The 2026 U.S.-Iran War and the Global Energy Crisis

Chapter 23: Yuan Tolls

23.1 Why the IRGC Receives Payment in Yuan

On March 13, 2026, a new shipping lane opened in the Strait of Hormuz. It was not an existing international route. Nor was it an official two-way waterway running north-south through the middle of the strait. Instead, it was a narrow channel cutting through Keshm Island and Larak Island, within Iranian territorial waters. To use this lane, shippers first had to contact an "Approved intermediary" designated by the IRGC,Islamic Revolutionary Guard Corps. Five documents were required: the vessel's International Maritime Organization registration number, owner information, cargo manifest, crew roster, and final destination. Once submitted, the intermediary forwarded the complete file to the Hormozgan Provincial Command of the IRGC Navy.

The screening process at the Hormozgan Command proceeded in three stages. Sanctions screening, cargo suitability review, and a third step that Lloyd's List Intelligence called "geopolitical vetting." This third checkpoint was crucial. Any vessel with even the slightest connection to the United States or Israel was rejected. A ship whose owner was a subsidiary of a U.S.-based company, whose cargo insurance was underwritten in London or New York, or whose crew included even a single American or Israeli national,any of these would be barred from passage.

Vessels that passed screening received a "clearance code." When a ship entered the strait, IRGC patrol boats requested the code via VHF radio. Once verified, an escort vessel arrived to accompany the ship through Iranian territorial waters. Between February 28, when the war began, and March 25, only 142 vessels transited the Strait of Hormuz. During the same period in 2025,March 1-24,2,652 vessels had passed through. Where more than 100 ships had crossed daily before the war, only 142 transited the strait in an entire month.

And of those 142 vessels, at least two paid for passage. According to Lloyd's List, the toll reached as much as 2 million dollars per ship. Alaeddin Boroujerdi, a member of Iran's parliamentary foreign affairs committee, confirmed this figure directly in an interview with Iran International, the Persian-language satellite broadcaster based in Britain. "War has costs. It is natural that we collect tolls from vessels passing through the Strait of Hormuz." Another Iranian legislator, Mohammadreza Rezaei Kouchi, stated through Farsi and Tasnim,news agencies affiliated with the Revolutionary Guard,that "Parliament is advancing legislation that formally enshrines Iran's sovereignty, control, and oversight of the Strait of Hormuz in law, while making toll collection a revenue source."

Then came the critical moment: the tolls were not collected in U.S. dollars. Lloyd's List reported: "Two vessels paid the toll directly, and the payment was made in yuan." A Chinese shipping services company mediated the transaction. In Lloyd's original words: "One passage was arranged with a Chinese shipping services company serving as intermediary, and the company also handled the payment to Iranian authorities."

Why yuan?

To answer this question, one must first understand how U.S. financial sanctions work. Nearly all dollar transactions conducted anywhere on Earth ultimately pass through settlement systems at American banks in New York. Whether sending or receiving funds denominated in dollars, the transaction record flows through New York. This grants the U.S. Treasury Department's Office of Foreign Assets Control, or OFAC, a formidable tool. OFAC can track dollar transactions connected to sanctioned targets, freeze those funds, and penalize financial institutions that participate in such transactions. Iran had been effectively cut off from the global financial system by this machinery since 2012. Major Iranian banks were expelled from SWIFT, and third-country firms conducting dollar transactions with Iran faced U.S. secondary sanctions.

Using yuan allowed the entire surveillance apparatus to be bypassed. Since 2015, China has operated its own cross-border payment infrastructure: the Cross-Border Interbank Payment System, or CIPS. Directly overseen by China's central bank, the People's Bank of China, this system handles the clearing and settlement of international transactions denominated in yuan. By 2024 standards, CIPS processed 175.49 trillion yuan annually, equivalent to approximately 24.5 trillion U.S. dollars,a 43 percent increase year-over-year. By 2025, participation had grown to 1,683 institutions across 121 countries: 73 percent in Asia, 17 percent in Europe, 4 percent in Africa. In June 2025, six banks from the Middle East and Africa,First Abu Dhabi Bank, Standard Bank, the African Export-Import Bank, among others,joined CIPS as the network's first overseas direct participants. The plumbing that China had quietly and persistently laid already extended to more than 4,900 financial institutions across 189 nations.

