Why the BRICS expansion is less about inclusive growth and more about undermining the petrodollar
With unanimous consensus, the BRICS bloc, steered by Russia and China, has announced its long-anticipated expansion during the recently concluded summit in Johannesburg. This development will usher Saudi Arabia, Iran, Ethiopia, Egypt, Argentina, and the UAE into full-time membership within the group.
While India and Brazil, with their close ties to the United States and its allies, may have harbored reservations on a few fronts, the BRICS alliance moved forward unitedly at last.
Xi Jinping articulated that the BRICS nations "are all countries with great influence and shoulder important responsibilities for world peace and development."
"India fully supports the expansion of BRICS membership and welcomes consensus on this matter," Prime Minister Narendra Modi affirmed at the summit, attended by Chinese President Xi Jinping and hosted by South African President Cyril Ramaphosa.
ALSO READ: PM Narendra Modi to attend the BRICS summit in South Africa. What you need to know about it
While the crucial climate action agenda found itself temporarily relegated, the loudest applause resounded for forum expansion and de-dollarization. Russia and China have been enduring the repercussions of US and US-backed institution embargoes. The discourse on a potential common currency adoption among BRICS members might have been momentarily obstructed by the Sino-Russian alliance.
A closer inspection of the joining countries and their crude production volumes reveals a more pronounced underlying motive: dismantling the petrodollar!
Saudi Arabia, the de facto leader of the Organisation of Petroleum Exporting Countries (OPEC+), traditionally entwined with the U.S., significantly generates and exports crude to Indo-Pacific and European nations. The UAE also boasts robust and longstanding relations with the United States. Iran, another possessor of extensive oil reserves, has long grappled with Western sanctions. Russia stands prominently as a top oil exporter, increasingly conducting transactions in non-dollar currencies.
Consequently, the expansion envelopes over 60% of global oil production within BRICS+.
In effect, these four countries—ranking among the foremost crude oil producers as of 2021—entering the BRICS+ fold could precipitate a profound shift in the global energy trade landscape.
This transition in economic dynamics lays the foundation for the rise of the Petroyuan.
Should commodities cease to exclusively trade in U.S. dollars, the future could witness a dent in the worldwide dominance of the US dollar as the primary reserve currency.
Petrodollar dynamics
Historically, the U.S. dollar's bedrock was Saudi Arabian oil, leading to the establishment of the Petrodollar system in the 1970s. However, a significant transformation has taken shape lately: Saudi Arabia now engages in three times more trade with China than with the United States.
The success of the BRICS+?
- The viability of this expansion is a subject of debate as BRICS is a diverse group of economic powerhouses and emerging economies without a common ideological foundation.
- This lack of an ideological glue could lead to member states pursuing their national interests, potentially undermining productive outcomes, reminiscent of challenges faced by past multinational fragmented groupings like the Non-Alignment Movement, the Organisation of Islamic Cooperation, and the G77.
Time will tell if the expansion will fulfil common goals. It must be noted that it won't be easy for the alliance to hold reigns of global energy finances instantly. Given the vastness and impact of institutions like the International Monetary Fund, the World Bank, G7 and G20, around the globe, BRICS+ might have to push harder and together.