BRICS Is About Much More Than New Currency

The BRICS nations want to reconstruct the global power structure in terms of money, trade, use of military power and much else. There are different ways to address what’s going on, but let’s focus on the geopolitics of it all, especially energy and the international oil trade.

This alone holds deep implications for the ongoing value (or devaluation) of the dollar, with related angles of inflation.

At last week’s summit, the bloc announced that six new nations would soon join them in January 2024: Iran, Saudi Arabia, United Arab Emirates (UAE), Egypt, Ethiopia, and Argentina.

This is quite a strategic collection of countries, for a variety of reasons that I’ll detail in a moment.

Al Jazeera explains the central theme of what’s going on with BRICS:

“The expansion of the group (BRICS) is part of its plan to build dominance and reshape global governance into ‘multipolar’ world order that puts voices of the Global South at the centre of the world agenda.”

In other words, the Global South is pushing back against the U.S., particularly against American-led global governance, if not domination and even hegemony.

Apparently, the BRICS — and many other countries across the globe — just don’t seem to appreciate the so-called “Rules-Based World Order” that U.S. diplomats often invoke to justify stacking the deck in favor of pro-U.S. outcomes.

For example, consider how the U.S. dollar has been the global reserve currency since 1945, the end of the Second World War. That alone has greatly benefited the U.S. economy, enabling Americans to purchase seemingly endless amounts of foreign goods and services, paid for with mere dollars, emitted with abandon by the Federal Reserve.

Or consider how global oil has been priced in dollars (aka petrodollars) since 1974. In this sense, the U.S. has had not just first dibs on tapping into a global array of oil suppliers, but the great privilege of exporting dollars in return for tankers full of useful crude oil.

And don’t neglect how the U.S. has used its political dominance and dollar hegemony to extend its military power across the globe, to places with names both familiar and unfamiliar. Or as the old saying goes, “War is God’s way of instructing the American people in the subject of geography.”

BRICS — the current and future expanded alliance — desires to change things around.

Now, let’s get to what just happened last week, certainly with the announcement of six new members in the BRICS lineup.

BRICS will add Iran, Saudi Arabia and UAE, essentially encircling the Persian Gulf and Strait of Hormuz. This means that these three key players in OPEC will also become part of BRICS.

Right away, you can see the obvious formation of a BRICS-OPEC alliance.

Just consider that Russia and Saudi are two of the three top oil producing countries in the world (the U.S. is the other), and Brazil is itself an energy powerhouse with its offshore oil wealth. All this, while China and India are two of the top oil importing nations.

Just this oil angle alone has innumerable implications for global trade, certainly in terms of which currency will be used for selling or buying petroleum. That is, we’ll likely soon begin to see a massive shift away from using petrodollars in the world oil trade.

That shift has already begun. For about two years, China has purchased Saudi oil using yuan; and China and India have been buying Russian oil for yuan and rupees, respectively. But now, post-South Africa meeting of BRICS, expect to see more and more oil traded using far more yuan and rupees, plus Russian rubles and perhaps even more non-dollar currencies.

Any way you cut it, this development is not good for the future use of the dollar in the oil trade.

In other words, every barrel of oil not traded in dollars means that neither buyer nor seller needs American currency, let alone American banks and bankers.

Plus, many overseas dollars will eventually find their way back home to the good old U.S. of A., to buy assets like real estate or other valuable goods. And this will contribute to domestic inflation. Count on it.

Meanwhile, Egypt is soon entering into BRICS. This has geostrategic implications just in terms of that country’s control over the Suez Canal, a key transit point for world trade in general, and certainly for oil and liquefied natural gas (LNG) from the Middle East to Europe. Meanwhile, Egypt also occupies a strategic position in the Eastern Mediterranean Sea, plus a long coastline along the Red Sea.

Again, think in terms of how these coastlines enable control of sea-lanes that form key elements of global trade in that part of the world.

