Renminbi: Limited Petroyuan prospects in energy trade – Commerzbank

Commerzbank’s Head of FX and Commodity Research Thu Lan Nguyen examines Iran’s proposal to charge Strait of Hormuz tolls in Renminbi and finds it unlikely to trigger a major Petroyuan shift. The analysis highlights legal uncertainties, the shrinking role of Oil and Gulf trade in global flows, and stresses that any Renminbi-based diversification is more politically than economically motivated at this stage.

Iran toll plan offers modest CNY tailwind

"Iran has introduced plans to reopen the Strait of Hormuz, albeit with one important condition: A fee of up to USD 2 million per ship passing through the strait would need to be paid. Even more significant: the fee is to be paid in Chinese Renminbi (or in cryptocurrency, though this is likely of little relevance)."

"For those who predict the decline of the US dollar, the latest developments in the Iran conflict are welcome news: they see this as a signal of the end of the so-called Petrodollar and interpret it as another blow to the dollar’s dominance in the global currency system. After all, around one-fifth of the world’s oil and LNG supply passes through the Strait of Hormuz, supply that could potentially no longer be settled in dollars due to Iranian pressure. Additionally, since the majority of these energy shipments are routed to Asia, there may be anyway an incentive to settle the trade more extensively in CNY."

"One factor is the observation recently made by my colleague Volkmar, who correctly noted that the trade of oil - and specifically the Gulf region’s share in global trade - has been declining in importance. By 2024, oil, oil products, and natural gas together accounted for around 10% of global goods trade (based on Comtrade data). Less than a fifth of this would be directly impacted by the Iranian government’s plans."

"It is also essential to understand why dollar dominance has declined, particularly in recent years. A notable trend in central bank reserves is a move away from the US currency, particularly toward so-called "non-traditional" currencies. Gopinath et al., 2022 confirm the most apparent reason: they show that this shift is driven by geopolitical developments."

"Since the outbreak of the Ukraine war, countries that maintain less close ties to the West have been conducting less trade in USD and EUR. Instead, payments are increasingly settled in Renminbi, domestic currencies, or other alternatives."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)