Will The New Reality Become The New Order? What the expansion of BRICS means for the world and for Russia

A blow to sanctions as a tool of global restraint 

Following the summit in Johannesburg, the BRICS leaders have adopted a final declaration that formally solidifies the expansion of the union to 11 members. In addition to Brazil, Russia, India, China, and South Africa, the block now includes the United Arab Emirates, Saudi Arabia, Iran, Argentina, Egypt, and Ethiopia. Thus, there are now two representatives from South America, two from Africa, three representatives come from the Arab world and the Middle East, and two from South-West Asia. Since its official inception in 2006 at the St Petersburg Economic Forum, BRICS had struggled to transcend its 'club'-like character. It is only now, 22 years after its inception as an investment idea by Goldman Sachs, the creator of the BRIC acronym, that it has taken on the contours of a comprehensive organisation representing the Global South, with Russia joining its ranks.

Even before its expansion, the BRICS countries had surpassed the Group of Seven (G7) in terms of their contribution to global GDP. Currently, BRICS-11 accounts for nearly one-third (30%) of the global production of goods and services in current dollars. This, in itself, carries political weight. However, as experts at the Atlantic Council suggest, this becomes an even greater factor when it comes to sanctions policies. The decision of the BRICS+ countries not to join Western sanctions serves as a lifeline for any country subjected to them. Since 2014, trade between Russia and G7 countries has plummeted by more than 36%. In contrast, trade between Russia and BRICS countries during the same period has surged by over 121%. China and India have become the largest importers of Russian oil, and last year, China's trade with Russia reached a record high of $188.5 billion, nearly double that of 2014 and roughly 30% more than in the pre-war year of 2021. It was this redirection of trade and other support measures from its BRICS partners that saved the Russian economy from collapse.

On one hand, the inclusion of new members into the formal organisation only strengthens the impression of diversity within the alliance and introduces new conflicts among individual participants, whose interests (even due to geographical factors) appear multifaceted, as noted by many analysts. At the same time, this diversity underscores the presence of one interest that unquestionably unites all participants: the desire to strengthen their geo-economic influence and reinforce their collective autonomy from the geo-economic and political claims of the Western coalition, represented by G7 countries and, in a broader sense, by OECD countries.

It is no exaggeration to say that the main factor lending new political weight and perspective to the coalition representing the Global South has been the relative failure of Western sanctions against Russia. It is within this context that this concept has become widely accepted and acquired geopolitical significance.

In reality, the diminishing effectiveness of Western sanctions policies is linked to the long-term effect of economic 'levelling,' which has seen the share of the economies of the broad 'Western coalition' (OECD members) in the global GDP has shrunk in recent decades. Thus share has decreased from 80% to 60% in nominal terms and from 60% to 45% in PPP terms since 2000. However, until last year, the impact of this contraction had no point of application and thus had no political consequences. The decision by countries to abstain from joining the sanctions against Russia was also not the result of any coordinated policy. Nonetheless, its visible effect – the dramatic weakening of the results of seemingly unprecedented sanctions measures – has exposed a new reality: the limitations of the West’s sanctions capabilities and, consequently, its political weakening. The past year has demonstrated to these 'non-joining' countries the possibilities and paths to coordinate anti-sanction strategies. In this sense, the new content of BRICS+ and the new geo-economic reality had emerged independently of and prior to the summit in Johannesburg, which, however, became the moment of their symbolic confirmation.

The West and Global South in world GDP, 2000-2022, %

	GDP as a share of world GDP		PPP GDP as a share of world GDP in PPP terms
	2000	2022	2000	2022
OECD countries	82	59	60	45
BRICS-11 countries	11	29	24	37
Other	7	12	16	18

Dollarisation delayed

Amid the relative success in resisting sanctions and on the eve of the summit, discussions about global de-dollarisation have gained traction. Earlier this year, Brazil even floated the idea of creating a BRICS currency. The battle against the dominance of the dollar is considered by certain BRICS+ countries, particularly Beijing and Moscow, as a key element in constructing a new global economic order, according to a report by the Royal United Services Institute (RUSI). De-dollarisation is seen as a political objective rather than a purely economic one, aimed at countering the unipolar world led by the United States.

