Abstract
De-dollarization is a non-linear historical process characterized by the decline of dollar’s relative weight. It signifies not a replacement of the dollar by a single alternative currency, but a broader tendency toward the end of global monetary hegemony altogether. The pace and extent of de-dollarization vary significantly across different economic spheres and geographic regions. This analysis emphasizes the critical importance of adopting regional and sectoral perspectives to understand the real-world dynamics of de-dollarization while examining oil trade between China and West Asia. Although the 2018 launch of the petroyuan contract marked a major turning point in oil international invoicing practices, mainstream views often emphasize China’s restricted capital account as the primary barrier to broader use of the yuan in oil trading. In contrast, existing economic relations between China and Gulf oil producers already enable greater use of the renminbi without requiring further capital account liberalization. The main obstacles to de-dollarization are not financial, but political—stemming from the entrenched geopolitical and security ties between these oil-producing states and the United States. Paradoxically, many of these same countries are actively participating in renminbi internationalization through alternative financial channels, reflecting inherent contradictions in the current pluripolar system.
The petroyuan achieved significant new advances in the Gulf throughout 2025 and early 2026. Momentum for renminbi (RMB) internationalization in the region is now undeniable. This is marked by Saudi Arabia’s first major RMB-settled crude oil deal, First Abu Dhabi Bank’s integration into China’s Cross-border Interbank Payment System, and the forthcoming launch of China’s first RMB-denominated liquefied natural gas (LNG) contract, to be partially supplied by QatarEnergy (CCB and TAB, 2025; Reuters, 2026).
Yet any future qualitative progress of the petroyuan forces the Gulf states to walk a profound geopolitical tightrope. President Trump has directed threats at countries seeking to reduce their reliance on the US dollar. This reaction underscores how critically the United States depends on the global dominance of its currency. This dollar hegemony affords the United States an exorbitant privilege: the ability to continuously finance high levels of imported consumption and sustain its massive trade deficit (Eichengreen et al., 2017). In effect, this unique advantage permits the United States to remain the world’s most deficit-ridden and indebted nation.
The high political stakes of de-dollarization have led to a polarized debate, often split between exaggerated claims and oversimplified dismissals. This article argues that de-dollarization is a historical process marked by the declining global use and the end of US dollar hegemony. This does not mean that the dollar will be replaced by another single currency. Nor does it necessarily entail the rise of a new global monetary hegemon (Aglietta, 2011). An International Monetary Fund (IMF) study reveals that the international monetary system is already tripolar: while the US dollar remains dominant—impacting 40% of global gross domestic product (GDP)—the RMB influences 30% of the system and the Euro 20%—signaling China’s rising economic weight (Tovar and Mohd, 2018).
The term “historical” in the above definition denotes a process that unfolds over time and is non-linear—a general tendency of decline that does not exclude phases of revival and domination. It also signifies that the pace and extent of de-dollarization varies significantly across economic spheres and geographic regions. For instance, the US dollar remains dominant in the speculative activities of financial markets (with a stable 90% share in over-the-counter foreign exchange transactions between 1990 and 2025) (BIS, 2026), while its share as a reserve currency has declined from 71% to around 58% over the past 25 years (IMF, 2026). Furthermore, de-dollarization is not merely a quantitative shift in the relative weight of currencies, but a qualitative process marking a bifurcation of the global political economy. In addition, given the vested interests of transnational social forces within the dollar-Wall Street complex (Gowan, 1999), the pace of de-dollarization is ultimately determined by political struggle. This is amply observable in the Gulf region.
More importantly, to understand currency shifts historically, we must situate the present within longer trajectories that link the past and future of the structural underpinnings of a currency’s international role. First, a currency’s global role depends on the economic size, trade centrality, and strategic sector dominance of its issuing country. Large, trade-integrated economies spur external demand for their currency (Eichengreen et al., 2017). An IMF study shows the declining share of the US dollar in global reserves aligns with America’s shrinking portion of global GDP and trade (Arslanalp et al., 2022). In contrast, China now constitutes nearly 20% of global GDP based on purchasing power parity (PPP)—compared to under 15% for the United States—and produces 29% of global manufacturing output, far exceeding the US share of 17.2% (World Bank, 2026). Since 2014, China has been the largest trading partner for over 120 countries, strengthening the structural basis for renminbi internationalization (Rajah and Albayrak, 2025).
Second, the 2008 financial crisis marked the end of the neoliberal transnational class compromise that—alongside US military power—had secured global dollar acceptance. This arrangement relied on a complementary economic structure: export-led growth in East and Southeast Asia supported debt-driven consumption in the United States. Trade surpluses were recycled into dollar assets, fueling US debt and further consumption. Since the late 1960s, expanding trade, financialization and credit expansions had counteracted falling profit rates. Yet by 2008, these mechanisms reached their limits (Giacché, 2011). Global trade growth slowed dramatically—a trend the IMF calls “slowbalization”—while US debt and monetary expansion through quantitative easing reached unprecedented levels. These developments coincided with a secular stagnation in the United States, that is, a prolonged tendency to slowdown in economic growth since the 1970s. This accumulating pressure even led financier George Soros to warn of an impending “supernova”—a metaphor pointing to the potentially explosive unsustainability of the dollar-centered financial system.
