The dominance of the U.S. dollar is under renewed scrutiny following the outbreak of war in Iran, which has reignited debate over the potential rise of the 'petroyuan' and the broader theme of de-dollarization. Deutsche Bank's FX managing director, Mallika Sachdeva, argued in a March 24 note that the Iran war could serve as a catalyst for the erosion of petrodollar dominance and the beginnings of the petroyuan, should countries opt to price crude oil in alternative currencies [1].
However, this view was challenged by Franklin Templeton, whose fixed income CIO, Sonal Desai, described the analysis as 'remarkably simplistic.' Desai emphasized that oil exporters have a strong self-interest in being paid in U.S. dollars due to the currency's access to deep, liquid capital markets and robust institutional frameworks, rather than simply because of U.S. geopolitical influence [1].
The U.S. dollar experienced significant volatility in 2025, posting its worst performance in over 50 years after President Donald Trump reversed his 'liberation day' tariffs in April, which undermined confidence in U.S. assets. The dollar index fell nearly 10% through 2025 but rebounded temporarily after the Iran war began on February 28, strengthening against major currencies in tandem with rising oil prices. This rally faded as hopes for peace led to declines in both crude and WTI prices [1].
Despite the dollar's declining share of global reserves—from over 70% in 1999 to just over 50% today—analysts note that while the renminbi and euro have gained ground, the dollar remains the dominant global trade currency. The debate between Deutsche and Franklin Templeton highlights the spectrum of opinion: some see the dollar in structural decline, while others argue there is currently no viable alternative [1].
CONCLUSION
The Iran war has sparked renewed debate over the future of the U.S. dollar's dominance, with analysts divided on the likelihood of a shift toward alternative reserve currencies like the 'petroyuan.' While the dollar's share of global reserves has declined, it remains the preferred currency for global trade due to its liquidity and institutional strength. Market participants remain cautious, with no consensus on an imminent end to dollar hegemony.