As the report from RUSI notes, while such ideas may currently appear too ambitious and were not formally included in the summit's agenda, BRICS+ has nonetheless reaffirmed its commitment to expanding the use of local currencies for trade between the bloc’s member states.

Following its full-scale invasion of Ukraine, Russia has shifted a significant portion of its trade to the Chinese yuan, which now accounts for 16% of its export payments. Additionally, the New Development Bank, established by the BRICS countries, recently issued its first bonds in South African rand and plans to issue its first bonds in Indian rupees by October. Moreover, the bank provides loans in yuan and has announced plans to extend this practice to the South African and Brazilian currencies. Experts at the United States Institute of Peace (USIP) have expressed doubts about the likelihood of the BRICS countries creating a separate currency, but they suggest that the practice of trading between BRICS countries in local currencies, bypassing the dollar, is likely to become more widespread.

However, this assumption does not yet appear set in stone. Dollar-denominated energy trade persists for many reasons: the dollar is liquid and freely convertible, and many major oil exporters peg their currencies to it. While the number of bilateral energy deals conducted in other currencies is increasing, this practice has not firmly taken root, and the use of, for example, the yuan by third parties for mutual transactions remains limited. For energy markets, the expansion of BRICS at this moment is largely symbolic, according to the experts at USIP. Nevertheless, it is another sign that countries are exploring ways to bypass the US financial system and deflect the influence of the dollar.

Here, as in the previous case, the example of Russia is crucial. Russia has attempted to switch its trade with new buyers of its resources into national currencies, which ultimately led to a currency crisis earlier this year. It turned out that, by selling oil to India in rupees, Russia was able to export Indian goods worth the corresponding amount, while India in turn received the real equivalent of US dollars not spent on oil purchases or earned from its re-export. Thus, Russia was strengthening India's currency balance at the expense of its own. As a result, even though oil prices in 2023 are slightly higher than those of 2018-2019, the Russian ruble has since depreciated by 50% against the dollar. This negative experience is unlikely to go unnoticed by the current and potential members of BRICS+. Therefore, Russia's example is more likely to have a chilling effect on any ideas of accelerated de-dollarisation.

Russia's experience in confronting sanctions demonstrates that the 'non-joining' coalition enables large economies to survive in the face of a break with the West. However, few believe that this situation brings economic benefits or allows for the preservation of developmental potential. Putin's gambit has turned Russia into a kind of guinea pig, a case study through which more pragmatic developing economies can assess the opportunities and limits of resistance to the West and distancing themselves from it.

Natural Resources as a Political Factor

It is likely that the expanded BRICS+ will start to strengthen the energy security of its member countries, similar to the US-led Partnership for Securing Natural Resources (MSP), according to experts at the Center for Strategic and International Studies (CSIS). After the inclusion of Saudi Arabia, the United Arab Emirates (UAE), and Iran, BRICS+ will account for 42% of global oil supplies. Oil market management will remain under the purview of OPEC+, but experts note that, in the long term, the expansion of the BRICS group could hold significance for energy markets. Within the enlarged BRICS, there are both exporters and the two largest oil and gas importers, China and India, which have refrained from joining the 'price cap' against Russian oil. Producers and consumers in this group share a common interest in creating mechanisms for trading raw materials beyond the reach of the G7 financial sector.

However, the discussion extends beyond oil and gas and encompasses resource security as a whole. The sanctions crisis sparked by Russia's full-scale invasion of Ukraine has raised questions about access to various natural resources, the scarcity of which could become critical amid geopolitical fragmentation. BRICS, like MSP, will also seek to increase public and private investments in critical natural resource supply chains between its allies, suggests an expert at CSIS.

For example, Argentina's entry into the bloc, as the third-largest holder of lithium reserves globally, strengthens BRICS+'s position in this market. According to forecasts made by JPMorgan, Argentina's share in global lithium supplies will rise from 6% in 2021 to 16% in 2030. Moreover, Saudi Arabia, another new member, is already making substantial investments in lithium and other metallic minerals in Brazil. To gain access to these reserves, it recently struck a $2.6 billion deal to acquire a 10% stake in Brazil's largest mining company.

