The US-Israel war against Iran has acted not merely as a diversion but as a brutal accelerator of history, fundamentally fracturing the security architecture of the Middle East and hastening the very realignment it sought to prevent.
In the devastating wake of the war – marked by the paralysis of the Strait of Hormuz, oil prices soaring above US$110 a barrel and Iranian retaliation that cuts deep into the Gulf territories – the long-term bargain that defined the region has failed.
The premise that the US would guarantee the security of the Gulf in exchange for the petrodollar has been exposed as a mirage, as US assets were directly attacked and its protective umbrella proved unable to prevent an existential economic blow to its allies.
Consequently, the prospect of China becoming the main economic and political partner of the Gulf states – the United Arab Emirates being the only exception – has shifted from a distant possibility to a near-term imperative, with the petroyuan emerging as a viable successor to the petrodollar and Iran and Russia playing key roles, albeit in this new reverse order.
The war has fundamentally reset threat perceptions across the Gulf, shattering the previous logic of strategic defense between Washington and Beijing. For decades, the Gulf states assumed that as they traded to the east, their security ultimately rested in the US fleet. The conflict of 2026 has destroyed this assumption.
The closure of the Strait of Hormuz, through which one-fifth of global oil passes, and Iranian attacks on ports, energy terminals and even commercial landmarks in the United Arab Emirates – including the Burj Al Arab hotel – showed that the US was either unwilling or unable to prevent retaliatory destruction of the Gulf’s economic crown jewels.
With 13 US bases in the region rendered vulnerable or nearly uninhabitable at the height of the fighting, the security guarantee proved a strategic liability rather than an asset. This has created a power vacuum that the Gulf states are desperate to fill, not necessarily with a new security umbrella, but with a diverse set of partnerships that guarantee de-escalation.
China, which avoided military entanglements by keeping channels open to Tehran, has emerged as the indispensable diplomatic broker. Beijing’s constant call for dialogue and its refusal to endorse unilateral Western drafts in the UN Security Council, preferring instead to co-sponsor resolutions with Russia, positions it as the only major power trusted by both sides to manage the post-war transition.
Within this shattered landscape, the economic transition from the petrodollar to the petroyuan is no longer a theoretical, gradual change, but an immediate, conflict-driven necessity. The war has become the catalyst that Deutsche Bank warned of, forcing a break in the global oil price system along geopolitical corridors.
During hostilities, Iran began making the safe passage of oil tankers through the Strait of Hormuz conditional on payments made in Chinese yuan, effectively weaponizing the currency to break the dollar’s monopoly.
This tactical move has structural implications for oil trading. With Saudi Arabia now selling four times as much oil to China as it does to the US, the logic of settling these massive transactions in dollars is increasingly tenuous.
Physical damage to the Gulf’s infrastructure – including Qatar’s Ras Laffan LNG facility and Saudi Arabia’s Ras Tanura refinery – has necessitated a massive influx of reconstruction funds, capital that China is poised to provide through one-generation and one-way financing denominated in yuan.
In addition, the fight has accelerated the operationalization of alternatives such as mBridge, a blockchain-based platform that connects the central banks of China and the United Arab Emirates, enabling direct non-dollar settlements.
With the US having demonstrated its willingness to weaponize the SWIFT transfer system and the dollar, the Gulf states are now actively pursuing a “multipolar financial system” as an insurance policy.
The petrodollar is not dead yet, but its dominance is mortally wounded; The petroyuan, which already accounts for a significant portion of sanctioned oil flows, is poised to become the main currency for Asia’s energy trade corridor.
In this reshaped environment, Iran and Russia play antagonistic and essential roles. For Iran, devastated by war and the loss of its Supreme Leader, survival depends on cementing its relationship with China.
Tehran sees the post-war “Neighborhood Policy” in the Persian Gulf through a distinctly Chinese lens: it is not friendship, but a managed detente necessary to prevent a unified US-backed Arab-Israeli air defense system.
While Iran has aggressively attacked targets in the United Arab Emirates and Qatar, it has shown restraint toward Saudi Arabia and Oman, acknowledging that Beijing needs overall regional stability. Iran’s proposal for joint maritime patrols in the Strait of Hormuz – potentially including tolls paid in yuan – represents a compromise brokered by China to reopen the waterway without handing over full control to the US Navy.
Meanwhile, Russia acts as a co-architect of the axis of resistance and a military disruptor. Unlike China, Russia has shared intelligence and military technology with Iran during the conflict to bleed US resources, seeing Tehran as a “partner in opposition” in a broader fight against Western unipolarity.
However, Russia lacks the financial capacity to rebuild the Gulf. Instead, Moscow plays a negative role: using veto power at the UN alongside China to block resolutions unfavorable to Tehran, while selling advanced weaponry to Gulf states as an alternative to US systems.
The Gulf will look to China for economic security, but can rely on Russia for a counter-hegemonic political voice and arms diversification.
In conclusion, the fallout from the US-Israeli war on Iran has accelerated the collapse of the old US-led order and paved the way for a China-centric economic system in the Persian Gulf.
China is becoming a key partner not by outright military occupation, but by filling the void left by perceived American failure: providing the diplomatic platforms, reconstruction capital, and non-dollar financial infrastructure that the Gulf desperately needs to recover.
In parallel, the petroyuan is rising on the Hormuz wave, not as a speculative asset, but as a functional demand for energy trade in a conflict zone. Iran survives as a battered but defiant junior partner of Beijing, essential to the management of the strait, while Russia acts as the divisive guarantor of multipolarity.
The war did not create this realignment, but it burned away the remaining credibility of the old system, forcing the Gulf states to bet their economic future on China as the only power capable of managing the new, more unstable regional order.
Bob Savic advises on sanctions, supply chains and geopolitical risk and is co-author of the new book Multipolarity and the Changing Global Order published by Springer.