Transactions in yuan through CIPS do not flow through New York. The U.S. Treasury cannot see them. It cannot freeze them. It cannot block them. For Iran, yuan was not a currency but a shield.

Iran's second reason for insisting on yuan was more practical: it could spend the yuan received directly as yuan. China was Iran's largest customer for crude oil. Before the war, more than 90 percent of Iranian crude flowed to China. Iran received payment for its oil exports in yuan, then imported Chinese consumer goods, electronics, construction materials, and dual-use components applicable for military purposes with that same yuan. A closed-loop economy operated between Iran and China for years without a single dollar touching it. The Hormuz toll was simply a new revenue stream plugged into this existing circulation.

The message this sent to Washington was clear: the non-military weapon that the United States regarded as its most powerful,financial sanctions,was not functioning at the world's most critical energy chokepoint. In the war America had started, the tool its adversary used to neutralize America's weapon was a payment system built by America's competitor. This was not a technical workaround. It was structural disarmament.

23.2 The Maritime Economy Taking Shape Outside Dollar Settlement

June 8, 1974, Jeddah, Saudi Arabia. U.S. Secretary of State Henry Kissinger and Saudi Prince Fahd Ibn Abdel Aziz signed an agreement. The official document contained not one mention of the word "oil." It outlined four working groups: industry, education, technology, and economics. Yet the accord's true meaning lay elsewhere. Saudi Arabia would sell oil only in U.S. dollars. In exchange, the United States would provide military protection for the kingdom's oil fields and royal house. Excess dollars would be reinvested in U.S. Treasury bonds and securities markets.

This informal commitment gave birth to the petrodollar system. By 1975, every member of OPEC began trading oil exclusively for dollars. To buy oil, one first had to buy dollars, and to buy dollars, one had to access the American financial system. This architecture became the invisible pillar that held the U.S. dollar aloft as the world's reserve currency for half a century.

In March 2026, what occurred in the Strait of Hormuz created the first physical crack in that pillar.

Let us examine the specific form that crack took.

Three things were necessary to pass through the Strait of Hormuz: a ship, insurance, and a means of payment. When war broke out, the Lloyd's insurance market in London and American insurers refused to underwrite war-risk insurance for vessels transiting the strait. Without insurance, ships cannot move. No shipowner, however willing, can send a multi-billion-dollar tanker into a war zone uninsured,it is suicide. This was the "surrender of insurance" discussed in Chapter 9.

But the surrender of insurance had exceptions. The closure of Western insurance markets did not make all insurance on Earth disappear. China and Russia operated insurance companies beyond the reach of Western sanctions. Ingosstrakh, Russia's state insurer, and China's China Export and Credit Insurance Corporation, known as Sinosure. These insurers provided war-risk coverage for Iranian-approved vessels. Where Western insurance had vanished, insurance from China and Russia began to fill the void.

Two maritime economies then split apart.

One was the existing dollar-based maritime economy. Ships insured at Lloyd's in London, settled in banks in New York, escorted by the U.S. Navy,the traditional shipping lanes. Vessels in this economy stood waiting at either end of the Strait of Hormuz. As of March 2026, roughly 2,000 ships were idling on both sides of the strait, with more than 400 additional vessels floating in the waters off the Gulf of Oman, trapped inside the Persian Gulf or barred from entering.

The other was a newly formed yuan-based maritime economy. Ships insured by Chinese or Russian insurers, settled in yuan through CIPS, escorted by the IRGC as they transited Iranian territorial waters. Vessels in this economy were moving, albeit slowly. Of the 142 vessels that transited between March 1-25, roughly 90 percent, according to Lloyd's List, were somehow connected to Iran. Oil tankers carrying Iranian crude, cargo ships under Chinese ownership, LPG carriers bound for India, Pakistani-flagged tankers. These vessels announced their nationality and ownership through AIS transponders as they passed through the strait. On March 5, the bulk carrier Iron Maiden, operated by Chinese shipping firm Cetus Maritime Shanghai, transmitted "CHINA OWNER" on its AIS as it exited the strait. That same day, the LPG tanker Bogazici broadcast: "Muslim-owned and Turkish-operated."

