BRICS+ set to command the future of critical mineral and energy resources

De-dollarisation has dominated the headlines in the wake of the BRICS Summit. But the power of the expanded grouping, which already commands the lion’s share of the mineral and energy resources, lies in who will and who won’t achieve energy security as the world shifts from a coal-powered economy to one that runs on renewable energy.

BRICS was immensely strategic in the new members it invited to join the Global South grouping, with newcomers Argentina set to provide 16% of world lithium supplies by 2027, and developed-market pariah Iran, home to the largest zinc reserves globally and the second-largest copper deposits.  

Lithium, described as the new gasoline, is crucial in the production of rechargeable batteries and electric vehicles, while zinc is essential because it is used to rust-proof solar- and wind-powered components. 

Together, BRICS+ will have three of the five largest lithium producers, and Iran’s significant production potential assures the grouping’s dominance of zinc supplies well into the future.

The existing BRICS were already among the top 10 producers of copper and nickel, with Russia, China and Brazil providing 413 MT of nickel versus the US’s 18 MT – a mere 4.4% of the BRICS supplies. Copper facilitates the transmission and distribution of clean energy, while nickel powers lithium-ion batteries and energy storage systems.

According to a report by the Center for Strategic and Investment Studies (CSIS), “Six New BRICS: Implications for Energy Trade”, BRICS+ will have about three-quarters of the world’s rare earth minerals and manganese, half the world’s graphite, almost a third of the world’s nickel and 10% of the world’s copper, excluding Iran’s reserves.

Its analysis highlights the profound impact the grouping will have on critical investment supplies globally, having already flexed its muscles in imposing various export restrictions on these critical minerals over the last decade on a country-by-country basis. 

According to the OECD, as of 2021, China had 35 natural resource export restrictions, India 32, Russia 17, South Africa 14 and Brazil 7.

Looking forward, we can expect the 11 countries to adopt a coordinated approach because producers and consumers in this group have a shared interest in creating mechanisms to trade commodities outside the reach of the G7 financial sector. 

The implications of that, according to the authors of the CSIS analysis, Gracelin Baskaran and Ben Cahill, is that individual or bloc sanctions “could be crippling for national and energy security for the rest of the world”.

The BRICS members have already flexed their muscles in restricting the export destinations of critical mineral investments, and their expanded grouping is likely to see a more coordinated approach develop. 

The approach is expected to mirror the US-led Mineral Security Partnership, an initiative intended to strengthen the US and 13 of its allies’ energy security by increasing public and private investment in critical mineral supply chains. Given BRICS+ dominance of mineral resources, the grouping has a material head start it can capitalise on. 

The CSIS says the larger BRICS grouping is likely to increase investment in projects and places that non-partners would avoid, for instance, Iran. With the largest zinc reserves and second-largest copper deposit in the world, rigid sanctions have stood in the way of mobilising investment in production, but its inclusion in the group changes that.

BRICS+ also has some of the fastest-growing energy consumers, which will propel investing.

Saudi Arabia, now a member, is already making investments in lithium and other critical investments in Brazil, according to the CSIS. The country’s recent purchase of 10% of Vale’s base metals division will secure the supplies of critical minerals, including nickel and copper, that it needs to meet its goal of building 500,000 electric vehicles a year by 2030.

Better known is the significant proportion of oil and gas supplies member countries already produce, but with the three largest oil exporters – Saudi Arabia, the UAE and Iran – BRICS+ will supply 42% of the world’s oil.  

The CSIS says oil market management will remain the purview of the Organisation of the Petroleum Exporting Countries and allied producers. 

“But over the long term, an expanded BRICS grouping could be significant for energy markets.”

ING Economics’ Chris Turner, global head of markets and regional head of research for UK & CEE, says the inclusion of Saudi Arabia in the grouping was the biggest surprise. 

“It had been rumoured that the country wanted to enter the group, but the geo-political situation – given tense relations with the West – raised doubts about whether Saudi Arabia would formalise political and economic ties with the BRICS.”

He questions whether the expanded group will accelerate the de-dollarisation of trade payments, given that de-dollarisation has been very slow to date and that any reduction in dollar market share has been a result of contracts denominated in the Chinese renminbi in Asia.

JP Morgan’s head of global commodities strategy, Natasha Kaneva, says there have been some signs of de-dollarisation in the oil markets, with Russian oil sold in local currencies or currencies of countries seen as friendly to the country. 

Indian refiners have begun paying for Russian oil purchased via Dubai-based traders in dirhams, while others are considering doing so in yuan. Saudi Arabia is reportedly exploring the acceptance of payments in other currencies.

“News of this faster expansion – especially among the oil exporters – clearly adds some momentum to the de-dollarisation debate,” says Turner.  

“We would reiterate, however, that energy only comprises 15% of global trade and that Saudi pricing oil exports to China and India in non-dollar currencies does not spell the end of the dollar as the international currency of choice.”

But with the use of oil and gas set to steadily decline over the decades ahead, the mineral resource industry – and the way trade is financed and who gets the supplies – will be the greatest and most tangible source of power for the bloc in the decades ahead. DM