The Iran conflict has reignited one of the most contested debates in global finance: whether the U.S. dollar’s dominance over international trade, and specifically oil pricing, is facing a genuine structural challenge.

A note from Deutsche Bank arguing that the war could accelerate the rise of the “petroyuan” drew a sharp rebuttal from Franklin Templeton, setting off a broader conversation among analysts about the dollar’s long-term trajectory as reserve currency of choice.

Deutsche Bank Sees Signs of Structural Decline

Deutsche Bank FX managing director Mallika Sachdeva argued in a note published in late March that the Iran war could be remembered as a key catalyst for the erosion of petrodollar dominance and the early stages of a shift toward yuan-denominated oil pricing.

The argument centers on the idea that U.S. military and security guarantees, which have historically underpinned the arrangement by which oil is priced and traded in dollars, have been visibly strained by the conflict and its broader geopolitical fallout.

Deutsche is among those who see the dollar in a longer-term structural decline, pointing to the currency’s worst performance in more than 50 years during the first half of 2025, when President Donald Trump’s abrupt reversal of sweeping tariffs rattled global confidence in U.S. economic policy. The dollar index, which measures the greenback against a basket of major currencies, fell nearly 10% through 2025.

Franklin Templeton Pushes Back Hard

Franklin Templeton’s fixed income chief investment officer Sonal Desai responded with a note calling Deutsche’s analysis “remarkably simplistic,” arguing that the logic behind the petrodollar arrangement has been fundamentally mischaracterized.

Desai said oil is not priced in U.S. dollars merely because of American military influence in the Gulf. 

Rather, oil exporters choose to receive payment in dollars because of what the currency represents: access to the world’s deepest and most liquid capital markets, backed by institutional protections for property rights and contract enforcement, supported by a strong and dynamic economy.

She added that building a credible alternative reserve currency requires deep markets, rule of law, full convertibility, and a long track record of macroeconomic stability, characteristics that take decades to establish rather than years.

Where the Dollar Stands Today

The share of dollar-denominated assets in global central bank reserves has declined over time, falling from above 70% in 1999 to just over 50% today. Other currencies, including the euro and the Chinese renminbi, have gradually taken a larger portion of global reserves.

However, analysts caution that a declining share does not mean an imminent collapse in dollar dominance.

Elias Haddad, global head of markets strategy at Brown Brothers Harriman, said the dollar has no credible replacement on the current horizon. He pointed out that China’s renminbi accounts for only around 3% of global central bank reserves, and that its closed capital markets represent a fundamental barrier to broader international adoption.

“There is no alternative,” Haddad said. “All other currencies are nowhere near an environment to replace the dollar. There’s no way China is going to get to 50% anytime soon, especially with their capital markets closed.”

The Iran War Has Temporarily Supported the Dollar

Despite the longer-term debate, the Iran conflict has actually provided the dollar with short-term support. Since the war began, the greenback strengthened against major currencies as investors sought safety, moving broadly in tandem with rising oil prices.

That support has shown signs of softening more recently as ceasefire hopes have brought crude prices down from their peaks, illustrating how closely the dollar’s near-term trajectory is tied to developments in the energy market.

A Middle Path Is Emerging

Rather than a binary outcome where the dollar either collapses or retains full dominance, many analysts see a more gradual erosion as the most likely scenario.

Haddad acknowledged that fading U.S. fiscal credibility and political pressure on the Federal Reserve under Trump represent additional headwinds for the dollar’s long-term reserve status. 

These factors, he suggested, could sustain a structural downtrend without necessarily leading to the dollar being displaced as the world’s primary reserve currency.

Desai agreed that some degree of dollar softness is consistent with its role as a global reserve currency, noting that unlike the renminbi, the dollar is a freely floating currency subject to natural market movements in both directions.

The debate ultimately reflects a world where confidence in U.S. institutions and policy consistency is being tested, even as no single alternative has emerged capable of filling the dollar’s role in global trade and finance.