BRICS Expands: A New League of Major Oil Producers Emerges

A few more BRICS

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  

BRICS – which includes the world's major energy-hungry nations like China and India, invited five countries - which happen to be the world's top oil producers Saudi Araba, Iran, UAE, Egypt and Argentina - to join the bloc. This means that the world's biggest oil producers and consumers will be forming a league within which – they are not necessarily willing to invent a gold-backed common currency – but where they will certainly be willing to settle their trades in terms of member-state currencies. The Chinese yuan could be a good candidate, the Indian rupee could be another alternative, or why not, the Russian ruble could also do the trick.  

This is an important step towards weakening the petro-dollar, which is the outcome of an agreement back in the 1970s between Nixon administration and Saudi Arabia to trade oil exclusively in dollars in exchange for security guarantees from the US. Since then, OPEC has been selling its oil in USD terms. If we shift towards a new world order where oil and energy are no more traded in US dollars, that would be a major blow to the dollar as base and reserve currency, and that could also have major implications for the US economy's exploding debt that the rest of the world would not want to finance anymore, and the risk-free-ness of the US treasury.  

But we won't reach that point tomorrow. First, China and India should end the conflict at their border. Second, a political alignment of EM countries with China and Russia is less evident than it sounds. India, for example, is not willing to make the US an enemy. PM Modi is the first foreign minister to address the US congress twice in the history of the United States, and many investments that leave China go to India.  

But something is cooking in the EM kitchen and it's worth watching.