Now, move south to Ethiopia, at the bottom end of the Red Sea. This area too is a strategic point in terms of controlling ship traffic into/out of the Red Sea sea-lanes. Plus, Ethiopia is well positioned as a kickoff point for trade into the heart of Africa, where there are immense amounts of minerals and agricultural potential.

And let’s not neglect Argentina, at the southern end of South America. Argentina is rich in agriculture and all manner of minerals, especially critical elements like copper and lithium, essential for the future of world energy development. Plus, Argentina controls strategic sea-lanes around the southern tip of the continent, and it’s worth noting that the shortest distance from any landmass to Antarctica is out of Argentina.

South Africa, already a BRICS member, controls the southern tip of Africa, meaning that it can influence sea routes there. Now Argentina is also part of the BRICS group, with its ability to control routes around South America.

In the longer term, both South Africa and Argentina are logical staging points for future exploration and development in Antarctica, as this century unfolds.

So, here are the key takeaways from the BRICS expansion:

BRICS is rapidly transforming into BRICS-OPEC. Expect to see more and more of what Al Jazeera calls the “Global South” exercising its own control over a large percentage of the world’s daily oil production, not to mention reserves in the ground. Looking ahead, the U.S. will have far less influence over world oil trade and prices.

Meanwhile, BRICS-OPEC controls key coastlines, waterways and straits through which much of the world’s oil exports pass. If nothing else, the BRICS-OPEC group will dominate key chokepoints.

Let’s wrap things up with reference to two important geopolitical scholars of the early 20th century, British geographer Halford Mackinder, and an American naval officer named Alfred Thayer Mahan.

Briefly, Mackinder developed the “Heartland Theory” of geopolitics, focused on the notion that central Asia — Eurasia, really — might unite as a group of peoples and nations to pursue common economic and security interests.

Mackinder framed his idea along the lines that regions east of about where Ukraine is located constitute the heartland of a “World Island.” And whoever controls that world island commands the world. In BRICS-terms, think of Russia, China and India, plus now Iran and Saudi.

Mackinders’ ideas heavily influenced U.S. and British foreign policy during the Cold War. Three decades after the Cold War ended, we seem to be getting there, right?

Meanwhile, Alfred Mahan, a U.S. Navy captain who viewed sea power — meaning the ability to project military power via a navy — as critical to control the oceanic realms of the world, and by extension control the coasts of nations everywhere.

Mahan’s key work was a book entitled Influence of Sea Power Upon History, published in 1890. And it became, in many respects, a military bible for not just the U.S. Navy, but for navies across the globe, from Britain to Russia to Japan and many more. Indeed, Influence of Seapower remains required reading in war colleges across the world.

The short version of Mahan is that sea power is essential to any nation that relies on oceanic trade, and hence must protect its commerce in a dangerous world.

One underappreciated angle of Mahan’s work was his emphasis on how military power is the first derivative of a nation’s industrial power. That is, absent strong industry at home, no nation can ever produce and maintain a powerful level of military force.

Stated another way, countries that don’t industrialize, or that choose to deindustrialize, will not remain militarily powerful for too long.

In this regard — in terms of Mackinder and Mahan — what we see with BRICS and the new BRICS-OPEC development, is that Mackinder’s “Heartland” is coming together. And it’s even extending its geopolitical and economic reach far afield to other continents like Africa and South America. While at the same time, this new BRICS-OPEC combination is laid out across the global map to dominate critical sea-lanes as well.

The bottom line is that the geopolitical world is changing hard and fast, and in ways the collective West has not seen in perhaps 200 years. With the rising BRICS-OPEC alliance, vast amounts of energy, mineral resources, food, and certainly the underpinnings of the U.S. dollar in the world are all in play.

As mere bystanders and investors in all of this, essentially all these new developments are out of our hands. The big decisions are happening with unknown players in faraway capitals.

But if ever there was a time to secure and guard your personal wealth, it’s right now. Invest in things with limited downside in the fast-evolving architecture of this new world: things like precious metals, other hard mineral assets, and energy.

The Daily Reckoning