BRICS group expands in the Middle East with the dollar in its sights

"Together, we push forward the principles of fairness and a democratic world order, reflecting multipolar realities, and based on international rights and justice in the world," he said during negotiations with Xi Jinping.

With Putin's words, he made it clear that this was not solely an economic decision. It was closely tied to political ambitions, seeking equality on the world stage.

Given how Russia's dollar reserves in the US have been frozen since Moscow's invasion of Ukraine, other countries are now worried. Could the same thing happen to them and their money if relations with the West turn sour?

Different viewpoints

The question of de-dollarisation has therefore become more urgent. Analysts now ask if the Middle Eastern states' inclusion in the BRICS group will accelerate or decelerate the Russian-led move away from dollar dependence.

Brazilian economist Paulo Nogueira Batista Jr, a former director at the International Monetary Fund (IMF), thinks getting agreement may be difficult.

"Even when there were only five countries around the table, the difficulty of reaching an agreement on concrete steps, notably in the creation and implementation of the BRICS' monetary fund and development bank, were truly mind-boggling," he says.

There is also a lack of talent and technical competence in the BRICS countries when it comes to negotiations and developing the financial mechanisms related to de-dollarisation, he says. Yet there appears to be an appetite to end the dollar addiction.

Saudi impact on debate

At Davos last year, for instance, Saudi Minister of Finance Mohammed Al-Jadaan said: "There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, the euro, the Saudi riyal."

The petrodollar agreement between the US and Saudi Arabia expired last month, boosting the BRICS group's ambitions for de-dollarisation.

While close to 80% of global oil trade still takes place in dollars, there is no guarantee that levels will remain this high. Saudi Arabia's next moves will undoubtedly have a big impact in the debate.

Exploring alternatives is not new. In 2019, the central banks of Saudi Arabia and the UAE launched a joint project called Aber, to set up a single, dual-issued digital currency for transactions between commercial banks in their countries.

Others exploring options

Having spent years under Western sanctions, Iran now knows the difficulties of non-dollar trading better than most.

In recent years, it set up a mechanism to trade with India in rupees and has worked with Turkey to facilitate payments in euros and gold.

The UAE also signed an agreement with India in July 2023 to establish a mechanism for bilateral trade in local currencies. The Indian Oil Corporation then paid the Abu Dhabi National Oil Company in Indian rupees for the first time.

Likewise, Egyptian minister Ali Moselhy was quoted by Reuters last year as saying: "There are discussions so that we can trade in the local currencies of countries like India, Russia or China."

This is a big issue for Cairo—Egypt's annual trade turnover with countries in the BRICS group is around $46bn, which constitutes more than a third of its total foreign trade.

Scanning new horizons

"Brazil and Russia are one of the main exporters of grain and Egypt is one of the main importers worldwide," said Hala Helmy El-Said, Egypt's Minister of Planning and Economic Development, at the Saint Petersburg International Economic Forum.

"With the addition of the new countries like Egypt, the UAE, Saudi Arabia and others, this will help a lot in the supply chain and in collaboration in different fields: in digital agriculture, agriculture research, and agriculture adaptation to climate change."

Egypt's important geostrategic location, with the Suez Canal as a prominent world trade route, could benefit other BRICS countries.

China and India already made the BRICS a formidable group in terms of new technology development, but Saudi Arabia and the UAE add something extra, including massive investment in cutting-edge fields like robotics and biotechnology.

"Taking into account the new members, BRICS countries will cover about 45% of the world projects implemented in these areas in 2024," says Mikhail Khachaturyan, a Moscow-based economics professor specialising in the BRICS economies. "It is reasonable to expect that by 2030 it might be 65-70%."

Middle East newcomers

With the smallest population in this expanded group, the UAE has much to offer and to gain. A big benefit of its inclusion is deeper access to a substantial and growing market, said Bal Krishen of UAE-based investment broker Century Financial.

"Together, the BRICS boast a combined GDP (gross domestic product) exceeding $27tn and a population surpassing three billion, opening up a wider customer base for UAE goods and services," said Krishen.

For Iran, the benefits come mainly in the form of economic relief from sanctions and a growing market for its oil and gas, although China is already a customer and oil competitors are among the new members.

It is not clear to what extent the other new members will be happy to engage with Iran, given the possible repercussions from Western sanctions of doing so.

However, China, India, and Russia have already sent strong signals that they are open to exploring avenues for stronger economic ties. For now, that is more than enough for Tehran, which has recently had to elect a new president.

Political vs economic

Some talk up the political nature of BRICS' membership, specifically its role in a new multipolar world in which the United States is no longer all-powerful, but not everyone is comfortable with that.

India, for instance, has sought to downplay this aspect, and focus on economics and trade, which is how it hopes to balance communication around its trade with Iran.

While analysts are clear about how BRICS stands to gain from Saudi Arabia's entry, it looks like decision-makers in Riyadh have not yet decided to take the plunge. The original BRICS nations are open about wanting to see Saudi Arabia in their ranks.

On 1 January 2024, Egypt, Ethiopia, Iran, and the UAE formally joined, but Argentina rejected the invitation after a new president took power. Saudi Arabia, while not having formally accepted the invitation, has let it be known that it remains interested.

"The weight, prominence, and importance of the candidates and their international standing were the primary factors for us," said Russia's Foreign Minister Sergey Lavrov when the expansion was first announced.

Without Saudi Arabia, that economic "weight" would be considerably less impressive.