In pre-war transits through the strait, no ship needed to send such messages. Vessels simply passed. No one asked what country owned a ship, who had insured it, or in what currency the transaction was conducted. That was freedom of the seas,the "right of transit passage through straits used for international navigation" guaranteed by the United Nations Convention on the Law of the Sea, Article 38. Iran had signed but not ratified this convention; the United States had done neither. A gray area in international law became, exactly, a gray area on the water.

The economic implications of this dual structure become visible in numbers.

According to data traced by Keith Johnson, a reporter for Foreign Policy, all the oil moved through the strait in March combined fell short of a single day's pre-war volume. Yet Iran's Kharg Island oil terminal loaded 1.6 million barrels in March,nearly the same monthly volume as before the war. Iranian oil did not stop. What stopped was everyone else's oil. Crude and gas from Saudi Arabia, the UAE, Kuwait, and Qatar were trapped inside the strait.

This exposed a dilemma facing Saudi Arabia and the UAE. For their oil to exit the strait, they needed Iran's permission. To obtain permission, they had to submit to IRGC screening. Even if they passed, they might owe a toll. And that toll had to be paid in yuan. A tanker carrying oil from Saudi Aramco passing through Hormuz would need to source Chinese yuan. This was a world Henry Kissinger in 1974 could never have imagined.

Sultan al-Jaber, head of the Abu Dhabi National Oil Company and COP28 president, stated at an event hosted by the Middle East Institute in Washington: "Weaponizing the Strait of Hormuz is not an attack on one nation. It is economic terrorism against every consumer, every household that depends on affordable energy and food. If Iran holds the strait hostage, every nation will pay ransom at the gas pump, the grocery store, the pharmacy."

Yet al-Jaber did not say what he knew: that this "ransom" was being paid in yuan, not dollars. And as those yuan transactions accumulated, the fifty-year-old coupling between oil and the dollar was unraveling one thread at a time.

CIPS recorded its highest transaction volume in March. In a Foreign Policy article, Mike Lipsky and his analysis team reported: "As Iran's tolls and oil payments concentrate in yuan, CIPS transactions are sustaining the highest levels of the past year." With each yuan settlement added to the stack, one more brick was being laid toward a parallel financial infrastructure that circumvented the dollar system.

Sal Mercogliano, a maritime historian at Campbell University, summarized it this way: "International law nowhere authorizes setting up tollgates and extorting the shipping industry. What Iran is doing right now is using the only card it holds,its control over the Strait of Hormuz." His words were precise. Yet the card Iran was playing was not Hormuz alone. It held a second card: the yuan. And the nation that created that card was not Iran. It was China.

23.3 China, Russia, India, Pakistan: Approved Transit; U.S. Allies Excluded

On March 26, 2026, Iranian Foreign Minister Abbas Araghchi released an official statement. Vessels flagged in China, Russia, India, Iraq, and Pakistan could transit the Strait of Hormuz, provided they coordinated in advance with Iranian authorities. That same day, through direct negotiations with President Masoud Pezeshkian, Malaysia secured approval for its ships, and Thailand, through its embassy in Tehran, had likewise negotiated safe passage for its vessels.

Examining this approval list laid bare the geopolitical fault lines of 2026.

Consider China first. It was Iran's largest oil customer. Before the war, most Iranian crude headed to Chinese independent refineries known as teapot refineries. China also owned the payment infrastructure that provided CIPS. For Iran, China was customer, bank, and ally. Chinese vessels naturally transited Hormuz most safely. Between March 1-15, eleven Chinese-connected ships crossed the strait, most of them general cargo vessels. COSCO, China's state-owned shipping company, suspended new bookings for Middle East routes immediately after the war began, but individual Chinese-owned vessels continued crossing.

