BRICS aims to control the global oil sector and drive down the US dollar by using local currencies for trade. The alliance has been briefly successful in its de-dollarization agenda over the past 24 months and is on track to go further. The bloc introduced four new oil-producing countries in 2024, Egypt, the UAE, Iran and Ethiopia.
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An invitation to join the BRICS is also being sent to the largest oil exporter Saudi Arabia. The Kingdom is considering the possibility of joining the alliance, and Saudi Arabia's entry into the BRICS will change the supply dynamics of the global oil and gas industry. There are chances that Saudi Arabia could accept local currency for oil and debase the US dollar for payments.
BRICS: A fifth of oil payments are settled in local currency and not the US dollar
According to the final reportapproximately 20% of global oil payments in 2023 were settled in local currency and not in the US dollar. Natasha Kaneva, head of JP Morgan's Global Commodities Strategy, revealed to the Wall Street Journal that US sanctions are a key driver for BRICS countries to start oil trading in non-dollar currencies.
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The fact that the US is imposing sanctions on developing economies is what is pushing the BRICS to pay for oil in local currency. “This is something that other countries are increasingly concerned about,” says William Jackson, chief economist at Capital Economics WJ.
“Some are trying to reduce the risk of possible sanctions on the use of dollars in trade. China is trying to act as a geopolitical counterbalance.” he said. If Saudi Arabia joins the BRICS, the percentage of oil transactions in local currency will increase in the coming years.
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Although 20% of all oil transactions were settled in local currencies by 2023, the figures could rise if Saudi Arabia joins the BRICS. The alliance already dominates 43% of global oil supplies, threatening the prospects of the US dollar.