Recent tensions in the Middle East have reignited discussion over whether the petrodollar system is beginning to weaken. Our view remains cautious. While a degree of diversification in how oil trades are settled is plausible, the more important issue is where Gulf oil revenues are ultimately invested. In both areas, any shift is likely to be incremental rather than disruptive.
The latest geopolitical developments have once again put the petrodollar debate in the spotlight. Markets are now asking whether disruptions in energy flows could speed up the adoption of non-dollar currencies in oil-related transactions. This is significant, as it feeds into broader questions about the dollar’s global dominance.
However, it would be premature to declare the “end of the petrodollar.” As with other de-dollarisation narratives, the underlying reality appears far more measured than headline-driven commentary suggests. It is useful to distinguish between trade invoicing and capital allocation. On the trade side, factors such as China’s rising role as a major Gulf energy buyer, the gradual expansion of renminbi payment systems, and experimentation with alternative settlement mechanisms are all noteworthy. Yet the dollar’s international position is equally, if not more, dependent on how surplus revenues from energy exporters are invested globally.
This is the central issue examined here. Overall, while there may be some gradual diversification in both trade settlement and investment flows, the core structure of the petrodollar system still appears deeply entrenched and difficult to displace.
Executive Summary
Oil settlement shift remains unproven. Data from March 2026 shows a temporary increase in renminbi-denominated settlement activity through China’s Cross-Border Interbank Payment System (CIPS), coinciding with the outbreak of the Iran conflict. However, this spike proved short-lived, with flows normalising in April and May. SWIFT trade finance data similarly indicates only a modest uptick in March, set against a broader gradual rise that began in 2022–2024. China’s expanding economic footprint in the Gulf remains an important structural factor, with its share of GCC trade rising to roughly 21% over the past decade. This has been accompanied by incremental progress in non-dollar settlement infrastructure, including the UAE–China swap arrangement, participation in mBridge, and cooperation between the UAE central bank and CIPS.
Gulf savings accumulation keeps sovereign wealth in focus. Excluding Saudi Arabia, GCC economies are expected to generate combined current account surpluses of around $150bn annually over the next five years, translating into roughly $0.8tr in external savings accumulation by 2030. Gulf sovereign wealth funds collectively manage about $6tr in assets, with the UAE alone estimated at around $2.7tr. This raises the central question of how these large pools of capital are allocated globally. On balance, GCC external portfolios remain heavily dollar-weighted, with around 69% of BIS-tracked international assets denominated in USD versus 46% globally, suggesting a stronger USD bias than the global average, even if sovereign wealth fund allocations are not fully captured in these figures.
What de-dollarisation could realistically look like. From a trade invoicing perspective, China’s role in GCC energy trade implies an upper bound of roughly $300bn in annual flows that could, in theory, shift toward yuan settlement under extreme scenarios. From an investment perspective, de-dollarisation would more likely emerge through a slowdown in new USD allocations rather than large-scale reallocation of existing holdings. Even a reduction in incremental USD investment flows to below about $100bn per year would signal a meaningful directional change.
GCC’s global role: significant but not system-defining. The Middle East accounts for roughly a quarter of global fuel exports, while fuel trade itself represents only 10–12% of total global merchandise trade. This limits the systemic impact of any GCC-driven de-dollarisation on the broader international monetary system. Overall de-dollarisation trends remain gradual, pointing to incremental diversification rather than a structural break. While the euro and renminbi may increasingly compete at the margins, the dollar’s dominance continues to be supported by entrenched network effects.
Market implications. Persistent USD dominance in GCC energy invoicing reinforces dollar network advantages, while USD funding markets demonstrated resilience even during the March peak in geopolitical stress.
Shift in Oil Settlement: Evidence Remains Inconclusive
The renewed conflict in the Middle East has reignited debate over whether momentum is building toward greater use of non-dollar currencies in energy invoicing. However, publicly available data remains limited and does not yet point to a clear structural shift. The increase in renminbi settlement activity seen in March through China’s CIPS system has been highlighted by some observers, including the European Central Bank, as a potential early signal of changing energy trade dynamics.
That said, the overall picture remains mixed. Following a temporary surge in March, CIPS transaction volumes eased back toward more typical levels in April and May, despite continued geopolitical tensions. SWIFT trade finance data offers a similar pattern: while renminbi usage had already been gradually rising through 2022–2024, the March 2026 increase was relatively modest and was followed by some decline in April, suggesting no sustained acceleration in non-dollar settlement activity so far.
