TOKYO – Say what you will about the Iranian regime, it is a master troller in ways that US President Donald Trump surely did not foresee.
Nowhere is this more apparent—or potentially impactful—than in Iran’s reported plan to demonstrate this yuan requiring all tankers transiting the Strait of Hormuz to settle transactions in Chinese currency. It’s enough to ruin Trump’s week — and that’s saying a lot considering the many ways the US-Israeli attack on Iran has gone sideways.
Another example: Iran calling it Trump’s bluff in the supposed ceasefire talks. On Monday, Trump delighted markets by declaring he was delaying his 48-hour ultimatum to attack Iran’s energy infrastructure amid “productive” negotiations to end hostilities. Tehran’s response, in essence, was: “Uhhh, what talks?”
But the yuan’s wrinkles could put Trump World in a bind. Assuming Iran would even consider allowing US-bound tankers through the Strait, the demand for payment in yuan would be a significant diplomatic concession. Among the reasons Trump was re-elected was a promise to bring down China, hence his tariff-driven trade war.
However, inadvertently, Trump is making the idea of a “petro-yuan” big again.
Kashif Hasan Khan, an economist at Cambodia’s Paragon International University, notes that reports that Tehran may condition the tanker’s switch to yuan-denominated oil trade should be read less as a technical payoff proposition than as a geopolitical signal. As he writes in an Asia Times op-ed“It would represent a deliberate attempt to merge military geography with monetary strategy.”
Khan argues that Iran has at least three incentives to seek the yuan. One, avoiding sanctions. Second, make China strong to stay in Xi Jinping’s good graces. Three, challenging the petrodollar order.
Of course, the dollar will not collapse overnight, nor is the yuan ready to take on the full burden of a global reserve currency. Ten years after Xi took the internationalization of the yuan seriously, China’s currency accounts for just 2% of foreign exchange reserves, compared with 57% for the dollar and approximately 20% for the euro.
For all of China’s ambitions to replace the dollar, Team Xi has yet to waive capital controls or allow the People’s Bank of China to make its own rate decisions. Even as the US debt swells to $40 trillion, the chaos in the Middle East has many investors choosing to hold dollars instead of gold.
The Economist puts it well this week when she EVIDENCE that “the conflict ravaging the Middle East can best be understood as two parallel wars. One is the campaign of US and Israeli airstrikes against the Iranian regime; the other is Iran’s war against the global economy.”
If Trump fails to address it simultaneously and successfully, says Frederick Kempe, CEO of the Atlantic Council, “he risks turning what has so far been a tactical military success into a strategic failure with long-term consequences for international stability.”
The first war is that of missiles, drones and Israeli targeting of Iranian leaders, now entering its fourth week. “This brings us to the second conflict unfolding in shipping lanes, in energy markets and among political leaders,” Kempe notes.
“In its war against the global economy, Iran holds a dangerous lever. Tehran’s moves to stop shipping in the Strait of Hormuz, a narrow artery in the circulation system of the global energy economy, have caused shockwaves in the global system,” he adds.
In the decade that Xi has been trying to grow the yuan’s global footprint, something has always been missing — until now. Turns out, that thing was Trump.
The 14 months since Trump returned to the White House have been increasingly unhappy — from the kidnapping of Venezuelan President Nicolas Maduro to the assassination of Iran’s supreme leader. Ayatollah Ali Khameneiand his inner circle. The resulting rise in oil prices, with Brent crude now around $100 a barrel, has upended the global financial system.
All of this has Xi sensing an opportunity that seemed almost unimaginable in January 2025 when Trump 2.0 began. Xi could not have imagined the extent to which the Trump administration is effectively hitting US credibility in both feet – and is still pulling the trigger.
With the national debt exploding and Congress mired in gridlock, and Trump simultaneously waging trade and military wars, it’s hard to think of a more obvious case study in economic brand destruction.
What Trump is doing is arguably worse than, say, Brexit. In that case, isolationist lawmakers were largely undermining the UK’s economic prospects. Trump, by sharp comparison, is dragging down the entire global economy along with the US.
Count the ways in which the charges turned out to be opposite. After all that loss of international goodwill and domestic pain, China still posted a record $1.2 trillion trade surplus in 2025. Meanwhile, American manufacturing is shedding jobs, not adding them, while the White House is bailing out farmers who can’t sell their crops abroad.
A Group of Seven nation openly flirting with rogue state behavior is unprecedented. So is watching an economy casually burn off the “excessive privilege” that still allows the US to issue 10-year debt at 4.1% yields.
