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The entry of major oil producers such as Saudi Arabia and Iran into the Brics alliance has added impetus to the group’s efforts to “de-dollarise” trade, experts say, but any wholesale shift away from the greenback appears unlikely.

In late August, leaders from Brazil, Russia, India, China and South Africa met in Johannesburg for the 15th Brics summit, where they discussed forging greater political, security and economic ties.

In one key outcome from the summit, the Brics nations agreed to expand the alliance to include six new members: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the United Arab Emirates.

The move is expected to bolster the group’s efforts to reduce the use of US dollars for trade transactions, an initiative Brics has touted for some time but which has so far failed to gain traction.

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

ING notes the importance of the inclusion of Saudi Arabia, the world’s largest oil producer, which exported around 7.3 million barrels of oil per day last year and accounts for 17% of global crude exports.

“Given the ambitions of the Brics to de-dollarise, there certainly will be increased speculation that this latest move could see Saudi Arabia increasingly switching to non-dollar-denominated currencies for oil trade,” ING says. “It might make sense that Saudi Arabia starts accepting the Chinese yuan and Indian rupee from China and India for its crude oil.”

For years, the Brics group of emerging market nations – which China has characterised as a rival to the G7 – has been pushing to reduce its dependency on the US dollar for international trade, with Brazil’s president, Lula da Silva, even floating the idea of a common currency within the group.

According to Creon Butler, director for global economy and finance programme at London-based policy institute Chatham House, momentum for such a shift has grown since Russia’s invasion of Ukraine.

“There is concern among a number of countries about the sanctions that the G7 took against Russia after its attack on Ukraine, in terms of restricting Russian access to the Swift system and freezing central bank reserves,” he tells GTR.

Following the restrictions, Beijing and Moscow are now settling two-thirds of their trade in roubles or yuan, Reuters reported in April.

Such arrangements extend beyond transactions involving Russian importers and exporters, with India and Bangladesh having agreed a scheme to settle trade in Indian rupees, due to US dollar liquidity shortages.

In July 2023, Bolivia became the latest South American country — after Brazil and Argentina — to pay for imports and exports using the Chinese renminbi.

But while the share of FX reserves globally held in US dollars has declined to 58%, its primacy as the currency for trade has remained, a recent note from JP Morgan says.

The renminbi makes up just 2.3% of Swift payments, versus the dollar’s share of 43% and the euro’s share of 32%, it adds.

Economists and analysts cast doubt on claims the Brics group will challenge the hegemony of the greenback in the near term.

The Washington DC-based Center for Strategic and International Studies (CSIS) says payments for oil and gas imports in third-party currencies, such as the renminbi, are still a “far cry” from full internationalisation.

“For energy markets, enlarging Brics is largely symbolic for now—but it is another sign that countries are exploring ways to skirt the US financial system and the reach of the dollar,” CSIS says.

ING notes that energy only comprises 15% of global trade, meaning Saudi Arabia 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”.

The bank adds that progress on de-dollarisation has been “very slow” to date, suggesting that investors are still ultimately wary of holding international debt in non-dollar currencies.

However, in the longer term, ING says: “We suspect this will be a decade-long progression to a multi-polar world, a world in which perhaps the dollar, the euro and the renminbi become the dominant currencies in the Americas, Europe and Asia respectively.”