The surge in CNY transactions seen in March so far looks to be a one-time event
China’s expanding economic footprint in the Gulf is an important factor to monitor. Expectations of greater renminbi use in Gulf energy trade are primarily driven by commercial rather than geopolitical considerations, as GCC countries are not subject to sanctions and retain flexibility in their choice of settlement currencies.
The commercial rationale begins with trade patterns. China’s share of GCC exports and imports has almost doubled over the past decade, reaching roughly 21%.
At the same time, Gulf trade has shifted increasingly toward emerging markets, which now represent about 60% of the GCC’s external trade—reversing the situation seen 25 years ago.
This shift is significant for global energy flows, given that the GCC accounts for 51% of total external trade turnover among emerging market fuel exporters in IMF classifications (excluding Russia, which is treated separately as a more diversified commodity producer). Within the GCC, the UAE has also surpassed Saudi Arabia in total external trade volumes over the past decade.
China’s share of GCC trade flows has almost doubled over the past decade, reaching 21% in annual turnover terms.
From a global trade and increasingly multipolar perspective, there is a gradual trend toward less dollar-exclusive energy settlement. This reflects China’s deepening trade ties with major exporters and the parallel development of alternative payment systems. Initiatives such as the UAE–China currency swap agreement, participation in mBridge, and the UAE central bank’s MoU with CIPS all indicate a slow but steady expansion of supporting infrastructure.
China’s renminbi internationalisation has progressed unevenly over the past two decades, but the overall direction has been toward broader use in trade settlement and payments. As China has become the largest trading partner for an increasing number of countries, greater RMB-denominated settlement has followed as a natural outcome of deeper trade integration.
A notable recent development during the Iran conflict was reports that Iran requested payments in Bitcoin or CNY, highlighting growing consideration of the renminbi as an alternative to the US dollar system, particularly as a way to mitigate exposure to US sanctions. Geopolitical factors may therefore continue to influence RMB adoption.
At the same time, policymakers have prioritised financial stability over rapid internationalisation. This approach is unlikely to change even amid de-dollarisation narratives. Limited capital account convertibility continues to constrain RMB internationalisation, and its role as a reserve currency remains relatively modest.
Nonetheless, policy efforts are ongoing. President Xi Jinping has emphasised the goal of a “powerful currency”. The People’s Bank of China has recently introduced a repo facility for foreign central banks, international financial institutions, and sovereign wealth funds, allowing them to access RMB liquidity using Chinese government bonds, central bank bills, and policy bank bonds as collateral. This could support greater RMB usage by providing access to China’s relatively low interest rates.
China currently maintains 32 currency swap lines totalling up to RMB 4.5 trillion. These arrangements have increasingly evolved from symbolic frameworks into operational liquidity tools. By the end of 2025, outstanding RMB drawn by overseas central banks had reached RMB 94.2 billion.
China continues to expand the infrastructure supporting RMB internationalisation.
However, greater Gulf exposure to China does not imply an erosion of the dollar’s role as a petro-currency. China’s rising share in global trade does not automatically translate into a proportional increase in RMB usage. Moreover, if Gulf economies continue to invest heavily in domestic energy, logistics, and defence infrastructure, their import demand is likely to remain diversified across both advanced and emerging market partners.
On swap lines, earlier this year there was significant attention on the UAE’s reported request for a standing US dollar swap line to join the group of major developed-market central banks such as the euro area, Japan, the UK, Switzerland, and Canada. Although this discussion has since faded from view, it suggests that the UAE continues to view itself firmly within the dollar-based monetary system, supported by its USD/AED currency peg.
The Gulf Continues to Build Oil-Related Savings…
The Gulf continues to build up significant oil-related savings. A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital flows. Some analysts argue that higher domestic spending and imports have reduced GCC current account surpluses to the point where the region is no longer a meaningful capital exporter.
However, IMF forecasts suggest a different picture. They indicate that the GCC as a whole will still accumulate substantial external surpluses. While Saudi Arabia is expected to remain closer to a balanced or even deficit position, the rest of the GCC—particularly the UAE, Qatar, and Kuwait—continues to stand out as a major source of savings. Excluding Saudi Arabia, the region is projected to generate around $150 billion in annual current account surpluses over the next five years, even assuming oil prices of $70–80 per barrel. This would amount to roughly $0.8 trillion in cumulative surpluses by 2030, which would need to be deployed into global financial assets.