Yet China's passage was not entirely risk-free. On March 12, a Chinese-owned ship transmitting "CHINA OWNER" on its AIS was struck by shrapnel as it navigated toward Jebel Ali in the Middle East Gulf. After this incident, passage by major Chinese shipping companies noticeably declined. On March 27, two large COSCO container ships, CSCL Indian Ocean and CSCL Arctic Ocean, attempted to transit but received word that "safe passage could not be guaranteed," forcing them to turn back. Flying a Chinese flag did not guarantee automatic clearance. IRGC screening proceeded on a case-by-case, ship-by-ship basis.

India's situation was more complex.

India was not a U.S. ally, and it issued no statement opposing American military operations. Here too, India's longstanding foreign policy principle of "strategic autonomy" was at work. For India, a blocked Hormuz was not a security issue but a survival issue. A substantial portion of India's LPG imports came through the Gulf and the strait, and when war erupted, cooking-gas shortages swept across India. The government invoked emergency powers, directing refineries to maximize LPG production and prohibiting LPG refills entirely for households with piped natural gas connections.

Foreign Minister Subrahmanyam Jaishankar negotiated directly with Iran. In an interview with the Financial Times, he said: "I am currently in dialogue with Iran, and that dialogue has produced some results." But he immediately added: "There is no blanket agreement on Indian-flagged vessels. Every ship's movement is a case-by-case matter."

Case-by-case negotiations took concrete form. India repatriated approximately 180 crew members of an Iranian military vessel that had been held in Indian custody. Three Iranian naval ships had been participating in an Indian-hosted joint exercise in the Indian Ocean just before the war; one was sunk by a U.S. submarine's torpedo, and two took refuge in India and Sri Lanka. India protected these crew members and arranged their return home,a "goodwill gesture" that became leverage in negotiations with Iran. Chintamani Mahapatra, head of the Kalinga Institute of Indo Pacific Studies, assessed that "Iran's permission for Indian vessels to transit reflects its reward for India's neutral policy."

As a result, two Indian-flagged LPG carriers transited Hormuz on March 14. Both belonged to India's Shipping Corporation of India. According to Bloomberg, a senior crew member on one vessel testified that "the Iranian Navy directly escorted our ship along a pre-approved route." Between March 14-24, five additional Indian-flagged LPG carriers cleared the strait, and Operation Sankalp was executed, with the Indian Navy receiving these vessels in the Gulf of Oman and escorting them onward to India. On March 23, the Jag Vasant and Pine Gas passed through the strait following the Iranian coastal route near Keshm and Larak Islands. The combined cargo of both vessels totaled 92,600 tons of LPG.

Pakistan's case was the most direct. Pakistan is Iran's neighbor, and the two countries share a 909-kilometer border. Pakistan took on the role of mediator from the early stages of the war, and it was also Pakistan that delivered the United States' 15-point ceasefire proposal to Iran. On March 16, a Pakistani-flagged Aframax-class tanker passed through the strait with its AIS transmitter on. This vessel, loaded with crude oil from Abu Dhabi in the UAE, became the first recorded instance of a ship publicly transiting the strait with non-Iranian cargo under Iran's permission.

Looking at the list of countries not included on this permission list reveals another facet of the world.

The United States. The United Kingdom. Germany. France. Japan. South Korea. Australia. The Netherlands. Ships from these nations could not pass through the Strait of Hormuz. They were either dispatching vessels to the Combined Maritime Forces led by the United States or aligned with U.S. diplomatic policy toward Iran. The IRGC classified these countries' vessels as "hostile nations-linked ships." On March 26, the language Iran sent in its letter to the 176 member states of the International Maritime Organization (IMO) read as follows: "Vessels of non-hostile states that do not participate in or support acts of aggression against Iran and fully comply with Iran's declared safety and security regulations may safely transit the Strait of Hormuz through coordination with Iranian authorities."

The term 'non-hostile states' was the key. It was Iran that decided which countries were hostile and which were not. Not the United Nations. Not the International Maritime Organization. Not the International Court of Justice. A country owning the northern coastline of a 21-mile waterway was making the determination of who could pass through it. In the language of international law, this was a clear violation. Article 38 of the UN Convention on the Law of the Sea guarantees all nations' ships and aircraft the right of transit passage through international straits. Jasem Mohamed al-Budaiwi, Secretary General of the Gulf Cooperation Council (GCC), condemned Iran's toll collection as an "invasion and violation" of the UN Convention on the Law of the Sea.

