BRICS Expansion Could End US Dollar Dominance in Oil Trade: US Financial Experts Warn of Dangers Ahead
Ira Singh
16 Oct’23
In a rapidly changing global economic landscape, experts in the United States are sounding the alarm over the potential consequences of the BRICS (Brazil, Russia, India, China, and South Africa) bloc’s expansion and its possible impact on the long-standing dominance of the US dollar in the oil trade.
With the BRICS emerging as a major trading bloc with its expansion of six more countries, including Saudi Arabia, since the last South African meet, question bothering many traders in the US is, whether it will end the era of petrodollars particularly in the oil business.While there is no such currency as a Petrodollar, the US currency, the dollar or the greenback is the medium in which most global trade is conducted among nations around the world. The world buys oil from the Middle East in dollars and that’s how the word petrodollar stuck for the earnings of the Arab countries from sale of crude and POL (Petroleum, Oil and Lubricants).
The concept of the petrodollar has been a central element in global economics and geopolitics for decades. It refers to the practice of trading oil in US dollars, which has provided the US with significant economic and political advantages. However, in recent years, there has been speculation about the decline of the petrodollar and the rise of new alternatives, US financial analysts say.
Blog run by some financial experts has explored the question the most frequently asked question (FAQ) among US traders: Is the petrodollar dead? What BRICS (Brazil, Russia, India, China and South Africa) actually wants and how it relates to the petrodollar.
Is the Petrodollar Dead?End of Petrodollar Dominance:Some financial investors and analysts argue that the petrodollar’s dominance is waning. The rise of renewable energy sources and shifting dynamics in the global oil market has led to reduced dependence on oil and, subsequently, the US dollar
The BRICS Perspective : BRICS has played a role in challenging the petrodollar. They’ve discussed alternative currencies for oil trading, which could undermine the dollar’s status as the primary reserve currency.
What Does BRICS Want? The Geopolitical Shift: BRICS aims to reshape the global geopolitical landscape. By adding new members, like Persian Gulf states, they demonstrate a commitment to expanding their influence beyond their original group. They want to challenge the dominance of the petrodollar.
The inclusion of oil-rich nations like Saudi Arabia and Iran in BRICS could be a strategic move to challenge the petrodollar system, which has been traditionally US-centric, analysts say. BRICS dominated by India and China seeks to enhance economic cooperation, trade, and development among themselves and reduce dependence on Western-dominated financial institutions.
The Geopolitical Rivalry: BRICS presents a real challenge to Western dominance, particularly the US. Its expansion and ambitions signify a tectonic shift in the global balance of power. The fate of the petrodollar is a complex and evolving issue. While it may not be entirely dead, there are significant challenges to its dominance.
BRICS, with its growing influence and ambitions, plays a role in reshaping the global economic and geopolitical landscape. As these dynamics continue to unfold, it’s crucial to monitor how they impact the world’s financial systems and power structures, financial analysts in Wall Street say.
Inside Wall street, a highly informative journal and news mailer that analyses global trading trends and currency movements, says oil is now being purchased outside of the petrodollar system. That’s the same system that has helped make the US so powerful for the past few decades.
Now, Russia is using China’s yuan to settle 25 per cent of its trade with the rest of the world.
BRICS+ Turning Away from the Petrodollar? The BRICS+ powers have been making deals to buy OPEC+ oil in the most prominent currency they can access –the Chinese yuan. Now, the “petroyuan” is emerging. BRICS stands for Brazil, Russia, India, China, and South Africa. New Middle East countries are being added and the expansion continues in the hope it can emerge as a major trading bloc that can guide and create a new economic order in global trading as opposed to the Euro and the US dollar.
And the BRICS are now becoming the BRICS+ thanks to six new members, including Saudi Arabia and the UAE. That means the BRICS+ will include the two largest oil suppliers in the world, Saudi Arabia and Russia.
This year, China began using the yuan for most of its energy imports from Russia. India’s largest refinery, Indian Oil (NS: IOC ) Corp, and two other refineries there began paying in yuan for some of their Russian oil imports, too. China has also asked Middle Eastern suppliers to accept the yuan rather than dollars in oil trades.
All of this shows that more and more oil is being purchased outside of the petrodollar, Dr Noris said the era of Russia and China’s De-Dollarisation seems to have begun. To be clear, a complete and total shift away from Petrodollars won’t ever happen. Markets are too embedded in global oil trade.
But tiny cracks are showing. And a shift is happening. The two leading oil export and import BRICS countries — Russia and China — are championing the shift, Inside Wall Street said .
The US dollar is used in nearly 90 per cent of all foreign exchange transactions. Half of global trade and three-fourths of Asia-Pacific trade is denominated in US dollars. Most of the world’s oil transactions still occur in dollars. All of those transactions account for billions of dollars every day.
But, the shift away from the dollar is happening. It’s a death by a thousand cuts, Dr. Noris a financial expert said, adding oil giants — Saudi Arabia and the UAE — will become part of the BRICS+ in January 2024. That means world oil exports could undergo even more major changes.
As more governments buy and sell oil in non-dollar currencies, it will reduce the breadth of the petrodollar and, ultimately, the amount of dollars used for global trade.
While the BRICS countries’ attempts to reduce dollar dependency are motivated by their desire for greater economic sovereignty, these efforts may have far-reaching consequences for the global economic order. The US financial experts warn that if not managed carefully, this transition could lead to economic and geopolitical instability.
The expansion of the BRICS bloc and its efforts to reduce the dominance of the US dollar in international oil trade are raising concerns among US financial experts. While the consequences of this shift remain uncertain, it is clear that the global economic landscape is undergoing a significant transformation, and all stakeholders, including the United States, need to carefully navigate these changes to ensure stability and prosperity in the years to come.