The Gulf Continues to Build Oil-Driven Financial Surpluses
A key issue for the dollar narrative is not simply how Gulf trade is invoiced, but whether the region still generates sufficiently large external surpluses to remain influential in global capital markets. Some argue that higher domestic spending and imports have eroded GCC current account surpluses, reducing its role as a major exporter of capital.
However, IMF projections point in a different direction. Even if Saudi Arabia is expected to hover closer to balance or even modest deficits, the broader GCC remains a significant source of external savings. Excluding Saudi Arabia, countries such as the UAE, Qatar, and Kuwait are projected to generate combined current account surpluses of around $150bn per year over the next five years, assuming oil prices remain in the $70–80 per barrel range. Over this period to 2030, this translates into an estimated cumulative surplus of roughly $0.8tr that will need to be deployed into global financial assets by the GCC excluding Saudi Arabia.
Excluding Saudi Arabia, the GCC is projected to generate around $0.8tr in current account surpluses through 2030
Persistent external surpluses in the Gulf mean the region remains structurally important not only for trade invoicing, but also for shaping the currency composition of global financial assets. In the GCC, sovereign wealth funds play a central role in recycling these surpluses. As discussed previously, in hydrocarbon-exporting economies these funds often dominate external investment activity, far outweighing central bank reserve holdings.
Originally designed to preserve and grow finite oil and gas wealth for future generations, GCC sovereign wealth funds have expanded into major global investors, with combined assets under management of roughly $6tr. This represents more than one-third of the total assets held by the world’s 100 largest sovereign wealth funds. The UAE alone accounts for an estimated $2.7tr, making it the largest sovereign wealth hub in the region. Four of the six GCC countries rank among the world’s top ten sovereign wealth fund holders, underscoring the scale of their global financial footprint. These allocation decisions are therefore as relevant to the evolution of the petrodollar system as trade invoicing patterns.
GCC sovereign wealth: Scale and global relevance
Top-tier sovereign wealth ownership is heavily concentrated in the Gulf, reinforcing its systemic importance in global capital flows.
At the same time, the GCC remains broadly USD-oriented in its external investment profile. However, measuring this exposure precisely is difficult due to limited transparency. The IMF’s COFER dataset captures only central bank reserves, which are relatively small in the Gulf compared with sovereign wealth funds. Meanwhile, SWFs disclose little detail on currency composition. Even US Treasury data is distorted by custodial holdings in financial hubs such as the UK, Switzerland, and the Benelux countries.
As a result, indirect measures are used. One useful proxy comes from BIS locational banking statistics, which track the currency composition of cross-border banking claims and liabilities. While imperfect and not fully capturing sovereign wealth activity, it provides a useful indicator of external financial currency exposure.
On this basis, GCC external portfolios remain heavily dollar-centric. By end-2025, around $0.6tr—about 69% of international assets linked to GCC financial and non-financial sectors—were denominated in US dollars, significantly above the global average of roughly 46%. In contrast, euro exposure is relatively low at around 8%, compared with a global share of 34%. The region also shows a somewhat higher allocation to non-core currencies. Notably, rather than declining, the dollar share of GCC cross-border assets has actually increased over the past decade, diverging from broader global diversification trends.
GCC External Financial Exposure Remains Strongly USD-Weighted by Global Standards
Pre-2025 currency shares have been recalculated using end-2025 FX rates.
While BIS locational banking statistics are an imperfect proxy for sovereign wealth fund currency allocation—since most SWFs are structured outside domestic banking systems—they still offer a useful directional signal.
There are several reasons why this proxy is informative. First, the GCC’s currency pegs to the US dollar naturally reinforce USD dominance across both trade and capital flows, anchoring financial behavior to the dollar. Second, international comparisons provide validation. Norway is a useful benchmark because its sovereign wealth fund discloses detailed currency composition. In Norway’s case, BIS cross-border banking data does not exactly mirror the sovereign fund’s allocation, but it does reproduce the broad hierarchy of currencies quite accurately: the US dollar is dominant, followed by a group of non-core currencies, with the euro lagging behind. This supports the view that BIS-based measures can still capture meaningful structural patterns.
Norway cross-check supports BIS signal reliability
The Norwegian case suggests BIS banking data may not precisely match sovereign fund allocations, but it does reflect their overall currency ordering.
