What Does the Rise of BRICS Mean for the Oil Business?

Posted: May 29, 2023
Category: Periodicals

History of BRICS

“BRICS”, is an extension of the original acronym “BRIC,” an acronym standing for the original members the group of economic peers originally categorized by the then-Goldman Sachs economist Baron Jim O’Neill of Gatley. These countries, sharing virtually no ethnic, cultural, or historical ties, were identified as large nations that were, in 2001 when the acronym was coined, at very similar stages of economic development. In 2009, the four founding nations held their first summit and in 2010, they formalized their union to become and official supranational organization. Later in 2010, South Africa was invited to the union, adding the “S” into the acronym.

The group has morphed, over time, into an organization that describes itself as being exclusively dedicated to the economic advancement of these emerging economies, but it seems to have an overtone of a desire to overthrow the American hegemony. Many of the members have publicly expressed various grumbles with the American international hegemony: Russia, China, and Brazil resent having to to do international business in the US dollar; Russia resents exclusion from the European family and from NATO; and South Africa resents the United States’ continued antipathy towards further military and economic involvement in Africa.

BRICS has set up a new international bank that serves as an alternative to the World Bank and the International Monetary Fund (IMF) known as the “New Development Bank”. They have also created the “Contingent Reserve Arrangement,” a new liquidity mechanism to assist other budding economies. These institutions perform similar functions to the UN-based IMF and World Bank, but are not Western-dominated and have fewer strings attached, like the IMF’s structural adjustment programs and austerity measures that borrowers are required to adhere to.

While the relationship between Russia and China seems stable and positive, the relationship between India and Russia is uncertain as India tries to play off of the West, China, Russia, and the Middle East. India and China have had a strained relationship in the past, centered around territorial disputes and difference of opinion over Pakistan (China being one of Pakistan’s greatest patrons and India being the chief enemy of Pakistan). South Africa conducted joint military exercises with Russia in February of this year (2023) in an effort to distance itself from the criticism of the Ukrainian War levied against Russia by many other nations, particularly those in the West.

Members of BRICS

Currently, the only official members of the BRICS organization are the members listed in the acronym–Brazil, Russia, India, China, and South Africa. There are, however, a number of countries who have already applied for membership and a great many more who are considering application.

India, by most reckonings, has surpassed China in population within the last year. Both nations boast around 1.4 billion souls each. Russia adds 143 million and South Africa has 59 million. All told, the BRICS nations have a population of just over 3 billion. The United States has only just over 330 million, the EU has a population of just under 447 million, and all of NATO (including the US and the EU members of NATO) has a population of 950 million.

NATO, of course, is a military alliance, not an economic agreement. The G7 is, at present, a closer comparison to BRICS as it is also a fairly informal, strictly trade-based group, but there is arguably greater merit in sizing up NATO against BRICS because the G7 has no formal structure at all (no secretariat, etc.), it contains the EU as a sort-of informal “non-counted” eighth player in the seven-nation tally, and it has no potential to become a more militant organization like BRICS might. For these reasons, NATO is compared here against BRICS.

Though no published, authoritative report publishes the number of nations interested in joining BRICS, 13 are purported to have submitted formal applications to join and 6 have informally expressed a desire to join. Among the countries sources allege to be interested in some degree are Saudi Arabia, Turkey, Egypt, Afghanistan, Argentina, Algeria, Egypt, Iran, Mexico, Indonesia, Kazakhstan, Nicaragua, Nigeria, Senegal, Thailand, and the United Arab Emirates.

Organizational Goals

The group’s intentions appear to be exclusively economic at this point. However, there seems to be a growing anti-American and anti-NATO sentiment in some of the foundational members of BRICS. A renowned political scientist and expert on the matter, Dr. Matthew Bishop of the University of Sheffield wrote, in an article for the Economic Observatory, “Diplomatically, the war in Ukraine appears to have drawn a stark dividing line between an eastern-backed Russia and the West. Consequently, some European and US policymakers worry that the BRICS may become less an economic club of rising powers seeking to influence global growth and development, and more a political one defined by their authoritarian nationalism.”

It is perhaps too early to forecast the future of BRICS, but many fear that it could become an anti-Western club of large nations, like a supercharged Collective Security Treaty Organization (CSTO), the heir of the Warsaw Pact and military union of six of the old Soviet states. With the current BRICS membership, this does not seem implausible, but with more members joining, bringing further complications to the direction of a pseudo-military alliance, it seems unlikely that they will take a militant anti-Western stance.

BRICS Currency

There has been conversation around he idea of making a BRICS currency in order to circumvent Western dominance and to better suit the fiscal needs of the BRICS nations. However, the realities of making such a currency are numerous. The Gulf Cooperation Council attempted to create such a currency for the GCC, a group of culturally, geographically, religiously, and commercially aligned countries, in the early 2,000’s. The ambition to have a common currency failed when the details of such an endeavor began to beset the project. The death-blow was dealt when deciding upon which country would host the central bank of the GCC monetary union, and after many months of argumentation, they idea was shelved.

With the BRICS nations being so disparate in terms of geography, culture, religion, and economy, the thought that a powerful common currency will soon be used between them seems like a distant hope. Agreeing upon a location for a central bank, a voting system for the issuance of new currency, and a reserve system for the currency will be difficult.

An example of success in creating a common currency, of course, is the Euro. The Euro, however, was born amongst a group of geographically, culturally, and economically close nations, and the Euro sprang forward 1999 after six years of operation of the EU, which was itself the heir of many other old and venerable inter-European commercial alliances. The stability of the Euro, even now, is called into question at times because of the differing economic stabilities of the various EU member countries (Germany vs. Greece, for example).

At present, the idea of a BRICS currency is only just now being discussed seriously, but it does not seem likely to come about at all, and certainly not soon.

Future of BRICS

It appears that about a dozen countries are being reviewed for membership in BRICS and more may follow. These will take a few years to precipitate through the new system, but it is likely that the organization will include many new members within five years. It is possible that the name of the organization (now an acronym of the member’s names) changes as a result, and the whole tack of the alliance will change too. The league may remain a weak trade group centered on assisting modernizing economies, it may morph into a serious pole of international power, or it may become something that we cannot yet foresee. What is clear is that there is tremendous international interest in this new organization.

Implications for Oil and Gas

The potential rise of the BRICS organization as a major world alliance network may have significant impact on energy markets, but those impacts may be overstated at present. Already, the United States imports oil in meaningful quantities only from Canada and exports mainly to Mexico. Natural gas from the United States now constitutes a larger share of European consumption. By contrast, India is consuming more Russian gas and oil as it takes advantage of the more cheaply-available hydrocarbon resources from Russia. China, too, is becoming a larger consumer of Russian energy and continues its dependence on Arab Gulf countries.

In short, market forces are governing the international flow of hydrocarbons into to less interdependent spheres: the G7 sphere and the BRICS sphere, each containing its own producers and consumers. It may be that BRICS reinforces this trends, but it does not seem to be the inspiring influence of the trend. Simply stated, BRICS does not enough torque to meaningfully alter the flow of hydrocarbons across the globe in the face of supply-and-demand-related market pressures.

Sources

https://www.tbsnews.net/world/global-economy/brics-draws-membership-requests-19-nations-summit-621398

https://www.economicsobservatory.com/the-brics-countries-where-next-and-what-impact-on-the-global-economy

Related Tags: Energy | oil and gas

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