The 2024 BRICS Expansion: Risks & Opportunities
With its 15th summit on August 2023 BRICS gained increased attention. The main focus of the summit was on the potential enlargement of BRICS by admitting new members. During the summit, it was announced that 6 countries - Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates - had been invited to join the group, with their official entry into the bloc set to take place in January 2024.
The expansion of BRICS has raised questions regarding the implications for international politics and economics. And while most analysts seem to agree that it means something significant, it remains unclear what exactly. This report, therefore, analyses the potential risks and opportunities of the expansion, with a particular focus on the commodities sector. Our analysis addresses questions regarding the interests of BRICS+ countries, the challenges and opportunities for the bloc itself, and the wider commodities sector.
The Russian Oil Maskirovka: Why Aramco is Cutting Oil Prices
Oil markets have had an interesting year following the Russian invasion of Ukraine, to say the least . While firms have benefitted from this, with many announcing record profits, Saudi Aramco announced that it would be lowering oil prices in its main market Asia. This is off the back of weak manufacturing data from China that triggered a fall in Brent and WTI futures which track global oil prices. Although prices were raised in Asia, they remain unchanged in the United States but increased for European consumers. Aramco cut prices to $2.55 above the regional benchmark while Brent Crude futures jumped up to $87 per barrel before stabilising at $73 per barrel. Markets now look to the OPEC meeting in June, with some analysts believing that the group may decide to cut production again in a bid to keep high prices inflated.
On the one hand, it is not that surprising that Saudi Aramco’s profits dropped 19 per-cent considering their record profit of $161 billion off the back of an abnormal year for markets, but this is not just because of the oil market correcting itself. Saudi Arabia is competing with cheap Russian oil in key markets, like China and India, and, with 60 per-cent of its crude oil going to Asian markets - this is beginning to hurt the Kingdom’s economy. The IMF has halved its prediction on Saudi GDP growth from 8.7 per-cent to 3.1 per-cent, after cheap Russian oil undercut OPEC and priced Saudi Arabia out of key markets. However, this will only last until the Ukraine crisis is resolved and Russian oil can freely flow in global markets again. By convincing Saudi Arabia and OPEC to help sustain high prices, Russia has been able to sell its own oil at a discount to make up for the damage Western sanctions have caused on its economy. Unsurprisingly, this has ruffled feathers in the United States.
While Saudi Arabia is considered an ally of the United States, the relationship between the two nations has been less than cordial in recent years. The Kingdom has found itself becoming a rival oil exporter to the United States, and so has shown less interest in cooperation. President Biden refused to communicate with Crown Prince Mohammed Bin Salman, due to his involvement in the assassination of Jamal Khashoggi, and the relationship was further strained in March 2020, when Saudi Arabia dumped 40 million barrels of oil onto the market while in the midst of an oil price war with Russia. The resulting price decrease to -$37.63 per barrel was unprecedented and pushed American fracking companies out of business, thereby benefitting Saudi Arabia by decreasing global production and increasing prices.
Since then, Russia and Saudi Arabia have led their respective group of oil producers, together called OPEC+, to sustain high oil prices which had been placing inflationary pressures even before the Ukraine crisis began. In March of last year, they decided to increase production by 400,000 barrels a day each month, signalling that they had no interest in providing a safety net for Western Europe which has faced a decrease in Russian oil imports. This was following a call between Biden and King Salman in February, in which the former asked for more Saudi oil to relieve American allies, but nothing came of this. This coupled with Saudi Aramco making a $3.6 billion investment in Chinese Petrochemical firm Rongsheng and Xi Jinping calling for oil trade in Yuan, has caused security concerns in Washington. Biden might be facing more personal political problems due to oil markets though. Since WW1, sitting presidents won re-election only one out of seven times the economy has been in recession 2 years before they were up for re-election. With the OPEC meeting in June being held when the US is expected to breach its debt ceiling, if Biden does not receive favourable outcomes from both these issues, he can all but wave re-election in 2024 goodbye.
In the same way that neither Russia nor Saudi Arabia officially admitted to being in a price war in 2020, neither side has acknowledged the deception Russia orchestrated in convincing Saudi Arabia to sustain high oil prices. While the war in Ukraine has helped to keep these prices high, this has backfired in allowing Russia to snap up key markets in Asia. Whether this will remain the case going into the future is dubious. Looking at China, Russia was only able to unseat Saudi Arabia for 2 months of this year as the main supplier of oil, so if peace talks progress this year Saudi Arabia is likely to retake their lost market share. Moving forward we can expect oil prices to spike again if OPEC decides to cut production in June, but these prices are also dependent on the US debt ceiling. Although a default has never occurred before, OPEC are still looking at developments in the United States warily and it is evident that bad news coming from Capitol Hill will overshadow whatever decisions OPEC makes.
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