If the BIS-derived GCC data similarly reflects sovereign wealth fund behavior, it implies that a substantial share of Gulf sovereign wealth is already concentrated in dollar assets. On this basis, at least around $4tr of assets may be USD-denominated, compared with much smaller exposures to non-core currencies (approximately $0.6tr) and the euro (around $0.5tr).
In other words, the evidence suggests that GCC sovereign wealth is already heavily dollar-centric at scale, even if precise allocation data remains opaque.
What Gulf De-Dollarisation Could Realistically Look Like
The question is not whether Gulf de-dollarisation is likely, but what its practical upper bound would be if it were pursued as a stress scenario rather than a baseline forecast.
A useful extreme reference point is Russia. Since 2014—and especially after 2022—Russia’s external trade and reserves have shifted sharply toward China and the renminbi, driven by sanctions and constraints on access to traditional reserve assets. By 2025, the RMB share of Russia’s trade invoicing had risen to roughly match China’s share of its trade (around 30–33%), and the yuan also became a dominant reserve asset due to limited alternatives.
In Russia’s case, trade settlement increasingly aligned with the structure of its external trade, with China playing a central role in both imports and exports.
However, the GCC is fundamentally different. Its geopolitical position, financial integration, and market depth make a direct analogy misleading. At most, Russia provides a “stress boundary” for how far currency diversification can go under extreme constraints. In the Gulf, China accounts for roughly 20% of external trade, implying that even in an aggressive scenario, RMB invoicing might plausibly rise only to around that level. On that basis, up to roughly $300bn of the GCC’s estimated $1.5tr annual trade turnover could, in an extreme case, be invoiced in renminbi.
Trade shift potential is bounded, not open-ended
Even under aggressive assumptions, currency diversification in trade would likely remain structurally capped by actual trade composition.
The constraints are even more binding on the asset side. GCC sovereign wealth funds are too large and too globally embedded to be rapidly reallocated. As a result, any de-dollarisation process would likely occur incrementally through new annual flows rather than through reshaping the existing stock of assets.
Given projected current account surpluses of about $150bn per year, even a scenario where USD allocation falls below 70% of new inflows—roughly $100bn annually—would already represent a meaningful shift toward diversification. But even then, the dollar would remain dominant in accumulated wealth.
Importantly, this still falls far short of any rapid or wholesale exit from USD exposure as the primary store of Gulf wealth.
So far, most of the discussion around alternatives has focused on the renminbi. However, a more realistic end-state is likely multipolar rather than binary, with dollars, euros, RMB, and other currencies coexisting. The euro, in particular, appears unlikely to displace the dollar in energy markets. The eurozone accounts for only about 11% of GCC trade, and Europe itself has shown limited appetite to challenge USD dominance in oil pricing, despite some success in gas and carbon benchmarks.
That said, Europe’s financial markets are gradually becoming more competitive. Euro-denominated debt issuance rose sharply in 2026, up around 30% to a record $1.1tr, driven by stronger international participation and increased “Reverse Yankee” activity. While policy progress on deeper capital markets integration remains uneven, demand for euro-denominated assets has improved.
Stablecoins are sometimes mentioned as a potential new settlement layer for energy trade, but current evidence remains highly speculative. Where they are used, they tend to reinforce dollar dominance rather than weaken it, since most stablecoins are ultimately backed by USD assets. For example, Tether ranks among the largest holders of US Treasuries globally.
The Gulf remains central, but not decisive alone
Even if GCC invoicing or allocation patterns were to diversify, global outcomes would still depend on the broader energy system, not just the Gulf.
The Middle East accounts for roughly one-quarter of global fuel exports, meaning it is influential but not determinative of global pricing or currency use. Post-2022 shifts have also increased the role of the United States as a major energy exporter, especially in LNG.
According to the IEA’s medium-term projections, the Americas are expected to retain a strong position in global fuel markets, particularly in oil, with North and Latin America together holding about a 38% share versus roughly 33% for the Middle East.
In that context, the global energy system may be becoming more geographically fragmented, but not necessarily less dollar-centric.
Middle East Still Accounts for About a Quarter of Global Fuel Exports, While the Americas Remain a Strong Competitor
This underscores a key point: any serious “petrocurrency” argument must address two dimensions simultaneously. First, whether the Gulf itself gradually reduces its reliance on the US dollar in trade settlement and external savings. Second, whether any such shift is large enough to meaningfully alter global currency aggregates.