These dynamics have generated centrifugal forces both domestically and internationally. Within the United States, they have fueled the rise of Trumpism and broader populist movements that contest established economic institutions—including the political independence of central banking, a key pillar of the power of the dollarized transnational finance capital (Gowan, 1999). Globally, recurring financial crises rooted in US-centered neoliberalism have eroded trust in dollar-centric governance and spurred the creation of alternative institutions (Grabel, 2018). Furthermore, the intensification of US geopolitical and geoeconomic coercion—such as trade wars and the weaponization of dollar access—has accelerated the emergence of a new constellation of power. Spearheaded by China, this shift is fostering a transition toward a pluripolar international order (Arrighi, 2007).
Based on this historical understanding, this analysis examines the material foundations, extent, and limits of de-dollarization in the oil sector—where non-dollar currencies now account for 20% of global oil trade settlement, up from almost zero (Hirtenstein, 2023)—with a specific focus on the use of RMB between China and oil-producing countries in West Asia.
From petrodollar to petroyuan
Since the 1950s, oil has been the world’s main energy source. To purchase it, countries must hold reserves of the currency used for oil trading. In the 1970s, a US–Saudi agreement made the dollar the only currency for oil sales. This “petrodollar” system also ensured that oil profits were reinvested in US financial and military industries.
However, relying on the dollar exposes countries to the ups and downs of US monetary policy, exchange rate shifts, and speculative markets. It also leaves them vulnerable to the weaponization of the dollar, as seen with sanctions on Iran and Russia. To reduce these risks, China launched its own yuan-denominated oil futures contract in 2018. It was immediately successful, capturing 14% of global trading volume and reducing reliance on traditional benchmarks like Brent Crude. This is one of over 20 yuan-based commodity contracts that China has introduced to gain pricing independence and strengthen monetary autonomy over its economy (Alshareef, 2023). As a result, the share of RMB in China’s cross-border transactions surged from 0% to 53% between 2009 and May 2024. Growth accelerated significantly after COVID-19—in 2019, it accounted for only about 25% and a negligible 0.3% in 2010 (Martin, 2025).
This Chinese move toward de-dollarization is underpinned by its economic size, status as the world’s largest oil importer, and the major presence of its state-owned oil companies (CSOCs) in West Asia (Alshareef, 2024). By 2013, 26% of CSOC overseas production came from Iraq (Jiang and Ding, 2014). By 2024, Chinese firms managed one-third of Iraq’s proven reserves and two-thirds of its production (Al-Khayat, 2024). Consequently, the oil grades delivered by the petroyuan come from the UAE, Oman, Qatar, Yemen, Iraq, and China’s Shengli field. With nearly half of China’s oil imports coming from West Asia—and China being the top buyer for Saudi Arabia, Iraq, Oman, and Iran—Beijing holds strong monopsony power to promote RMB use (Alshareef, 2023).
Beyond futures markets, China has actively urged Gulf oil producers to use RMB in direct bilateral trade. Evidence suggests this is already occurring: Iran reportedly sells oil in yuan (Hanafusa et al., 2024), and Oman—which sends nearly 50% of its oil to China—conducts most of its payments to Hong Kong and China in RMB despite the absence of an official swap line, thus, strongly suggesting yuan-denominated oil invoicing as a source of accessing RMB to finance imports. In April 2025, Saudi Arabia made a significant breakthrough in energy trade as it completed the first RMB- settled crude oil transaction for 1 million tons (CCB and TAB, 2025). RMB accounts for considerable shares of SWIFT payments with China in Iran, Oman, UAE, Qatar, and Saudi Arabia (Perez-Sai and Zhang, 2023: Fig 4.2). Significantly, in LNG markets, the UAE has struck the first deals settled in RMB with a transaction between China CNOOC and Total Energy (Global Times, 2023a).
The paradox of petroyuan: Economic foundations and political walls
Dominant views argue that China’s controlled financial system is a major obstacle to using the yuan for oil trade (Von Beschwitz, 2024). Because of restrictions on capital flows, there are fewer options for foreigners to invest RMB. This makes oil-exporting countries hesitant to price oil in RMB, since they worry about the lack of investment opportunities for the resulting holdings of RMB. This theoretical contention overlooks the concrete structure of China–Gulf economic relations, which already provides a robust material foundation for expanding the bilateral use of RMB. Furthermore, it conflates RMB internationalization with the pursuit of RMB global dominance.
First, the strong real trade and investment ties between China and Middle Eastern oil producers do not leave much excess RMB to be invested in financial markets. Take Saudi Arabia for example. In 2023, it exported $63.8 billion worth of goods to China and imported $43.4 billion (Observatory of Economic Complexity, 2026). This trade balance means that up to 68% of Saudi oil exports to China could already be paid for in RMB. Furthermore, China is a major destination for Saudi investment that can take place in RMB. In 2023–2024, Riyadh invested over $22 billion in petrochemical projects (Chang et al., 2024).
