BRICS is thinking bold with inclusion of Saudi Arabia, Iran, and the United Arab Emirates

The BRICS countries have sent an invitation to Saudi Arabia, Iran, and the United Arab Emirates, as well as to Egypt, Argentina, and Ethiopia, to join their group. The BRICS (Brazil, Russia, India, China, and South Africa) announced this decision during the meeting in Johannesburg. The six new participants can join on January 1, 2024, marking the first expansion since 2010.

This expansion is driven by the ambition of emerging economies to increase their global influence and provide an alternative to the US-dominated international system. The inclusion of oil giants such as Saudi Arabia, the world’s largest oil exporter, and Iran, as well as economic players like the United Arab Emirates and Brazil, would create a powerful alliance between energy-producing countries and emerging economies with significant energy demand.

Economic Implications

This expansion also has economic implications. Since the trade in oil and gas still largely occurs in US dollars, the expanded BRICS group could promote trade in alternative currencies, potentially fostering diversification of global trade. In recent decades, the dominance of the dollar in global trade was partly due to oil being settled in dollars.

The euro also gained international importance as Russia began settling more oil and gas in this currency. However, the war in Ukraine and sanctions against Russia marked a turning point. Since then, China has been attempting to promote the yuan as an alternative currency for settling oil and gas transactions. Various scenarios are possible in the coming years.

Competition for the Dollar?

A larger BRICS group could increase the global influence of participating countries and potentially lead to a shift in the global economy. Unlike the increasingly political approach of the Group of Seven (G7), the BRICS are more focused on market mechanisms and can offer a different vision and approach to global issues. The desire to provide an alternative to the US-dominated system is a significant motivation behind this expansion.

Analysts emphasize the importance of distinguishing between the use of the US dollar as a trade currency and as a reserve currency. While the use of the dollar for trade might decrease, it’s noted that currently, there are few other currencies that can compete with the scale and liquidity of the US capital market.