The Old World Order For Crude Oil Is Disappearing

Russian Energy Minister Nikolai Shulginov said on Tuesday that his country has now been able to redirect all of its crude oil exports that have been impacted by Western sanctions over Ukraine to what he referred to as “friendly” countries. “I can say today that we have managed to completely redirect the entire volume of exports affected by the embargo. There was no decrease in sales,” Shulginov was quoted by Reuters as saying.

The Rise of BRICS

There is no question that Russia’s fellow members of the increasingly influential BRICS (Brazil, Russia, India, China, South Africa) Alliance have played a major role in helping the Putin government to achieve this outcome. India was the biggest buyer of Urals grade crude in March, accounting for almost 50% of all such exports. Russia’s Deputy Prime Minister, Alexander Novak, stated that Russia’s sales to India have risen 22-fold over the past year.

In a separate story in early March, Reuters reported that China’s seaborne imports of Russian crude were set to hit new record highs in March, based on ship tracking data. “Tanker tracking consultancies Vortexa and Kpler estimated nearly 43 million barrels of Russian crude oil, comprising about at least 20 million barrels of ESPO Blend and 11 million barrels of Urals, are set to reach China in March,” Reuters said, a number that would exceed the previous high of 42.48 million barrels recorded in June, 2020.

This new alignment among the BRICS countries in support of Russian crude trading is not surprising given that none of Russia’s fellow member countries have chosen to support the sanctions being imposed mainly by the governments of the Western world. Started in 2001 as a loosely-formed trading alliance among rapidly-developing economies of Brazil, Russia, India and China, the group added South Africa to its membership in 2010. Since then, it has increasingly positioned itself as a geopolitical alternative to the G7, whose members include the United States, Japan, Italy, Canada, Germany, France, the United Kingdom and the European Union.

In 2014, for example, BRICS used $50 billion in seed funds to create the New Development Bank as an alternative to the World Bank and the International Monetary Fund. As the same time, the group also created what it calls the Contingent Reserve Arrangement to support members struggling to meet debt obligations.

In a recent interview with WION News, South African Foreign Minister Naledi Pandor said she and leaders of other BRICS nations are experiencing “huge interest” from other countries related to those tools of finance. Saying that she had “12 letters” from such countries currently on her desk, Pandor ticked off the names of more than half a dozen of them: “ Saudi Arabia is one… United Arab Emirates, Egypt, Algeria, and Argentina,” and went onto add Mexico and Nigeria.

Saudi Arabia Looks Increasingly to the East

No country has expressed greater interest in conducting business with the BRICS group than Saudi Arabia has in recent months. In March of last year, the Wall Street Journal reported that the Kingdom had been engaged in talks with China about the possibility of conducting some of its oil sales using the Chinese Yuan as the currency. Such a move would disrupt the long-existing oil order that has used the U.S. dollar, or “petro-dollar,” as the currency of mark for international oil trades since 1973.

More recently, at the World Economic Forum in Davos in January, Saudi Finance Minister Mohammed Al-Jadaan told reporters that his country is open to trading in currencies besides the U.S. dollar. “There are no issues with discussing how we settle our trade arrangements, whether it’s in the U.S. dollar, the euro, or the Saudi riyal,” Al-Jadaan said, as reported by Yahoo News.

Saudi Arabian relations with China have been strengthening in other areas during 2023. One major signal of the growing relationship was the news early in March that the Kingdom had agreed to re-establish diplomatic relations with long-time rival Iran following negotiations hosted not by the United States, but by China.

While the move seemed to signal China’s growing influence in the Middle East region, Biden administration National Security Spokesman John Kirby strongly pushed back on the idea that U.S. influence was diminishing at the same time. The New York Times

NYT
quoted Kirby as telling reporters “I would stridently push back on this idea that we are stepping back in the Middle East.” Kirby added that Saudi Arabia had kept Biden officials apprised of developments as the negotiations progressed.

Saudi Arabia’s economic entanglements with China continued to progress this week, as the Kingdom announced two separate new deals that would result in its supplying China with as much as 690,000 barrels of oil per day. The Globe and Mail reported that the two agreements are the biggest deals announced since Chinese President Xi Jinping made a state visit to Riyadh last December to formalize his country’s blossoming relations with the House of Saud.

Bottom Line: One of the 8 consequential predictions I made in my annual energy forecast piece published January 1 was that, at the annual BRICS Alliance meeting to be held this coming September, Saudi Arabia would be formally admitted as a new member of that Alliance.

Whether these events and others are preliminary signals that such an earth-shattering event will take place, there is no question that they do serve as signals that the old world order as it relates to oil has already disappeared, and a new world order for oil is rapidly emerging. The implications of this emerging new order are only now beginning to be felt, but will become increasingly apparent in the coming months.