Foreign Policy Blogs

The BRICS Under Cheap Oil

The rapid rise in the value of the U.S. dollar and the effect of new riches in the U.S. energy market has left many adversaries of the U.S. with serious future financial issues. Unfortunately, it has also made it difficult for allies of the U.S. to operate, especially for those economies dependent on their energy revenues for a significant bulk of their GDP. Countries like Canada, where oil revenues make up a large part of their economy, have to rethink their budget surplus. Despite having a large energy sector, Canada’s economy is fairly diverse and has usually been able to take advantage of its manufacturing sector when commodity prices have fallen. With a low Canadian dollar, manufacturing and the right policy mix can balance out losses in the energy sector.

The energy “anti-crisis” may have caused a significant shift between BRICS countries as some have fallen and others have risen in a cheap oil market.

Gains by China and India over the last few months have pulled those two BRICS economies away from those of Brazil and Russia. Both Brazil and Russia have been unable to diversify and create a policy atmosphere where it can take on too many negative effects of a falling oil price. (Russia is one of the largest energy producers in the world, and Brazil was also poised to become a larger player in the energy market.) In Russia particularly, the political conflict in Ukraine in 2014 has spun one of the world’s major economies out of its path and taken a heavy toll on Russian GDP.

Brazil’s economic troubles, meanwhile, seem to be a symptom of local politics slamming into international issues as well. Oil and currency issues have pushed Brazil’s wobbly economy further into a place where re-elected President Dilma Rousseff had hoped to avoid. President Rousseff has been walking a thin line with Brazil’s public after months of protests and only winning a slight victory over the opposition candidate. Cuts in spending and further taxes on those services that effect everyday living expenses in Brazil has done little to deflate the public’s impression of negligent and corrupt government. The upcoming Olympic Games will amplify future protests that see the Brazilian government spending on FIFA, the Olympics and international companies over the needs of its own people. If Brazil will sink further into economic and political confusion, oil and currency issues will likely add fuel to already sensitive issues.

While there is little the U.S. can do to curb the effects of its new energy strength, the U.S. and their allies should work in conjunction to numb the negative effects of cheap oil and a high U.S. dollar. Oil can resolve as many issues as it can create, and while the U.S. will likely benefit in the end as their adversaries run out of revenue, its allies must also become part of the larger equation.

 
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Author

Richard Basas
Richard Basas

Richard Basas, a Canadian Masters Level Law student educated in Spain, England, and Canada (U of London MA 2003 LL.M., 2007), has worked researching for CSIS and as a Reporter for the Latin America Advisor. He went on to study his MA in Latin American Political Economy in London with the University of London and LSE. Subsequently, Rich followed his career into Law focusing mostly on International Commerce and EU-Americas issues. He has worked for many commercial and legal organisations as well as within the Refugee Protection Community in Toronto, Canada, representing detained non-status indivduals residing in Canada. Rich will go on to study his PhD in International Law.

Areas of Focus:
Law; Economics and Commerce; Americas; Europe; Refugees; Immigration

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