Hedging in Oil Geopolitics – Rising By That?

Reposted with permission from Forbes

Tilak Doshi
I analyze energy economics and issues related to public policy.

President Biden’s visit to Saudi Arabia during his Middle East tour last week was little to show for it. Immediately after the visit to Biden, the Kingdom made it clear that it will not act unilaterally outside the OPEC+ group which includes Russia and its smaller allied producing countries. Saudi Arabia and its OPEC allies will continue to value the bloc’s cohesion, Russia’s position and the need to stabilize global markets in their production decisions.

Biden’s trip was chosen by Republican leaders as “oil please“From Saudi Arabia amid high gasoline prices, worst inflation in four decades at home and severe polls for the president. This happened while his manager was paying his salary regulation war The world’s leading domestic oil and gas industry is considered particularly serious. After last week’s meeting, one of President Biden’s critics Find his efforts to “reset” relations with Saudi Arabia, a “clear demonstration of a deeply weakened United States under the leadership of an incredibly talented president”.

These opinions may be seen as partisan politics but are notably News about Saudi Arabia’s interest in membership of the BRICS group that came ahead of President Biden’s visit. And while President Biden was meeting with the kingdom’s de facto ruler Crown Prince Mohammed Bin Salman in Jeddah, BRICS International Forum president Purnima Anand report On the same day, three other countries – including Egypt and Turkey along with Saudi Arabia – could join the BRICS group “very soon”. This follows the previous notification Iran and Argentina have officially signed up to become members with China’s support. The accession of new nations is discussion of Russia, India and China in 14th placeorder The BRICS summit was held (almost) last month.


Acronyms BRIC was launched by Goldman Sachs economist Jim O’Neill in 2001 to provide an analytical lens for investors on a rapidly growing group of emerging markets (Brazil, Russia, India) and China). He believes that the BRIC will increasingly challenge the economic dominance of advanced economies in the G7. The group’s first official summit was held in 2009, with South Africa joining in 2010 to form BRICS. This group accounts for 40% of the world’s population and just over a quarter of global GDP. To put this in context, the G7 countries with their much smaller population bases account for just over 30% of global GDP in purchasing power parity.

BRICS has been put in place as the only force group challenge the global economic dominance of the G7 developed countries. This may seem like a far-fetched concept, especially since the organization includes both China and India, countries where simmering border tensions have become active. deadly fighting over the past several decades. India is also a member of the Quartet, which, along with the US, Japan and Australia, is pushed to contain Chinese influence in the Indo-Pacific. And now, both Iran and Saudi Arabia – not the friendliest neighbors and embroiled in proxy wars in Yemen and elsewhere – are potential members of the BRICS.

Trade within the BRICS bloc has had no special significance since its inception. But when the global energy order was split into two blocs – those who supported Western sanctions against Russia and those who did not – intra-BRICS trade suddenly took on a strategic role. in unprecedented oil geopolitics. Western-sanctioned Russian crude oil exports, offered at a discount, have been diverted to China, India and (less importantly) Brazil, as well as a host of mid-sized importers. such as Egypt, Saudi Arabia, UAE. UAE -0.6% and others. With global energy prices soaring, this allows Russia to now run a current account surplus more than three times in the first quarter compared with the same period last year and one ruble was traded in The highest level in 7 years and has been the world’s best performing coin this year.

Via June, India imported 5 times as much crude oil as Russia bought in the whole of 2021 while China overtook Germany to become the largest importer of Russian crude oil. Brazil is heavily dependent on Russia’s oil and fertilizer exports, and its foreign minister recently speak that his country wants to buy “as much diesel” as possible from Russia. Saudi Arabia more than doubled Russia imported fuel oil in the second quarter to meet peak summer demand for power generation and free up the kingdom’s crude exports. China, India, Brazil and Saudi Arabia share attractive interests with all developing countries of access to fuels, food and fertilizers – of which Russia is a major global exporter – with Lowest price.

BRICS as a geopolitical hedge

Most countries in Asia, Africa, the Middle East, and Latin America outside of the narrow “Western alliance” have not engaged in isolating Russia in favor of the NATO agenda that so far appears to be. is to fight proxy war with Russia to the last Ukrainian. China, for example, is likely to view the war as not just a Western attempt to “bleed Russia” but as something with more direct consequences for its own national interests. Of NATO”New strategic concept“The document, released at a summit in Madrid last month, states that China’s stated ‘ambitions and coercive policies challenge our interests, security and values'” and warns on” the deepening strategic partnership between the People’s Republic of China and the Russian Federation, and the two sides reinforce efforts to undercut the rules-based international order that runs counter to our values. and our interests. “

The “rules-based international order” espoused by NATO and its allies means All-out economic war against Russia. This includes the seizure of half of the foreign exchange reserves of the Central Bank of Russia held abroad, blocking access to the SWIFT international payment system, and bans (or announcement of a plan to split ban period, as the EU cannot ban immediately) on Russian energy exports. President Putin replied with “rubles for gas“For “unfriendly” countries (i.e. those participating in sanctions), makes it clear that the scheme is a prototype to apply to all of the country’s major exports.

It is not surprising that both Moscow and Beijing are Working on the creation of an international reserve currency and an integrated interbank payment system based on a basket of BRICS currencies to combat Western sanctions. For countries outside the US-led alliance, BRIC membership can act as a hedge against the threat of secondary G7 or NATO sanctions.

Last month, China’s invitation to 13 countries including Indonesia, Kazakhstan, Nigeria, Senegal, Thailand and the UAE to apply to become BRICS members certainly had this dynamic between the parties. In his address to the BRICS forum attendees, President Xi Jinping spoke criticize of the US-led sanctions regime for the construction of “a small yard with a high fence”. He reflects the posture of developing countries seeking to continue to access fossil fuels – especially at discounted prices – to revive economic growth as they emerge from the stalemate.

A Dent on Dollar Hegemony?

An expanded BRICS grouping may or may not include oil and gas heavyweights Iran and Saudi Arabia. But if intra-BRICS trade in goods were settled in a commodity-linked currency basket between members as well as willing non-members, it would effectively end the currency. digital currency, a mainstay of the global financial system led by the G7. . Tensions in an expanded BRICS forum whose members are embroiled in regional rivalries could be further affected by the common interests of states outside the Western alliance seeking to secure a secure their access to imported food, fuel and fertilizers in the best possible condition.

Remarkable President Putin speech to the St.Petersburg International Economic Forum (SPIE CAKE -0.2%IEF + 1.1%F) warned last month that “it is wrong to assume that one can wait for a time of chaotic change and things will return to normal; that everything will be as it is. It won’t.” For many developing countries that rely heavily on 3F imports — fuels, food, and fertilizers — membership of the BRICS group could become the best geopolitical hedge in a world forever changed by US-led financial sanctions against Russia.

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Tilak Doshi

I have worked in the oil and gas sector as an economist in both private industry and consulting organizations, in Asia, the Middle East and the United States for the past 25 years. I focus on global energy development from the perspective of Asian countries that are still large markets for oil, gas and coal. I have written extensively in the fields of economic development, environment and energy economics. My publications include “Singapore in a Post-Kyoto World: Energy, Environment and Economy” published by the Institute of Southeast Asian Studies (2015). I won the 1984 World Bank Robert S. McNamara Researcher Award and received my Ph. in Economics in 1992.

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