Broader de-dollarisation remains gradual
The petrocurrency debate is an important subset of the wider de-dollarisation discussion, particularly in relation to the UAE’s increasing global energy ambitions following its BRICS+ participation and more assertive production strategy. However, current evidence still points toward a slow-moving global adjustment rather than a structural break.
To begin with, global fuel trade itself is relatively small in the context of world commerce—only around 10–12% of total merchandise exports.
More importantly, international institutions consistently find that the US dollar remains the dominant currency in trade invoicing. The IMF reports no clear, broad-based shift away from the dollar in oil trade, while ECB analysis similarly shows that the dollar and euro together still account for more than 80% of global invoicing, with the renminbi remaining marginal at the global level.
Limited transmission from Gulf shifts to global currency structure
This matters for interpreting any potential diversification in Gulf energy settlement. Even if parts of energy trade become less exclusively dollar-based, the global impact would likely be muted unless accompanied by a broader reconfiguration of global financial markets.
The dollar’s dominance is not anchored solely in trade flows, but in the deeper structure of global finance—central bank reserves, private cross-border assets and liabilities, and the scale of USD-denominated debt and securities markets.
In fact, broader dollarisation indicators suggest that while there has been some long-term diversification—particularly on the asset side—this process has recently slowed. By 2025, several measures of de-dollarisation show signs of stagnation, reflecting the lack of deep alternative markets outside the US dollar and euro segments.
De-dollarisation has stalled at the margin
A key structural constraint remains the limited depth of non-USD and non-EUR debt markets, which restricts the ability of global investors— including sovereign wealth funds—to meaningfully diversify at scale.
Incremental change, not systemic shift
None of this implies a static system. Gradual increases in euro and renminbi settlement in selected energy transactions are plausible, as is a modest rebalancing in how Gulf surpluses are deployed.
But the broader picture remains one of incremental adjustment rather than systemic rupture: parts of the Gulf economy may become slightly less dollar-centric at the margin, without materially dislodging the dollar’s central role in global trade and financial architecture.
Market Implications
The advantages of the US dollar in international finance and invoicing are well established, largely driven by powerful network effects. Recent ECB analysis estimates that of the roughly 190 basis points of “convenience yield” earned by foreign investors holding US Treasuries, about 170 basis points is attributable specifically to the dollar’s reserve-currency status and global utility. In that context, continued Gulf exporters’ earnings and reinvestment in USD assets remain an important structural support for relatively low US government borrowing costs.
A related question that emerged during periods of geopolitical stress was whether developments in the Middle East could materially affect global dollar funding conditions. Specifically, could GCC economies—given their role as global oil exporters and financial intermediaries—be large enough providers of dollar liquidity through wholesale funding or commercial paper markets to tighten global USD funding if disrupted?
In FX markets, stress in dollar liquidity is typically reflected in the cross-currency basis swap market, where European institutions, for example, may effectively pay up to obtain dollars by swapping euros at a discount. During the peak of recent tensions in March, however, this indicator remained broadly stable, suggesting that global dollar funding markets were resilient and that any shock from the region remained localised rather than systemic.
Dollar funding resilience during stress episodes
Cross-currency basis swaps showed limited movement, reinforcing the depth and stability of USD funding markets even under geopolitical strain.
The broader petrodollar framework may be evolving, but only gradually. Recent geopolitical tensions have renewed attention on whether major energy producers and consumers will increasingly settle transactions in non-dollar currencies, and there are signs of marginal diversification—particularly with China’s growing role in Gulf trade and the gradual development of alternative payment infrastructures.
However, this should not be mistaken for a rapid erosion of dollar dominance. The key issue is not only the currency used in trade invoicing, but the destination of accumulated oil surpluses. On this front, the adjustment appears even slower. The Gulf continues to generate sizeable external surpluses, sovereign wealth funds remain the primary mechanism for recycling them, and available balance-sheet evidence still points to a financial system that is more dollar-weighted than the global average.
Bottom line
While the euro, the renminbi, and other non-core currencies can introduce greater competition at the margin—both in settlement and in incremental portfolio allocation—the evidence does not support a rapid de-dollarisation of the global system. Structural constraints, limited deep alternative markets, and entrenched network effects mean that any transition is likely to remain gradual. For now, the US dollar remains firmly embedded at the centre of global energy and financial flows.
THE ETERNAL SOVEREIGN 
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