US-Iran war: How will Yuan payments for oil passage through Strait of Hormuz impact Indian stock market, gold, silver?

US-Iran war: The Middle East conflict has entered its third week, with no signs of a diplomatic breakthrough. In fact, there is further escalation in the US-Iran war following the US military strikes in Iran's main oil hub of Kharg Island. The Islamic state is mulling all options to counter the US and Israel, including mulling an attack on the backbone of Washington's economy — the petrodollar regime.

According to a Times of India (ToI) report quoting CNN, the Iranian government is considering allowing oil tankers to pass through the Strait of Hormuz, provided they trade in Chinese yuan.

For decades, oil has been priced and largely settled in the US dollar, a system that reinforced the dollar’s dominance in global finance throughout much of the late 20th century. According to various reports, nearly 80% of global oil trade continues to be conducted in US dollars.

Market experts believe that if Iran successfully implements a petro-Yuan plan, it will trigger short-term volatility across global financial markets. They also said that the petro-yuan framework would hit the currency and bond markets. However, amid this uncertainty, gold and silver could gain strength on the safe-haven demand.

Impact of petro-yuan on stock, currency, and bond markets

Speaking on Iran's move to the petro-dollar framework, Ponmudi R, CEO at Enrich Money, said that any discussion of oil payments through the Strait of Hormuz shifting to the Chinese yuan is likely to trigger short-term volatility across global financial markets.

Energy trade has historically been settled in US dollars under the petrodollar framework, and any attempt to move away from that structure introduces uncertainty for currencies, bonds, and equities.

“In the near term, equity markets are likely to remain sensitive to geopolitical developments rather than purely economic fundamentals. The United States has historically defended the dollar’s central role in global energy trade, and it is unlikely to easily accept a rapid transition toward alternative settlement currencies. Because of this, the issue extends beyond finance and enters the realm of geopolitical power, trade alliances, and monetary influence,” Ponmudi R of Enrich Money said.

US-Iran war news: How much Nifty 50 may fall

Sumeet Bagadia, Executive Director at Choice Broking, believes the stock market crash on Friday indicates sustained bearish sentiment and strong selling pressure. The Choice Broking expert said that bears would continue to dominate Dalal Street until the Nifty 50 index is below 23,350. Bagadia said the India VIX index climbed 5.24% to 22.64, reflecting heightened market volatility and rising investor uncertainty.

Speaking on the outlook for the Nifty 50 index, Sumeet Bagadia said it continued its bearish momentum for the fourth straight session. The index opened at 23,462.5, with a gap-down of nearly 170 points, and selling pressure intensified soon after. Although the market initially found support around the 23,300 level, it failed to hold that zone and extended losses. The index eventually touched an intraday low of 23,112 before settling at 23,151.10, down 488.05 points (-2.06%).

“This price movement indicates sustained bearish sentiment and strong selling pressure dominating the market. From a technical perspective, the 23,300–23,350 zone is emerging as immediate resistance, while a solid support base is forming near 23,000–23,050,” Bagadia added.

Petro-yuan impact on gold and silver rates

The move, if it materialises, could significantly influence the gold and silver prices too. Gold and silver prices, however, have failed to gain amid the US-Iran war so far.

Inflation woes amid crude oil price spike have reduced rate cut bets by the American central bank, weighing on gold prices. Meanwhile, silver has taken a back seat as investors fear macroeconomic uncertainty could derail industrial growth, reducing silver demand.

However, Anuj Gupta, a SEBI-registered market expert, said that a shift from the petro-dollar to the petro-yuan framework is expected to create market uncertainty. Due to this uncertainty, gold and silver prices are expected to rise on rising safe-haven demand for the precious metals.

“Any shift from the US dollar to Chinese yuan in the oil trade is expected to put pressure on the US dollar in the currency market. In the wake of a sharp fall in the US dollar, inflation is expected to shoot up in a very short time, a situation that may force the US Fed to raise interest rates, leading to a liquidity crisis in the US economy, " Gupta said.

Echoing similar views, Ponmudi R of Enrich Money said, “Gold and silver may see support during periods of currency uncertainty, as precious metals tend to benefit when confidence in the global monetary framework weakens. However, the dominance of the dollar in global reserves and financial markets means that any transition toward a multi-currency system would likely be gradual rather than immediate.”

Impact on Donald Trump

Any decline in the US dollar's appeal and rise in inflation could also emerge as a headache for President Donald Trump ahead of the mid-term elections due in November, especially as affordability is a key election agenda.

Amit Goel, Chief Global Strategist at PACE 360, said any rise in inflation would be negative for Donald Trump's Republican Party candidates ahead of the mid-term. So, Tehran wants to destabilise the US President in his own country without using a single piece of ammunition.

However, the Enrich Money expert said that for a structural shift to take place, it would require mutual understanding and coordinated agreement among major energy producers, consuming nations, and global financial institutions. “Without such coordination, unilateral moves toward alternative settlement currencies could create instability in trade settlement systems, shipping insurance mechanisms, and global clearing networks.”

BRICS angle you must know

“Remember, Iran is a permanent BRICS member, participating in the group's efforts to foster economic cooperation among emerging markets. The bloc has been busy challenging the US-led petrodollar framework," said Goel of PACE 360.

The PACE 360 expert said that Tehran believes any move to challenge American dominance in the global oil trade will receive support from Russia and Brazil as well. China will definitely support a petro-yuan bid by Iran, as it would strengthen Chinese might in the global oil trade,” said Amit Goel of PACE 360.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.