BRICS is upending the petrodollar monopoly and laying the groundwork for a multipolar financial system by encouraging the exchange of oil in local currencies. Supported by new trade agreements, an increase in non-dollar settlements, and a larger movement toward financial sovereignty, this change is not merely theoretical; it is currently happening.

BRICS’s Challenge to the Petrodollar: A Pragmatic Shift

Economic practicality and geopolitical need are the driving forces behind the shift away from a dollar-based oil trade. This change was hastened by the sanctions the West placed on Russia in 2022, which forced Moscow to exchange oil in rubles, yuan, and rupees. About 78% of Russian crude oil exports to China and India were paid for in local currencies between 2022 and 2023, a significant rise from 32% in 2021.

The promotion of yuan-based oil commerce has been spearheaded by China, the largest oil importer in the world. Major exporters like the UAE and Russia can now transact in yuan through the Shanghai Petroleum and Natural Gas Exchange, completely avoiding the dollar. This change is in line with Beijing's larger plan to lessen its reliance on US monetary policy and internationalise the yuan.

Expanding BRICS: Strengthening the oil trade bloc

The influence of BRICS+ on world energy prices has been further cemented with the recent addition of major oil producers Saudi Arabia, the UAE, Iran, and Egypt. The second-largest oil producer in the world, Saudi Arabia, has already made references to selling oil in yuan, which may cause a huge upheaval in international trade.

Iran's admission to BRICS was a logical step given its long-standing reliance on barter and non-dollar settlements due to U.S. sanctions. In addition to expanding trade deals with China and India, the UAE, a significant energy hub, has made it easier to sell oil in local currencies. With the addition of these new members, BRICS+ now holds more than 40% of the world's oil and gas reserves, providing it with unheard-of power in the energy sector.

Financial and strategic implications

There are significant strategic and financial ramifications of the shift to non-dollar oil trade. First, it makes U.S. financial sanctions less effective. Local currency traders have more policy autonomy because they are less susceptible to economic pressure from the US. Second, it lessens the reliance on dollars in world reserves. The dollar's dominance may gradually wane if significant oil transactions continue to move away from the dollar and central banks throughout the world diversify their holdings toward BRICS currencies. Third, it makes the Global South's financial institutions stronger. By financing more projects in local currencies, the BRICS-led New Development Bank (NDB) has decreased its reliance on Western-dominated financial institutions like the World Bank and IMF.

Challenges and counter-measures

The de-dollarisation of the oil trade is not without difficulties, notwithstanding its advancements. As of 2024, more than 58% of the world's foreign exchange reserves were still kept in US dollars, demonstrating how firmly ingrained the dollar is in international trade and banking. The advanced financial infrastructure needed to make the switch to alternative currencies, such as deep and liquid currency markets, is still being developed by the BRICS countries.

Additionally , Washington is not likely to stand by and watch the petrodollar system deteriorate. Retaliatory duties on nations moving away from dollar-based commerce have already been alluded to by the United States. However, by establishing new economic partnerships and developing alternate payment methods, BRICS nations have taken the initiative to reduce these risks.

A new era of oil pricing

The world oil market is undergoing an irreversible shift as BRICS+ countries continue to strengthen their energy alliances and develop non-dollar trade channels. Once uncontested, the petrodollar monopoly is currently being challenged by economic necessity and practical policy changes. The emergence of non-dollar oil settlements indicates a shift toward a more balanced, multipolar financial system, even though the dollar will not abruptly vanish from international trade. The Global South as a whole, which aspires to increase economic autonomy and resilience against external financial shocks, benefits from this realignment in addition to BRICS+ countries.

Written by

*Dr Iqbal Survé

Past chairman of the BRICS Business Council and co-chairman of the BRICS Media Forum and the BRNN

*Sesona Mdlokovana

Associate at BRICS+ Consulting Group

UAE & African Specialist

**The Views expressed do not necessarily reflect the views of Independent Media or IOL.