Indeed, China is the top source of imports for major oil producers like Iran, Saudi Arabia, Kuwait, Oman, and Iraq. Chinese companies are also deeply involved in regional infrastructure, with Saudi Arabia and the UAE ranking the second and the third destinations for large-scale projects. In Iraq, Chinese firms were awarded over 87% of energy contracts in 2024 (Crisp, 2022). Accordingly, oil exporters have a practical interest in accepting RMB for oil: it allows them to directly pay for Chinese imports, direct investment in China and Chinese contractors without converting through a third currency—thus avoiding exchange rate risks (Alshareef, 2023). Structured like so, these economic relations permit a significant expansion of oil invoicing in RMB beyond current levels and without the need of financial liberalization in China.
It should be noted that Saudi Arabia, UAE, and Qatar have also been resorting to channels other than trade to access RMB. For instance, China and Saudi Arabia signed a $7 billion currency swap agreement in mid-2024. In March 2023, Saudi National Bank and China Export Import Bank struck their first RMB-denominated loan deal (Global Times, 2023b).
While the structure of trade interdependence permits an increase in oil invoicing in RMB, political inertia has thus far prevailed among Gulf policymakers. The region’s ruling classes maintain deep historical ties to the United States, which remains dependent on the international dominance of the dollar. Consequently, a shift toward the RMB represents a major geopolitical realignment—not merely a financial adjustment. Moreover, these states possess immense dollar-denominated financial assets, with an estimated $6 trillion invested in Anglo-Saxon financial markets (Hanieh, 2018). This generates a substantial incentive to not deflect exchange rate risk and inflict important damage to the US dollar. While not irreversible, altering this dynamic requires significant political restructuring and a reduction of US influence in West Asia. Indeed, US policies in the ongoing regional wars since October 7 can be interpreted as an assertion of military and political influence amid its global decline.
Second, the argument on capital account regulation mistakenly assumes that the internationalization of the RMB aims to establish it as a new global hegemonic currency. Beijing is not working to “replace the dollar with the RMB as a new key currency, but rather to build up a large consensus to abolish hegemony altogether” (Aglietta, 2011). RMB’s incremental rise is part of a transition process toward a pluripolar order with the co-existence of several international currencies, monetary regimes, and financial market varieties whose relative importance varies across regions and economic sphere and is grounded in divergent underlying development strategies.
Accordingly, RMB internationalization is calibrated to fit in China’s broader development strategy, with two primary objectives: reducing dependence on the US dollar in international transactions while ensuring the macroeconomic and financial stability necessary for productive and technological upgrading. Consequently, China’s approach combines regulated capital account management with selective liberalization designed to subordinate financial activities to the needs of the real economy while mitigating excessive financial risk. This approach has created a distinct financial market (McNally, 2015; Petry, 2020) and provided overseas investors with five channels to invest RMB in China without neoliberal liberalization (Alshareef, 2023).
For example, the Qualified Foreign Institutional Investor scheme allows investment in Chinese stock markets and the issuance of RMB-denominated assets. Sovereign wealth funds from Saudi Arabia, the UAE, Qatar, and Kuwait are already included in this scheme. As of September 2023, the UAE and Kuwait accounted for 62.5% of all sovereign fund investments in Chinese A-shares (GSWF, 2024, Table 5). Although these investments remain modest, they align with China’s level of financial opening and demonstrate some oil-producing countries’ enthusiasm for using institutional channels to invest in RMB. A second onshore route, the China Interbank Bond Market, enables foreign investors to access China’s bond markets directly. Sharjah made one of the most emblematic issuances of panda bonds (Alshareef, 2023).
Moreover, key regional allies—notably the UAE and increasingly Saudi Arabia—are actively advancing de-dollarization through various mechanisms. Alongside China, Thailand, and Hong Kong, both Gulf states have joined the mBridge platform—the first international payment system using national Central Bank Digital Currencies, designed to operate beyond the dominance of any single currency. This platform cuts cross-border payment costs by up to 50% and reduces transaction times from days to seconds compared to the US-controlled financial infrastructure (BIS, 2021). By bypassing traditional dollar-dependent intermediaries, mBridge poses a direct challenge to the US dollar’s hegemony over global monetary infrastructure.
The active participation of key US allies in the Gulf in Chinese RMB initiatives is politically significant—even if oil is not yet priced in yuan. From their dominant classes’ perspectives, these states are navigating deep historical ties to a declining United States while embracing the strategic opportunities offered by China’s rise. While economic conditions for de-dollarizing China’s oil trade with West Asia have matured, immediate progress remains constrained by the region’s fluid and uncertain political landscape.
Footnotes
Funding
The author received no financial support for the research, authorship, and/or publication of this article.
Declaration of conflicting interests
The author declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.