Posted on 08/30/2023 10:43:32 AM PDT by EBH
Brazil, Russia, India, China, and South Africa have invited six other countries to join the BRICS grouping next year to create a geopolitical counterweight to the G7 and potentially a framework to reduce dependence on Western financial systems. The expansion of BRICS could have important implications for energy investment and trade, since it brings together large mineral resource holders and major oil producers, as well as some of the fastest growing energy consumers.
Q1: What is the latest development?
A1: BRICS was first formed with four countries in 2009, and one year later, South Africa joined the multilateral forum at the invitation of China. At the start of this week, Chinese president Xi Jinping advocated for expanding the grouping to become a geopolitical rival to the G7. Twenty-three countries submitted applications to join the bloc. BRICS leaders selected six: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE). This is a significant change for a bloc that added its only members 13 years ago. The BRICS grouping started as an acronym for countries with widely varying economic output and trade and investment partners, and the expanded group would be even more heterogenous.
Q2: Will the expansion of BRICS impact global energy security?
A2: It is likely that the expanded BRICS will take a similar approach to the Minerals Security Partnership (MSP), which is a U.S.-led initiative to strengthen critical energy security for itself and 13 of its allies.
The addition of Argentina will strengthen the bloc’s lithium supply. The South American nation has the third-largest lithium reserves in the world. According to an August 2022 JPMorgan forecast, Argentina’s share of global lithium supply would rise from 6 percent in 2021 to 16 percent by 2030, surpassing Chile to be the second-largest lithium producer in in the world by 2027. At present, Argentina has 13 lithium projects in the pipeline, more than any other country. The addition of Argentina would position BRICS with three of the five largest lithium producers in the world, alongside China and Brazil.
BRICS, like the MSP, will also seek to increase public and private investments in critical minerals supply chains among allies. Saudi Arabia, another new entrant, is already making significant investments in lithium and other critical minerals in Brazil. It recently made a $2.6 billion deal to buy a 10 percent stake in Brazil’s largest mining company, Vale’s base metals division, to access various critical minerals, including nickel and copper. The partnership is key for Saudi Arabia to reach its goal of building 500,000 electric vehicles annually by 2030 through targeted investments.
Q3: Will BRICS have an impact on critical mineral investments and trade flows?
A3: Yes. Individual BRICS countries have used critical minerals export restrictions for the last decade. OECD data indicate that as of 2021, China had 35 natural resource export restrictions, compared with 17 from Russia, 32 from India, 14 from South Africa, and 7 from Brazil. There has been a rapid acceleration—from 2009 to 2020, China increased its export restrictions on critical minerals by a factor of nine, including nonautomatic licensing and export taxes.
At a minimum, these countries will continue to use individual export restrictions—but it is quite possible a more coordinated approach will develop. Either individual or bloc sanctions could be crippling for national and energy security for the rest of the world. An expanded BRICS would have 72 percent of rare earths (and three of the five countries with the largest reserves). The expanded bloc would also hold 75 percent of world’s manganese, 50 percent of the world’s graphite, 28 percent of the world’s nickel, and 10 percent of the world’s copper (excluding Iran’s reserves).
A larger BRICS may also see an increase in investments in projects and places that non-partner countries would avoid. Iran is a good example. The country has significant amounts of critical minerals, including the largest zinc reserves in the world and the second-largest copper deposit in its Sarcheshmeh mine. However, Iran has been unable to mobilize investment to increase production due to rigid economic sanctions (an additional 17 Iranian mining companies were sanctioned in 2020). This grouping will likely get some investment flowing into Iran in exchange for some copper, zinc, and lithium in due course.
Q4:What does the enlargement of BRICS mean for oil and gas trade?
A4: With the addition of Saudi Arabia, the UAE, and Iran, this expanded group would include three of the world’s largest oil exporters and would constitute 42 percent of global oil supply. Oil market management will remain the purview of the Organization of the Petroleum Exporting Countries and allied producers (OPEC+). But over the long term, an expanded BRICS grouping could be significant for energy markets. For years, OPEC+ states have complained that Western energy sanctions on Iran and Venezuela have constrained investment and export flows. More recently, the EU embargoes on Russian seaborne crude oil and petroleum products and the EU-G7 price caps have created a new sanctions mechanism that targets revenues rather than export volumes. Other exporters worry that new sanctions tools could target them in the future, and they are wary of G7 interventions that have reshaped energy flows.
An enlarged BRICS would include both oil and gas exporters and two of the largest importers, China and India—both of which refused to join the “price cap coalition” targeting Russia. Producers and consumers in this group have a shared interest in creating mechanisms to trade commodities outside the reach of the G7 financial sector. This is no small task. Dollar-denominated energy trade persists for many reasons: the dollar is liquid and freely convertible (in contrast with China’s use of capital controls and its opaque financial sector regulation) and many of the world’s largest oil exporters peg their currencies to the dollar.
As energy sanctions have become more prevalent, a growing number of bilateral energy deals are being settled in other currencies such as the Chinese renminbi or Indian rupees. But payments for oil or gas imports in certain currencies are a far cry from full internationalization—for example, third-party use of the renminbi for transactions between other countries. For energy markets, enlarging BRICS is largely symbolic for now—but it is another sign that countries are exploring ways to skirt the U.S. financial system and the reach of the dollar.
Gracelin Baskaran is research director and senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Ben Cahill is a senior fellow with the CSIS Energy Security and Climate Change Program.
All in all you’re just another BRIC IN THE WALL...............
Use currency as a weapon and no one will want to do business with you.
We are getting our asses handed to us from this!
Looks like the plan to unseat the US petro-dollar is well underway.
I can’t see how taking in loser countries like Ethiopia and Egypt are going to help them out.
And yet there are still many here on FR that do not view BRICS as a problem.
We should drill baby drill and mine baby mine.
If the US gives these countries Aid it should be CUT OFF right now
This could be the start of the dollars demise but we’re a long way from the end.
this block of nations could curtail their corrupt ways and manage their natural resources efficiently, then we’d be in real trouble. Nah. Ain’t gonna happen.
a strong energy independent US and its dollar will be the defacto world currency once more... BRICS will not be able to compete with all their market manipulations.
Because the stupid is very strong with them and they lack critical thinking skills.
Ethiopia isn’t a loser in the new world order landscape. Gold and oil...and other minerals that currently run the world...just needs to be exploited.
Egypt, now what does Egypt have to bring to the table? Maybe start looking up the resources touched upon in the post?
What seems to go unnoticed as BRIChinaS consolidates its control of the world’s future supplies of cheap, stable and plentiful energy and food, is the West’s ongoing production suicide in these areas.
You go ahead and keep believing that, but now they control the lions share of oil...
Biden cut his nose off when he shut down pipelines and the democrats with their refusal to build new refineries. It will take us decades to catch back up. And that is just ONE resource.
You are still thinking like a free market.
BRICS isn’t and won’t be a free market system. Once they close the door on the US dollar/petrodollar...they won’t care about ‘free trade/systems.’
Old Testament prophets weren’t very popular at parties.
BRICS isn’t really a “problem” per se, it’s more like a Nuclear Bomb on the Central Banks and by default the American Dollar, especially our very own Moneychangers at the Fed.
America will be its own free market. we can be energy independent and independent of the world...
yes we can.
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