As promised, today’s post contains an update on last week’s 3 day BRICS Summit in Johannesburg, South Africa. Since I’m no expert on international currencies or geopolitics, much of this update is a collection of excerpts from other substacks and newsletters written by guys who really do know what they’re talking about - I’m thankful for their expertise and research.
more than 60 nations gathered in Johannesburg, media coverage has been almost absent, and next year’s summit will be even more interesting - the Brics+ will meet in Russia in 2024
But first, a couple news items on energy…
“unreliable” renewable energy
from Stu Turley’s ‘Energy Newsbeat’…according to Brian Day, chairman of the South African Independent Power Producers Association
“The unreliability of renewable energy will require excess capacity to be built. To replace the 11,000 MW (megawatts) lost from decommissioning coal plants, 50,000 MW of renewable capacity will have to be built.”
…it would have made more sense to go slow on decommissioning coal plants until the feasibility of other energy sources became better known one way or the other…
UK tax on energy will result in higher costs for consumers
From ‘Crude Oil News’, Mariel Alumit, Aug.28th
“Ithaca Energy, one of the largest oil and gas producers in the UK, has reduced investments and is deferring some projects this year and next, due to the burden of the windfall tax Britain has levied on the industry.
The windfall tax, the so-called Energy Profits Levy, has prompted many companies operating offshore the UK to cut investments and review projects.
After the UK raised the windfall tax to 35% at the end of last year, Harbour Energy, the biggest oil and gas producer in the UK North Sea, backed out of the latest licensing round aimed at awarding more than 100 new licenses. Shell has said it would be re-evaluating each project comprising its $30.5 billion (25 billion pounds) planned investment in the UK energy system, and TotalEnergies has said it would slash its investment in the UK by 25%.”
Cutting investment will reduce supply which will increase prices. Basic economics.
now, about the BRICS summit
From Stu Turley’s ‘Energy Newsbeat’ Aug.30
“The acronym BRIC was coined by Goldman Sachs economist Jim O’Neill in 2001 for informing investors about a group of rapidly growing emerging markets (Brazil, Russia, India and China) and their potential to challenge the economic dominance of the developed economies of the G-7. The first formal summit of the group was held in 2009, with South Africa joining in 2010 to constitute BRICS. O’Neill’s investment product, the BRIC Fund, was folded in 2015 after it lost 88% of its asset value since a 2010 peak. Evidently, the strategy of bundling four disparate countries into a single investment theme could not deliver returns.”
…Russia’s invasion of Ukraine in February 2022 was transformational for the role BRICS played in international trade. After Russia invaded Ukraine, the U.S., U.K., EU and allies imposed the most comprehensive and unprecedented economic attack on a sovereign nation in recent history. At a stroke, Russia became the most sanctioned country in the world. About half of the Russian Central Bank’s foreign exchange reserves held offshore (which totalled over $600 billion) was frozen. Leading Russian banks were also stopped from accessing SWIFT, the international bank payments system. Since February 2022, multiple sanctions have been placed on Russian individuals and institutions, but the focus has been particularly on its main export earners, oil and gas.”
there were all kinds of unintended consequences
“As the global energy order rapidly cleaved into two blocs, intra-BRICS trade gained an unprecedented strategic role in the geopolitical tensions brought about by the Russian invasion. Most of the rest of the world outside of the Western alliance did not support the sanctions because they felt, for good reason, that they did not want to be pawns in a global geopolitical rivalry. They also wanted to be able to trade with Russia – a major commodity exporter of fuels, food and fertilizer — according to their needs.”
miscalculation by U.S.
“Countries sanctioning Russia overestimated their control of the global energy trade. While Russian exports of coal, oil and natural gas to Europe have fallen sharply since December, these exports have been re-routed to a number of countries. In June 2023, the top destinations of Russian energy exports were, in order, China, India, Turkey, the EU, Brazil and Saudi Arabia. Reflecting the fungibility of energy markets, China re-exported LNG cargoes from Russia to Europe while India exported refined oil products derived from Russian crude oil to world markets.”
From Robert W. Malone, June 11th - some stats
“The BRICS have a combined area of 39,746,220 km2 (15,346,100 sq mi) and an estimated total population of about 3.21 billion, or about 26.7% of the world's land surface and 41.5% of the global population. Brazil, Russia, India, and China are among the world's ten largest countries by population, area, and GDP (PPP), and the latter three are widely considered to be current or emerging superpowers. All five states are members of the G20, with a combined nominal GDP of US$28.06 trillion (about 26.6% of the gross world product), a total GDP (PPP) of around US$56.65 trillion (32.5% of global GDP PPP), and an estimated US$4.46 trillion in combined foreign reserves (as of 2018).”
some resentment of U.S.
“The truth is that BRICS is no longer just about economics, the organization has quickly become a leading voice in global politics. Some speculate that many, if not most of the countries within BRICS or applying for BRICS membership resent US hegemony, European Union arrogance and western dominance in geo-politics. The inward looking politics of the west grows old on the rest of the world.
…Now BRICS has been catapulted onto the world stage with America’s proxy war in Ukraine and so many US financial mis-steps; including mismanagement of the COVID crisis world wide. Will the hubris of the America’s involvement in the Ukrainian war, which seems designed to bring about regime change in Russia, finally bring pax-America to an end? And with that, an end to western dominance on the global stage?”
From John Rubino, Aug15 read his collection of excerpts from Jim Rickards, Alisdair MacCleod, Andy Schectman, Peter Earle, Lobo Tiggre and Rick Rule, on whether the new currency will be based on a gold standard
Jim Rickards ‘Strategic Intelligence’ Aug.25
“The BRICS Leaders’ Summit has ended ran from August 22 – 24 at the Sandton convention center near Johannesburg, South Africa. This was the 15th annual Leaders’ Summit and the first one with in-person attendance since the pandemic panic of 2020.