Even with Washington’s missteps, however, toppling the “Dollar King,” as many economists call it, will require significant effort on Xi’s part. He will need to move decisively to ease capital controls, make the yuan fully convertible, build transparent and reliable global payment systems, strengthen institutional credibility and give the PBOC real independence.
Ironically, the glacial pace of reform since the beginning of the Xi era in 2013 is the dollar’s best hope – for now. All that time, Xi’s party has known exactly what reforms are needed to raise the yuan’s global standing. But progress has been slow, and China has yet to prioritize the supply-side changes required to build deeper international confidence in its financial system.
China’s underlying financial system is not advanced either. A multi-year property crisis is fueling deflation. It is also weakening the family’s trust. Encouraging households to save less and spend more of it 22 trillion dollars austerity is the key to ending deflation. However, with 70% of family assets in real estate, it is also vital to stabilize housing prices.
The slower Team Xi moves to fix these and other cracks in the financial system that underpins Asia’s largest economy, the more they will limit Xi’s ambitions to transform China into a technology and innovation leader.
However, the ways in which Trump is effectively sabotaging American institutions present an opportunity for Xi’s Communist Party. This year may be remembered as a turning point for the yuan vs. dollar debate.
Iran “allowing a limited number of oil tankers to transit the Strait of Hormuz on the condition that their cargoes are traded in Chinese yuan represents one of the most important and symbolic financial proposals in the post-Bretton Woods era,” economist Antonio Bhardwaj argues in a op-ed at the Foreign Affairs Forum.
“This,” adds Bhardwaj, “is not simply a tactical maneuver by a state besieged by sanctions seeking leverage over its adversaries. It is the latest — and perhaps most operationally important — manifestation of a structural reorganization that has been gaining momentum for more than a decade: the systematic erosion of the etrodollar system, as well as the enhanced petrodollar system and embedded alternative framework for settling global energy transactions.”
Now, says PBOC Deputy Governor Zhu Hexin, the yuan is used to settle 30% of China’s $6.2 trillion in global goods trade. After all cross-border payments, incl foreign investments and bond purchases, included, the yuan’s share rises to 53%.
The yuan now outperforms dollar-based transactions in China. This helps explain why Team Xi is working behind the scenes to build a larger, multi-layered yuan infrastructure in preparation for a dollar reckoning that Trump appears to welcome.
US Treasury Secretary Scott Bessent claims the dollar’s best days are ahead. However, Bessent seems to spend all of his time cleaning up, softening and debunking Trump’s increasingly vulnerable rhetoric and actions. When Trump says he wants to fire Federal Reserve Chairman Jerome Powell, it falls to Bessent to pretend that won’t happen — and feign surprise that anyone would dare to ask.
When Trump talks about depreciating dollar, it has become Bessent’s duty to counsel calm. The same goes for Trump’s itchy tariff finger, as he’s pointed it at Europe, South Korea and every other country Trump World deems obnoxious enough.
It is clear that Bessent is in “denial”, warns Desmond Lachman, a former deputy director of the International Monetary Fund. “As Secretary of the Treasury, Bessent is supporting a great deal irresponsible budget and foreign policy, which is setting the United States on a path to economic ruin.”
While Team Trump is reducing American influence, China is positioning itself as a “harbour of stability” in an extremely chaotic year at this year’s China Development Forum.
In Beijing on Sunday, Premier Li Qiang told more than 70 chief executives that “we take the concerns of our trading partners seriously and are ready to work with all parties to promote the sound and balanced development of trade. We will also further expand market access for the services sector and increase imports of medical and healthcare products, digital technologies and low-carbon services to provide more business opportunities for foreign companies.”
These executives include Tim Cook of Apple, Sergio Ermotti of UBS and Georges Elhedery of HSBC. Li’s pitch was that it would be a “cornerstone of securityamid growing trade protectionism and upheaval in the rules-based international order, which must have raised eyebrows in Washington.
“China,” Li said, “will unswervingly promote high-level opening to the outside world, import more high-quality foreign goods, and work with all parties to promote the optimized and balanced development of trade, jointly expanding the global economic and trade pie.”
Compared to previous China Development Forums, notes Han Lin, China director at The Asia Group, “Beijing’s message was the most confident.” He added that Li’s comments about “what China was doing well to encourage innovation, trade and other opportunities to cooperate” contrasted sharply with US policies in 2026.
Not surprisingly, China sees this as a moment to double down on the internationalization of the yuan – and with a timely boost from Iran and its blockade of the global oil trade.
Follow William Pesek on X at @WilliamPesek
