The war between the United States and Iran continues to evolve, bringing new perspectives and changes to this ongoing conflict. In another developing story, a CNN report said Iran may be considering allowing oil tankers to transit only if payments are made in Chinese yuan, to undermine the petrodollar mechanism.
Iranian renminbi settlement fantasy
According to the latest CNN report, a top Iranian official told the media that Iran may consider sailing limited oil tankers if payments are made in Chinese yuan rather than US dollars. Iran currently has control of the Strait of Hormuz and is considering various options to allow ships and cargo to pass through the narrow passage. There is speculation that Iran may demand Chinese yuan rather than dollars for certain oil deals.
This development has prompted Chinese analysts to consider downside factors and urge caution in the process.
“From a technical and institutional point of view, this agreement is very difficult to enforce, especially when it comes to confirming whether transactions are indeed settled in renminbi,” said Gong Zhiong, a professor of economics at Beijing’s University of Foreign Business and Economics.
Another leading analyst told SCMP how this particular action could trigger a political dynamic, and countries that choose to pay in renminbi may have to suffer the wrath of the US and Israel.
“While this would certainly support renminbi-denominated payments, it is unlikely to be sustainable. Most of the world’s oil trade is not priced in renminbi. Any country or company that submits to Iran’s Strait crossing demands would be participating in a politicized action, and the United States and Israel are likely to respond with politically motivated countermeasures.”
Hormuz is open to all countries except the United States and Israel
The latest post by the Kovisi letter weighs in on Iran’s foreign minister’s statement that the country’s oil tankers will be allowed to pass through Hormuz, with the exception of Israeli and US tankers. This will change the narrative, with China and India in particular restoring 7 million barrels of oil supply per day.
“There are widespread reports that Iran is allowing ‘all countries except the United States and Israel’ to pass through the Strait of Hormuz. If true, this would mean China and India alone could restore nearly 7 million barrels of oil supply per day. In other words, ~39% of the 18 million barrels per day of supply that is currently offline will be returned to the market with the closure of the Strait of Hormuz. If confirmed, this would be big news.”