BRICS have over 100 meetings per year involving working groups on finance, diplomacy, the environment, women’s issue, sports, and many more topics. There is only one meeting per year involving the members’ top political leadership; that’s the Leaders’ Summit, which ended yesterday.
Saudi Membership and The End of The Petrodollar
The BRICS Leader’s Summit ended with a momentous decision to expand the membership of BRICS for the first time since 2010. Saudi Arabia, the United Arab Emirates, Egypt, Argentina, Ethiopia, and Iran were all admitted to membership effective January 1, 2024.
Brazil did not initially support Saudi Arabia’s membership both because it would dilute Brazil’s economic clout in the BRICS (Saudi Arabia is a $1 trillion economy), and because it would reduce Brazil’s importance as an oil producer among the BRICS (Saudi Arabia is the second largest oil producer in the world; Brazil ranks ninth).
India had no particular problem with Saudi Arabian membership in BRICS, but it was not especially enthusiastic about the launch of a new BRICS currency. India is trying to promote the rupee as a trade currency and that effort would suffer if a better currency were on offer.
Expanded BRICS membership does mark the beginning of the end of the petrodollar era. Membership of Saudi Arabia in the BRICS is a large step in that direction. If Saudi Arabia chooses to break the petrodollar agreement with the U.S. and sell its oil in currencies other than dollars, it will be a massive blow to America and could weaken U.S. power globally even more.
But Saudi Arabia’s membership in BRICS is also a large step in the direction of a new BRICS currency because it will expand the size of the currency union, which is critical to making the new currency useable and liquid.
In the end, Russia and China used their muscle to push through the new members, despite objections from India and Brazil. The BRICS are now BRICS+ with eleven full members and on their way to greater political power and a new currency union.
BRICS+ Heads Towards New Currency
As a result of this expanded membership, the new BRICS currency will emerge in the year ahead. This is because all current and prospective BRICS members and the entire Global South (including members of the Shanghai Cooperation Organization and the Eurasian Economic Union) are suffering from the weaponization of the U.S. dollar and the threat that their dollar-denominated reserves may be frozen by the U.S., as recently happened to Russia.
It is understandable that individual emerging markets might want to promote the use of their home currencies in trade. But that effort is doomed to failure. Almost any currency can be used as a way to keep score on trade balances. The difficulty is what the surplus country can do with the currency.
There are no large, liquid bond markets outside the U.S., Europe and Japan in which to invest. There are practical limits on how much a surplus country can buy from a deficit country if the market is limited to the goods and services of the deficit country.
The answer is either to use the dollar or the euro (which the Global South want to avoid), or start a new currency union that’s big enough to offer a diverse range of goods and services (and eventually bonds) such that the surplus country feels comfortable receiving the new currency as payment.”
Not everyone agrees. According to Stu Turley, “Jim O’Neill, the economist who coined the BRIC term, finds ‘de-dollarization’ and the idea of a BRICS common currency to replace the US dollar’s international reserve status “ridiculous” and “almost embarrassing”.
Also, David Blackmon points out that each of the BRICS+ countries own currencies are tied to the Dollar, so he doesn’t expect them to take the risk of decoupling from the dollar at this time. (Perhaps in a few years?)
more from Jim Rickards - Biden’s Doomsday Scenario
“The implications of expanded BRICS membership go far beyond the currency union. With the additions of Saudi Arabia, Iran, and UAE, the BRICS have now effectively surrounded the Persian Gulf. With the addition of Egypt and Saudi Arabia they now effectively control the Red Sea and the Suez Canal. The addition of Argentina gives BRICS control of the Straits of Magellan for transit from the Atlantic to the Pacific Oceans
BRICS are moving closer to the dual visions of Halford Mackinder (theorist of the World Island and Heartland both based in Asia), and Alfred Mahan (theorist of sea power who emphasized control of critical straits and other sea chokepoints). The BRICS are consolidating physical control of both the land and sea pivots of history. This is all happening under the nose of the Biden administration, who seem ignorant both of history and current events.
The admission of new members and the launch of a new currency cannot be viewed in isolation. They are two parts of a common project. The expanded membership is precisely what makes the new currency more feasible.”
Jim Rickards answers a question about timing
Q: How long do you estimate it will take the BRICS to get their act together and move from initial trade in respective local currencies to one gold-backed currency? -Jonathan S.
“A: Material changes in the international monetary system do occur on a regular basis but none of them happen overnight. One of the best examples is the decline of sterling and the rise of the dollar as the leading global reserve currency. This change started definitively in November 1914 and ended definitively in July 1944. That’s a period of roughly 30 years. Sterling and dollars went back and forth as the top reserve currency during the 1920s and early 1930s. The process was interrupted by exchange controls during World War I and World War II. It was a relentless process but not especially fast. The Euro was approved in the Maastricht Treaty in 1992, but the actual Euro was not available until 1999 (among banks) and 2000 (at retail). So, that was a seven-year process. The BRICS will make clear their intention to move to a single currency union with a gold-linked currency in the near future. But it may take five years actually to roll out the new currency for trade settlement purposes and even longer until it solidifies into an attractive reserve currency.
The Euro is a reserve currency. Approximately 26% of global reserves are held in the form of Euro-denominated securities from Germany, Italy and France. The U.S. share of global reserves is about 60%. The remaining 14% is divided among Yen, Swiss Francs, Sterling, Chinese Yuan, Canadian dollars, and Australian dollars.”
next week - book review - “Letter to the American Church” by Eric Metaxas