June 16th, 2009, could turn out to be an important date in global history, and this is not a typo-induced reference to the new federal US holiday as of 2021. Instead, that was the date of the first BRICs summit, where Brazil, Russia, India, and China gathered to discuss and coordinate on topics such as security and trade in the shadow of the Global Financial Crisis (GFC).
Following the fall of the Berlin Wall on November 9th, 1989, the United States’ ascent as the global financial hegemon had become largely unchecked. From the point of Richard Nixon’s decision to end of Bretton Woods in 1971, the US dollar fiat reserve currency system helped fuel a boom in global debt levels, which culminated in the 2007-2009 GFC.
The GFC served to pause the upward trajectory in debt for a few years, but policies such as Quantitative Easing and financial repression renewed the trend, which then exploded with the onset of the pandemic.
Perhaps understandably, US decisions to double and triple down on aggressive fiscal and monetary policies oriented to address domestic political priorities appear to have catalyzed a move towards a counterbalance. South Africa would soon join to capitalize the ‘s,’ with the BRICS fully formed in 2010.
In some ways, the current BRICS timeline echoes another multi-lateral international institution, which was founded on September 14, 1960: the Organization of Petroleum Exporting Countries. Following several decades of predatory oil development deals with the ‘Seven Sisters’ oil companies from the US and UK, Venezuela, Iran, Iraq, Kuwait, and Saudi Arabia had had enough.
After the end of WWII and with the commencement of the Cold War, the Seven Sisters had become deeply involved in the strategic national security interests of the US and UK, which ultimately resulted in the Eisenhower Doctrine being announced on January 5th, 1957. By then, the US and UK governments had been actively involved in various coups to overthrow governments in the region, with various nationalistic movements having begun- perhaps with Gamal Abdel Nasser’s in Egypt becoming the most impactful.
The first decade of OPEC’s existence was less about effectual price and production controls, and more about expansion, as the roster of oil-producing countries grew to include the likes of Indonesia, Libya, Algeria, Ecuador, Nigeria, and others. But by the early 1970s, the era of nationalistic movements had grown to include the Ba’athist coups in Syria and Iraq, and Gadaffi’s ascension in Libya, all unfolding around the time of the humiliation of the Seven Days War with Israel.
OPEC had not been successful in coordinating member production in a way to support oil prices, despite massive growth in demand during the decade of 1960s. Here is an inflation-adjusted chart for oil since the end of WWII:
This shows pretty clearly the ineffectual nature of the first decade+ of OPEC, but then on August 15th, 1971, Richard Nixon’s government announced the closing of the US gold window. As related to OPEC, the dam may have already begun to burst with the signing of the Tripoli Agreement in April 1971, but OPEC’s power exploded onto the international scene when the Arab contingent of OPEC, plus Syria and Egypt, responded to the support of Israel in the Yom Kippur War after a similar attempt had failed following the Seven Days War in 1967. The resulting oil embargo ushered in what was at the time the most severe US recession since WWII, and the now infamous period of 'stagflation.’
Fast forward to 2022, and a decade+ has passed since the founding of the BRICS, with it also being a relatively quiet legacy to date. However, the Russian invasion of Ukraine may end up having been another inflection point in history, as the policy response by the United States to weaponize the US dollar’s global reserve currency status against Russia has sent shockwaves throughout the world. Shared strategic interests had brought bitter enemies such as the Saudis and Iranians together with OPEC, and Iran’s application in late June to join the BRICS is notable given the proxy war unfolding between the two in Yemen. Algeria and others may follow.
Binary characterizations like the ‘end of the US dollar’ are a distraction, in my opinion. Following the weaponization of the US dollar system this year, the US Federal Reserve is now in the process of once again prioritizing domestic political priorities over the global impact of emerging US dollar shortages in the global financial system. Governments are falling, social unrest is exploding onto the scene all over the world, and the US dollar continues its march higher. All this is transpiring with big money US interests at the ready to try and pick up distressed non-US assets on the cheap amidst the carnage.
The formation of OPEC did not stop the development of oil and gas in the likes of Norway, the UK, or the US throughout the second half of the 20th Century until the present. Similarly, the formation of a BRICS currency and trade bloc is unlikely to end the US dollar’s significant role within the global financial system.
However, just as the Yom Kippur War ushered in a new phase of influence for OPEC, is it possible the war in Ukraine may have done the same for the BRICS? What may be the equivalents of Carlos the Jackel or the Iranian Revolution? With Europe seemingly on the brink of economic catastrophe, Iran potentially on the cusp of a nuclear weapon, and this week’s events in Taiwan, all unfolding within the context of the Bizarro Recession, the BRICS timeline looks like it may be fraught with even more danger.
Great piece Kayfabe. Nicely framed and balanced. As you noted, the BRICs may not have the ability to create a new reserve currency to replace USD, but that doesn't mean they should be discounted entirely. If prices are set at the margin and the BRICs manage to make a small dent in the USD hegemony, then there will be a worldwide impact of some sort. Thanks for the article.
Hey Kayfabe, the financial quarterback just posted an interview with Lacy Hunt on YouTube. A question at 38 mins asks what he thinks of Zoltans latest piece re: war being inflationary, his answer is very interesting. Definitely worth a watch.