Conditions for yuan-payment in Hormuz.

In today’s global framework, the US dollar is not just a currency but acts as a power resource. In recent years, the close economic-political alignment of China and Iran has posed a direct challenge to this power resource, especially in the oil trade and petro-finance sector. Recent reports suggest that Iran may impose a condition to use the Chinese yuan instead of the US dollar for oil transportation around the Strait of Hormuz. This seemingly small step could actually become a completely new potential risk for the dollar-based global economy.

The meaning of Hormuz and this condition.

The Strait of Hormuz is a vital part of the world's oil routes; millions of barrels of oil pass through this narrow waterway daily. Iran maintains military and strategic control over this area. Amid ongoing tensions with America, Iran seeks to use this control as an economic tool. The current assumption is that Iran may attach a new condition to certain oil tankers passing through Hormuz with 'You will only be allowed to pass if your oil deal is paid in yuan.' The main message is that oil trade will now be based not only on price and commodity but also on currency power.

How does the China-Iran yuan-based oil route work?

Iran and China have already been working on dollar-free oil trade. The basic form of this system is as follows: China buys oil from Iran, but the price is determined not in US dollars, but in Chinese currency, the yuan. Payment is settled not as a simple bank transaction, but through a settlement-exchange loop between Chinese and Iranian banks. In this system, dollars or the SWIFT network are hardly visible. This way, the entire oil-finance system operates as a 'dollar-free zone.' Now, if this same model connects with oil transactions near the Strait of Hormuz, a 'oil route' emerges where the need for dollars is reduced, and the main medium of payment is the yuan. What is the main purpose of this condition? To bypass American sanctions and the power of the dollar network.

America imposes its sanctions globally through systems like the dollar and SWIFT. Yuan-based oil trade could become a way to escape this network. Continuous pressure on the 'petro-dollar' system.

Most of the world's oil deals are settled in dollars, keeping the demand for dollars high globally. If the Hormuz-centered oil flow operates in yuan, the dollar's oil-related demand may start to decline, and the position of the petro-dollar may gradually weaken. Strengthening the yuan as a global reserve currency.

If deals for essential commodities like oil begin to occur in yuan, many countries could adopt the yuan as a currency reserve. The clear objective is to challenge the monopoly of the US dollar.

What impact could this have on the American bond market?

U.S. Treasury bonds (American government bonds) are considered the largest and safest reserve assets in the world. If the global demand for dollars decreases, the following effects on this bond market are possible: lower demand and higher yields.

So, the future scenarios could look like this: 1. More 'dollar-free' oil routes could emerge against the dollar if the yuan-payment method succeeds on the Strait of Hormuz; then other countries (Russia, Venezuela, some Asian countries) may also follow suit. This would increasingly encircle the 'oil-dollar' system and reduce participation in the dollar-based oil market. 2. Pressure on the American bond market may increase if countries require less domestic and foreign dollars, leading to a possibility of selling many U.S. Treasury bonds. This would lower bond prices and increase yields, which could raise interest on American loans, EMI, credit card rates, corporate loans, etc. 3. Some countries may move towards a 'currency pool' where countries like India, Russia, China, and some Asian nations consider creating a 'currency pool' (a balance-based system among currencies like rupee, yuan, ruble, etc.) for trade. This could gradually reduce the need for dollars, thereby weakening America's economic and political lobbying power. 4. Impact on India and the Indian economy: If oil prices remain high (due to a drop in dollar value), India's import bill will increase, leading to pressure on the rupee. Thus, the RBI may raise interest rates, making home loans, car loans, and business loans more expensive. On the other hand, if India increases trade on non-dollar routes like rupee-yuan-euro, the long-term dollar dependency could reduce. In summary: The China-Iran-yuan-oil alignment is a 'small foundation' that could lead to gradually increasing pressure on the American dollar and its associated bond market, creating a new global economic structure.