News   /   Economy   /   Editor's Choice

Outlook for Iran after membership in BRICS

Foreign ministers of BRICS nations pose for a family photo with representatives from Africa and the global South during a summit in Cape Town, South Africa, June 2, 2023. (By Reuters)

Iran on Friday sent its Foreign Minister Hossein Amir-Abdollahian to Cape Town for so-called "Friends of BRICS" talks, where he said Tehran wished to join the bloc, and hoped the mechanism for new membership would be decided "at the earliest".

The Islamic Republic is attracted to China’s idea of BRICS+ which aims to add more countries to the group in order to build a strong transcontinental multilateral alliance. The plan has provided an opportunity for other countries to forge closer links with the bloc of major emerging economies to advance their interests.

As many as 19 countries have expressed an interest in joining the BRICS group of nations which consists of Brazil, Russia, India, China, and South Africa.

The bloc represents around one-fifth of the world’s economy and nearly 40 percent of the world population. At present, the five members of BRICS contribute 16 percent to world trade and around 24 percent to global GDP.

Iran’s membership in BRICS, regardless of laying the groundwork for the flourishing of trade, can be a field to test the ways to deal with the hegemony of the US dollar.

The country is a major supplier of energy, with many economic opportunities that need foreign investment to flourish. BRICS offers a platform for economic dialogue and consultation, but the problem is that many of the bloc’s members are not the main trading partners of Iran.

Establishing new economic links for export and trade partnership requires diplomatic consultations in the commercial sector and huge price discounts in order to win over rivals.

Also, attracting foreign investment among BRICS members is not easy. Most of the BRICS countries are developing countries, each angling for foreign investment.

Moreover, investing in Iran requires financial exchange with the country, which is subject to American sanctions and would result in American penalties.

Except for Russia and China, the other members are close to the West, which means until Iran has access to a global financial network, trade with most of these countries will be very difficult.

An example was Iran's money held in India during the sanctions period before the signing of the Joint Comprehensive Plan of Action (JCPOA) in 2015. India refused to pay Iran in dollars or euros for the crude oil it had purchased and insisted on settling payments in its own currency, rupees.

This was not desirable for Iran, because the Indian rupee is not an international currency and cannot be used in trade with other countries. Moreover, Iran's import from India was about $2.5 billion against $7 billion which the Islamic Republic demanded from India, which is a big gap.

If Iran faces such obstacles in trade with India, which is the largest economy and exporter of BRICS after China, the talk of extensive trade with other members of the group will be misplaced as long as Tehran remains disconnected from the global financial network.

Another example is the impact of the US sanctions on trade with Iran. Before the American sanctions in 2012, Iran's exports to India averaged more than $5 billion, with the trade balance in Tehran's favor. This figure fell to around $200 million under the maximum pressure campaign and the return of sanctions on Iran.

The discussion about trade with China which is a different kettle of fish in the group and Russia which has been hit by the toughest sanctions since the Ukraine war might, however, be different.

China tries to turn the yuan, or renminbi, into an international currency. Many countries have already added it as a unit of reserve for their central banks and the International Monetary Fund has included the yuan in its review of the currencies that make up the valuation of its Special Drawing Rights (SDR), an international reserve asset.

China is currently Iran’s biggest oil customer and a key investor in the country with a 25-year strategic cooperation agreement signed between them in 2021. This close cooperation, however, has been shaped outside BRICS and the two countries have no need for the bloc to trade with each other.

Based on what was said, it seems that Iran's membership in BRICS does not bring much economic benefit in the short term.

If Iran's goal in joining the group is to circumvent sanctions, the plan does not promise much success.

What will probably provide the best alternative to the US dollar in the coming years is the Chinese yuan. China is an emerging political, economic, military and technological power, trying to promote the use of the yuan in international transactions.

To achieve this goal, China has taken effective but cautious steps so far. However, the facilitation of the greater use of the yuan should not be equated with dumping the dollar in the short term.

China is one of the biggest buyers of US government bonds north of one trillion dollars. Naturally, the sudden drop in the value of the dollar is not to China's advantage.

China does not seem to want to destroy the hegemony of the dollar in the short term, having showed this in the 2008 crisis when financial deregulation led to one of the worst US recessions.

During the ensuing chaos of the global financial system, Russia suggested that China demand the repayment of the Treasury bonds to inflict another blow on the monetary and financial leadership of the United States in the world.

China did not do that, because its political economy is more than anything tied to the export of goods and services, which is carried out in the framework of the global monetary and financial system under the leadership of the United States.

Access to this network and countries around the world is a matter of life and death for China as the world's largest exporter. By trading in this system, China has been able to achieve its current position in the world economy and make commercial and economic success one of the components of its power in the world arena.

That was why the Trump administration decided to curb China by imposing tariffs on Chinese goods and sanctioning some Chinese companies such as Huawei, to hamper Beijing’s free access to the financial system and global trade.

With its political influence rising and economic and commercial links expanding around the world, however, China will be able to establish the yuan as an international currency of trade and a standard currency for pricing. This will not happen overnight.

China needs to preserve the current growth trend and adopt correct monetary, financial and commercial policies. If all factors work hand in hand and such a goal is achieved, China can move its financial mechanisms away from American control.

Hence, the establishment of the yuan as an international currency can benefit actors like Iran and Russia, which are looking to get rid of the American control over the world's financial system. If they have no hope in cooperation and partnership with the West, they should help China achieve the goal. The economic position of Iran and Russia as energy suppliers can play a crucial role in this regard.  

Economics apart, Iran's membership in BRICS can also have political consequences - both in the short term and in the long term, the membership underpins Iran's anti-Western position.

In the short term, it can show that Iran is not politically isolated and its hands are not tied in the tug of war to revive the JCPOA. The country can also bargain for its own interests and push for new economic benefits in a group where the most important non-Western actors are present.

Every step to break the political isolation and increase the country's foreign relations can benefit the country both psychologically and politically in the short term, even if it does not bring tangible economic or security benefits.

In the long term, Iran's membership in BRICS can be an opportunity to play a role in deliberations on the guiding principles, standards, criteria and procedures of what an expanded BRICS bloc would look like and bargain for national interests in the future order of the world.


Press TV’s website can also be accessed at the following alternate addresses:

www.presstv.co.uk

SHARE THIS ARTICLE
Press TV News Roku