In addition, the expanded BRICS accounts for 72% of rare earth metal production, 75% of the world’s manganese reserves, 50% of graphite reserves, and so on. Iran, which has joined the bloc, possesses the world's largest zinc reserves and the second-largest copper deposit in the Sarcheshmeh mine. Under conditions of harsh economic sanctions, Iran has been unable to mobilise investments to increase mining activities, but this situation may now begin to change.

Within the model of 'colonialism', the West had a monopoly on technologies and investment resources that allowed it to develop resource extraction in poorer countries. These countries generated income from selling these resources to the West, and they sometimes nationalised mining companies and used their market positions as leverage against the West. This is precisely the scenario that played out in the global oil industry in the 1960s and 1970s. Now, there are risks of market politicisation for other natural resources. However, as demonstrated by the Arab oil embargo in the 1970s and the example of Russia following its full-scale invasion of Ukraine, the possibilities for resource-based coercion in the energy sector remain limited. The result is not a crisis in the targeted countries, but rather rising prices for the corresponding commodities in global markets and economic problems that spread worldwide.

The Paradox of Politicisation: Multipolarity vs Bipolarity

The summit in Johannesburg represented a tactical victory for China and Russia, which, unlike India and Brazil, have consistently advocated for the expansion of the BRICS bloc, viewing it as an important step in countering a unipolar world led by the United States, according to a report by RUSI. For China, the expansion of BRICS serves as a means to realise its so-called inclusive worldview, and the bloc itself is seen as a counterbalance to the Group of Seven (G7) and Group of Twenty (G20). China's state media has presented the Johannesburg summit as a step toward building 'a world that is more multipolar, inclusive, fair, and equal.' Moscow and Beijing consider Iran's inclusion in the organisation a significant achievement in their efforts to create a more cohesive anti-Western alliance. For these three countries, BRICS+, including its economic potential, is primarily seen as a political project.

Unlike the first group of BRICS countries, Brazil and India do not adhere to an anti-Western policy. Nevertheless, China and Russia have managed to juxtapose the 'West' against the 'rest of the world' in the information and propaganda campaign surrounding the summit. Amid the war in Ukraine and escalating tensions between China and the US, countries in the Global South are being increasingly urged to take the side of one camp or the other. However, experts at USIP have noted that the current situation should not be viewed as a repetition of the Cold War. Among the countries of the Global South, a significant role is played by those adopting a 'middle' ground and are not interested in confrontation with either side. Experts express concerns that the expansion of BRICS may exacerbate the trend toward 'minilateralism,' that is a diplomatic style that favours small and medium-sized non-global pragmatic coalitions. According to the authors at USIP, this threatens to undermine the capacity for the global collective action needed to address common global challenges, such as climate change.

The 'developmentalist' coalition within BRICS+ primarily views it as an economic union, with political objectives focused on strengthening their own economic positions rather than shifting the global balance of power. In this view, BRICS+ is not seen by experts as an anti-Western alliance but rather as an alternative to the G7 — an organisation where leading nations from Asia, Africa, and Latin America come together to advocate for a fairer and more equitable world order in the interest of their own development. For these countries, interaction with the West remains a crucial element of their economic strategy, and participation in BRICS+ serves as a means to enhance their positions in these interactions.

Accordingly, this pragmatic opportunism has not been met with the approval of the 'hawks.' Some Russian international experts, among the architects of the 'new world order,' criticise the configuration of BRICS+ and see it as a failure of hopes for a more pronounced, politicised confrontation against Western dominance. They argue that, out of the eleven BRICS members, only Russia, China, and Iran can be firmly classified as countries willing to challenge US hegemony. The majority, including India, Brazil, Saudi Arabia, Argentina, the UAE, and Egypt, clearly favour a more moderate and pragmatic approach, seeking to smooth over differences and reach compromises.

The enlargement of the BRICS group may make the mission of advancing the interests of the Global South more difficult, rather than easier, another Atlantic Council article suggests. Expanding the membership of BRICS will inevitably increase the number of points of contention among its members and make it less likely that collective decisions with significant political consequences will be reached. For example, the shift towards a more active use of local currencies in trade and the expansion of correspondent banking relationships may become less likely. Paradoxically, this implies that the political amorphousness and moderation of BRICS+ will strengthen the bloc's positions, maintaining common ground between 'hawks' and 'developmentalists,' while the desire for the accelerated politicisation of the group will work against its cohesion and lead to divisions.