US-Iran War Impact: Shift from Dollar in Global Energy Trade
The Iran war has led to a strengthening of the dollar initially, but significant mid-term risks are emerging for the U.S. as China and India increasingly transact in yuan and rupees for oil and LNG purchases. China is now the largest buyer of Iranian oil, with approximately 80% of transactions conducted outside the U.S. banking system.
The closure of the Strait of Hormuz has halted a fifth of global oil and LNG shipments. As a result, the era of trading oil for U.S. Treasury bonds is diminishing, with foreign holdings dropping to below $700 billion.
Rising inflation and new defense spending plans are expected to increase U.S. borrowing costs, with the yield on 10-year Treasury bonds rising to 4.22%. Simultaneously, the BRICS nations are likely to advance a decentralized payment protocol, further challenging the dollar's dominance.
