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BRICS Expansion is a "Nothingburger"

Peter Zeihan gives a candid and interesting take on the implications of the recently announced BRICS expansion.

 

This week’s BRICS Summit welcomed Saudi Arabia, Iran, Ethiopia, Egypt, Argentina and the UAE to its alliance. Peter Zeihan, a popular geopolitical analyst, summed up the summit as follows:

“Have you ever seen a couple of 3-year-olds sitting on the playground talking gibberish and acting like they're making life-changing decisions? Well, that's what's going on at the BRICS summit in South Africa this week.”
 
chris farley WOW gif with sunglasses
 

In this edition of the Emerging Real Estate Digest we’ll sum up Zeihan’s interesting take. Here’s a link to watch his colorful (💣) commentary for yourself:


 
O’Neil at Goldman Sachs Coined BRICS

A source of Zeihan’s skepticism originates from the fact that BRICS was an acronym originally coined by Goldman Sachs to sell more bonds to its investors. When coined, the four largest international bond markets still untapped where Brazil, Russia, China and India. South Africa was added more than a decade later.


Jim O’Neill, Former Chairman of Goldman Sachs Asset Management
Jim O’Neill, Former Chairman of Goldman Sachs Asset Management

In other words, it wasn’t brought together over shared interests or around a common purpose. Its member have varied interest, and those interests will soon be even further apart after the new members join. Lack of uniformity of purpose is one reason Zeihan suggests that BRICS has no real tangible achievements apart from the BRICS Bank which is 90%+ funded and controlled by China.


BRICS members trade little with each other, with the exception of Brazil who sends large amounts of natural resources to resource-hungry China for further processing. Russia sends oil and gas to China, but this would happen irrespective of BRICS or any other alliance. India and China, the two with the largest populations, don’t like each other and couldn’t be counted on to cooperate meaningfully on the world stage.

 
Oil Domination and Petrodollar Replacement

Zeihan recognizes the recent refrain the BRICS evangelists put forward that the expanded BRICS will control 50%-60% (46% in image below) of the global oil market. The conclusion they then jump to is that the petrodollar is finished, an end of an era has been reached, and that the stage is set for an alternative BRICS currency to emerge.


His retort: “It’s absolute bullshit.”


visualizing BRICS expansion

He explains that Saudi and UAE are joining because they are looking for a security guarantor now that America is losing interest in taking bullets and shedding blood to keep it safe. America’s energy output has grown to a point where reliance on Saudi Arabia is no longer a necessity. Saudi and UAE are open to all potential takers of their oil as a way of getting involved in national security plans schemes of any powerful nation. It has nothing to do with currencies, shared objectives or political alignment.


Unfortunately for the Saudis, China has nowhere near the capacity to deploy its military at range in a way sufficient to make it feel comfortable and secure. Iran is the primary foe of Saudi in the region and the country it most wishes to be contained. Both Saudi Arabia and Iran will be BRICS member putting China in a potentially difficult situation if the two were to have a squabble.


From this surface analysis it should be clear to all that anyone suggesting there will be a coherent energy policy from BRICS simply hasn’t looked closely enough at the issue.

 
Zeihan on Argentina, Egypt and Ethiopia

Ethiopia is one of the 10 poorest in the world, landlocked, and one of the only poor countries which China hasn’t allowed into its Belt and Road Initiative. China doesn’t see much value in Ethiopia based on that, and Zeihan suggests it was included only to give more “African flare” to the organization.


Argentina is not a poor country, but Zeihan notes it has a severe entitlement complex and thinks everyone should give it money which it should never have to give back. Argentina, he continues, is at the BRICS table only to grab onto China’s teat and secure a new financial point to leech from. As with Saudi’s desire for protection, China has nowhere near the financial capacity to satisfy the left-wing Argentinean government’s “borrowing” needs.


Zeihan refers to Egypt as a satellite state of America which receives payments, along with Israel and Jordan, to not go to war with each other. Zeihan doesn’t see any reason for Egypt’s inclusion except that India insisted strongly.

 
Final Take
  • China, South Africa, India, and the BRICS Bank have all clearly stated that a BRICS currency is not a realistic expectation. That it continues to come up shows that people aren’t listening to the voices that matter on the subject.

  • He describes Brazilian foreign policy under Lula as “la-de-da” diplomacy. All bluster and rhetoric, with no reason or cohesion behind the empty words.

  • Zeihan sees the expansion as a negative for BRICS and “…one of the most effective ways that [he] can think of to make sure that BRICS never achieves anything at all because they don’t agree on much right now.”

  • China will be required to pay for everything for BRICS to amount to much. Something similar was last tried by the Soviet Union in the 1970s and it broke the bank. China is unlikely to part with such sums of treasure without having near-full control of the member nation.

  • China’s Xi didn’t bother to show up to some of the open ceremonies where he was expected to speak. This is more evidence to Zeihan that China doesn’t see BRICS as a useful vehicle, except rhetorically, and that means you shouldn’t either.

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