Is The Ukraine War Binding The BRICS? – OpEd

Countries would have to pay for Russian oil in rubles

Over the years I have been skeptic about the BRICS (Brazil, Russia, India, China, and South Africa) initiative especially when the interests of India, China the two immediate neighbours clash on almost all issues! Ladakh 2020 Standoff brought India and China closest to war since 1962 and India started attaching more importance to QUAD (India, US, Japan, and Australia). Post US pulling out of Afghanistan and Taliban taking over with the support of Pakistan and China making supportive friendly moves to the Taliban regime the relevance of the BRICS future again appeared to be in danger. 

The reason is a clear lack of traditional logic behind the coming together of these countries falling on different continents. They are dispersed geographically, ideologically and their economies are in different stages of development. There seems to be no common ground but Russian oil and gas in spite of the differences may influence BRICS members to be one and challenge the petrodollar! However, the Ukraine war appears may change the scenario into getting the BRICS countries closer.

The BRICS five countries cover 40 percent of the world’s population and more than 25 percent of the world’s land. The group continues to meet and to talk on common agenda. China is now the Second largest economy and is poised to overtake the US. India is one of the world’s leading IT exporters. 

Russia’s invasion of Ukraine has led to the biggest clash in decades between Moscow and the West. The West is trying to persuade China and India, to take a clear side in the conflict. Post winter Olympic games in Beijing “The new inter-State relations between Russia and China are superior to political and military alliances of the Cold War era” and that the friendship between the two states has “No limits.”

Foreign ministers including of China and advisors of important stake holders are all rushing to India for better ties and gauze the Indian stand on the Ukraine war. Russia’s Foreign Minister Sergei Lavrov was looking to boost trade ties and “Sell more oil to India” as it faces widespread energy import boycotts in Europe and the US.

Western nations led by the US, which have imposed vast sanctions on Russia after its invasion on Ukraine, are trying to penalize the Russian economy. Russia, for its part, is looking to circumnavigate sanctions through the allegiances it has built with its Asian neighbours and BRICS especially through the sale of oil and gas to China and India. China and India continue to maintain a neutral stance by abstaining from the UN General Assembly resolution but deploring the Russian invasion. However, both are ready to work with all parties to resolve the Russia-Ukraine conflict and restore early end to the war.

The Economist Intelligence Unit published a report which stated that “two-thirds of the world’s population lives in neutral or Russia-leaning countries regarding the war in Ukraine.” Worryingly for the West, Russia could look to strengthen its relationships with other neutral countries, aside from China and India. Other major non-aligned states include Brazil, Saudi Arabia, South Africa and the United Arab Emirates.

Can BRICS be partners in De-Dollarization?

In response to sanctions imposed on Russia following the invasion of Ukraine, President Putin on 23 March 2022 announced that “Unfriendly countries would have to pay for Russian oil in Rubles”. The sanctions included, notably, the exclusion from the SWIFT bank messaging system of selected Russian banks and the freezing of assets of the Bank of Russia.

De-Dollarization emerged as a priority for Russia in 2014 in response to the imposition of Western sanctions following the annexation of Crimea. China also began seeing value in this initiative after the onset of the US-China trade war in 2018 and the use of punitive financial measures by the US. Beijing has broadly supported these efforts so far.

China wants its currency, the Yuan, to replace the US dollar as the world’s Global Currency. That would give it more control over the economy. The Yuan as yet cannot replace the US dollar unless it acquires stability, Central banks around the world choose to keep a total of at least $700 billion worth of Yuan in foreign exchange reserves and Chinese monetary policies are perceived as stable. Chinese leaders are beginning to make it easier to trade the Yuan in foreign exchange markets. The Renminbi (RMB) is another name for the Yuan. That makes it easier for North American companies to conduct Yuan transactions in Canadian banks. China opened up similar trading hubs in Singapore and London.

With its Belt and Road Initiative (BRI) the ‘dream project of the century’ of Presient Xi as to also advance its foreign policy and economic goals, Beijing aims to truly internationalize its currency. China has made bilateral currency swap arrangements with more than 20 BRI countries and has signed cooperation agreements with the financial supervision authorities of 35 BRI countries. These strengthen RMB’s currency functions for international payment, trade and reserves”. For instance, Pakistan also signed a currency swap agreement with China which is significant towards the internationalization of the RMB.

Can Russian oil and gas lead to Ruble trade-BRICS?

South Africa and Brazil both do not import oil; however India and China are major oil importers though at the moment India imports negligible quantity from Russia. China has signed major deals for the Russian oil and gas. Russia is prepared to supply at cheaper rates than the prevailing oil prices. “Beijing has broadly supported these efforts so far, but wonder if a proposal to do trade in Rubles within the BRICS countries will be supported by China as it will be against their own ambition to internationalize its own currency.” India, South Africa and Brazil may support Ruble trade. China has made marked progress in their RMB trade in their BRI countries through the Chinese State-owned enterprises and they can achieve their dream goal of internationalization of the Chinese currency in the future. “Ruble trade is only possible if Russia can take China on board within the BRICS nations”, as otherwise it goes against the economic interests and ambitions to internationalize Yuan-RMB Chinese currency to replace the US Dollar in the near future.