentives for traders to adopt non-dollar mechanisms, especially for shipments destined for Asian markets. This complements BRICS summits’ focus on local-currency trade finance, reducing exposure to SWIFT and U.S. financial leverage.
Erosion of the Petrodollar System
The petrodollar system, forged in the 1970s, tied global oil pricing and settlement to the U.S. dollar in exchange for American security guarantees to Gulf producers. This generated perpetual dollar demand: importers accumulated dollars for oil purchases, while exporters recycled surpluses into U.S. Treasuries. It underpinned the dollar’s reserve currency status (still dominating global reserves) and allowed the U.S. to finance deficits affordably while wielding sanctions as a tool.
Iran’s yuan-enforced tolls, combined with BRICS momentum, introduce visible cracks. China benefits from discounted energy and yuan promotion, while BRICS members like Russia, Iran, and increasingly Saudi Arabia explore diversification. Gulf states, now partly within the BRICS orbit, balance traditional U.S. ties with hedging via yuan options and mBridge participation. Though the petroyuan remains a small fraction of global oil trade (estimated under 5-10% in direct yuan settlements), its growth in sanctioned or Asia-bound flows signals a multipolar shift. Short-term, geopolitical risks can strengthen the dollar as a safe haven, but persistent trends point to fragmentation.
Economic and Geopolitical Implications
In the short term, the shift raises transaction frictions and energy price volatility but remains contained. Higher costs in dollar-based corridors contrast with smoother yuan or local-currency routes within BRICS networks. Long-term, reduced global dollar demand could elevate U.S. borrowing costs, pressure the “exorbitant privilege” of deficit financing, and diminish sanctions effectiveness—as seen in resilient Russia-Iran-China trade.
For the global economy, this fosters a more fragmented system: parallel payment infrastructures may enhance resilience for participants but increase overall inefficiencies, hedging needs, and costs. Gold reserves have risen among BRICS central banks as a neutral alternative, further diversifying away from dollar assets.
However, the yuan faces structural limits. China’s capital controls restrict full convertibility, limiting its appeal as a universal reserve currency. The dollar retains unmatched advantages in liquidity, depth of markets, rule of law, and institutional trust. BRICS efforts emphasize practical trade settlements over outright replacement, reflecting internal divergences—India favors gradualism, while China drives faster internationalization.
A Gradual Transition Toward Multipolarity
Iran’s petroyuan acceleration, embedded in wider BRICS de-dollarization, represents a significant but incremental challenge to U.S. financial dominance. It weakens the petrodollar’s monopoly in energy markets and highlights how sanctions can spur innovation in alternatives. The bloc’s expanded membership brings key energy producers into the fold, amplifying potential for local-currency oil deals.
U.S. dominance endures due to entrenched network effects and the dollar’s safe-haven status during crises. Yet sustained BRICS progress—through mBridge scaling, higher local-currency trade shares, and potential gold-backed units—could erode centrality over time. The U.S. response may involve strengthening alliances, fiscal prudence, and adapting to a world of contested reserve roles.
Ultimately, this evolution points to a multipolar global economy: less vulnerable to single-currency disruptions but more complex. Energy trade, once a cornerstone of dollar power, is becoming a contested domain where BRICS coordination tests long-standing hegemonies. The outcome will unfold gradually, shaped by geopolitical stability, economic pragmatism, and the willingness of major players to embrace diversified systems.