Yet there was an unbridgeable gap between the language of international law and the reality of the Strait of Hormuz. What the law commanded differed from what actually happened at sea. With the IRGC's missiles, drones, fast attack boats, and mines controlling the strait, reciting international law provisions alone could not get a single tanker through.

As a result, the Strait of Hormuz became, in March 2026, a filter that divided the world into two classes.

On one side stood countries under the U.S. financial system and military alliances. For these nations, the Strait of Hormuz was closed. Oil imports ceased. Crude prices climbed to $126 per barrel. Inflation spread. Air routes contracted. The economic impact of the strait blockade covered in Chapters 9 through 11 fell entirely on these countries.

On the other side stood countries operating outside U.S. sanctions. China continued its energy imports by purchasing Iranian crude in yuan. India negotiated case-by-case diplomacy to extract its LPG carriers. Pakistan used its role as mediator to secure passage for its own tankers. Russia deployed its shadow fleet into the strait, using this chaos as a pressure point against the West.

The analysis that most precisely captured the meaning of this division came not from a report by the U.S. Congressional Research Service (CRS) or from a policy paper by the Brookings Institution. It came from a sentence written by an energy analyst who had been writing about the Iran war: "If you settle in dollars, uncertainty remains. If you settle in yuan, passage is guaranteed. This is the most sophisticated economic trap created in a war zone."

This trap was not improvised. Since CIPS began operations in 2015, China had quietly laid the groundwork over ten years. Yuan swap agreements. Expansion of directly participating banks in the Middle East and Africa. Construction of a yuan settlement network among BRICS nations. None of these drew major headlines. Western media paid more attention to China's youth unemployment rates or real estate crises. Meanwhile, CIPS's annual processing volume more than tripled after 2020, and participating institutions spread to 121 countries. What had been a backup system converted to an operational system the moment war began on February 28, 2026.

For U.S. policymakers, this cast a longer shadow than the $126 oil price. Oil prices would fall once the war ended. But once-activated non-dollar settlement practices are difficult to reverse even after war ends. Once a precedent is set that "you can buy oil and cross the sea without dollars," that precedent does not disappear. The Strait of Hormuz in March 2026 was the scene where that precedent was being written in real time.

No one could say how long Iran's toll gate would remain in place. Beginning March 19, the United States launched military operations to open the strait. President Trump warned Iran not to lay mines in the waterway and requested seven countries dispatch warships for Hormuz escort. But even if the toll gate disappeared tomorrow, the record of yuan transactions settled through CIPS over the course of March would remain. The experience of Chinese shipping service companies acting as intermediaries between the IRGC and ship owners does not vanish. The diplomatic pathway by which India, through case-by-case negotiations, obtained Iran's permission and extracted its LPG carriers becomes a precedent that can operate again when the next crisis arrives.

The petrodollar system is not the kind of thing that collapses overnight. About 80 percent of global oil transactions were still conducted in dollars, and the yuan's share of global settlements through SWIFT stood at just 3 percent as of June 2025. Compared to 48 percent for the dollar and 24 percent for the euro, it was still not in the same category.

But the strength of the petrodollar system lay in the absence of alternatives. Because there was no way to buy oil in any currency other than dollars, all nations had to hold dollars. In March 2026, at the Strait of Hormuz, that premise of "no alternatives" broke. A complete pathway actually worked: paying tolls in yuan, purchasing oil in yuan, completing settlements through CIPS. The scale of operation was small. Two vessels paid tolls, and dozens transited the strait. But the collapse of the wall between "possible" and "impossible" is a structural change regardless of scale.

The words of an analyst at the Defense Department's Foreign Defense division serve as the conclusion to this chapter: "Iran threatened for 40 years that it would use the Strait of Hormuz as a lever, and for 40 years America's war planners prepared for it. But the strait has effectively closed. And Iran is even collecting tolls from it."

Attorney Kyungjin Kim, AI specialist

Specialist in AI legal policy, former National Assemblyperson, author of numerous works

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