“First imperceptible, then unstoppable.” The risk of parallel trading systems that bypass the U.S. petrodollar continues to grow from BRICS’ (Brazil, Russia, Iran, China, South Africa) machinations. This new “axis of oil” produces about 40% of crude oil production and comprises nearly half the world’s population.
Integrating global oil and gas markets into the military, economic and industrial policies of America’s rivals buttress BRICS’ geopolitical strategies. Yet, the cartel is apparently down the list of geopolitical threats, with little discussion heard within Congress, the Senate, the White House, the Fed, etc.
Despite talks regarding establishing a BRICS member currency, attempts to reduce dependence on the dollar won’t be easy; the dollar comprises nearly 90% of global transactions and nearly 60% of foreign exchange reserves for the world’s central banks.
Further, alternatives to the dollar would have to counteract learned behavior and trust in its stability, as well as that of the World Bank and International Monetary Fund which undergird debt markets, commodities, and international trade outside oil and gas.
That said, direct currency swaps among members could circumvent the dollar as could a digital mechanism or even a return to gold among members.
The relative political instability of the BRICS could also prove an unacceptable risk, particularly given the capital intensity and long timelines for oil and gas.
Upheavals such as nationalization pose another potential threat to the BRICs’ effort, as does the complexity inherent in expansion. Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE) are countries reportedly currently under consideration as new members.
Among the unintended consequences discussed in some circles is “siloing” within the world economy, should BRICS efforts marginalize or at least weaken structures such as the European Union and groups such as the G-20 become separate competitors in what could become competing alliances.
By Jim Felton for oilandgas360.com
