As the 18th BRICS Summit begins in Delhi on Saturday (Sept. 12), crude oil prices in the international market have risen to $108 per barrel.
Oil trade in Asian and Arab countries is determined by the value of the currency (the dollar) of the country across the Atlantic Ocean (the United States). The crude oil market remains unsettled due to Western sanctions and the war situation in the Middle East. At this moment, the ongoing BRICS summit has emerged as an important center of power capable of reshaping the global business order.
The world’s largest oil producers—Saudi Arabia, Russia, and Iran—and the largest consumers—China and India—are all part of the BRICS grouping. If the BRICS Plus coalition were to create its own autonomous new “energy security network,” it could lead to the collapse of the “petro-dollar” empire, U.S. dominance, and a new global economic order.
What are BRICS countries?
In 2006, Brazil, Russia, India, and China came together to launch an organization under the name 'BRIC'. Later, in 2010, after South Africa joined as a member, this grouping took the form of 'BRICS'. Its primary aim is to reduce the economic dominance of Western countries and promote trade, economic, and financial cooperation among developing nations.
Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, the United Arab Emirates, and Indonesia are its member countries. (In 2024, Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE were also added as new members).
What is the significance?
The BRICS Plus grouping brings together both the world’s largest crude oil producers and the largest consumers.
The BRICS Plus member countries contribute about 32 percent of the world’s natural gas production and 43 percent of crude oil production. If Kazakhstan, Kuwait, and Bahrain are added to this group, these figures will increase further.
China and India account for 38 percent of global petroleum imports, and if the new member countries are also included, this will rise to 55 percent.
The BRICS framework includes manufacturers, consumers, ports, refineries, financial institutions, energy companies, and emerging technological capabilities. Even so, they are unable to determine the price of crude oil among themselves; instead, the value of the dollar determines it, and the global situation sets it.
India and the rise in crude oil prices
India’s challenge and need: India has to import more than 80 percent of its crude oil requirements. War tensions in the Gulf, rising shipping charges, and disruptions in the Strait of Hormuz affect the Indian economy.
Moreover, the new tariffs and economic sanctions imposed by the United States on Russia and Iran have increased the dissatisfaction of countries around the world. Therefore, India has been compelled to make its energy system stronger.
To avoid dependence on the dominance of the US dollar and the Western SWIFT payment system, BRICS countries can pursue several alternative methods.
> Crude oil trade can be conducted in Indian rupees, Chinese yuan, or UAE dirhams instead of the dollar.
> Direct financial transactions between member countries can be carried out through digital currencies (CBDCs) and the BRICS Pay framework.
> To avoid being affected by market price fluctuations, establishing long-term oil supply agreements between member countries at lower fixed prices.
International impact and the position of the United States:
If the BRICS energy alliance becomes a reality, the 'petro-dollar' structure that has persisted since the 1970s will gradually weaken. The era of U.S. dominance will begin to come to an end. In particular, the value of the dollar will plunge to rock bottom. The BRICS countries can create a major crisis for the United States.
Countries around the world hold the dollar as their reserve asset, and that will begin to decline. As a result, the value of the dollar in the United States will fall, prices will rise, and inflation will increase.
When the value of the dollar declines among countries around the world, the U.S. economy will come under strain. Its ability to borrow from international banks will decrease, and economic growth will be disrupted.
America’s dominance in the Middle East and Asian regions will decline. Even traditional U.S. allies such as Saudi Arabia may join the BRICS bloc.
Will crude oil prices fall?
If a coalition is formed among BRICS countries, two kinds of changes in oil prices can be expected in the international market. They are:
Russia and Saudi Arabia can supply crude oil to BRICS member countries that are major importers, such as India and China, at lower prices and on a long-term basis. This will help control inflation within the member countries.
If crude oil distribution among BRICS countries increases, the amount going to Western countries will begin to decline. As a result, oil prices in Europe and America will rise further.
If BRICS countries are able to establish a new energy security network among themselves, it will be a new chapter in the economic history of the 21st century!