News Analysis: BRICS, Sanctions & Cloud Of Wars
BRICS add 6 new members, Tech Wars & Sanctions, Africa & Caucasus Flaring UP
BRICS By BRICS
The BRICS meeting came and went, with 6 new countries invited to the organization. Let’s see what’s up in this emerging alternative to the G7/G20 and nascent “OPEC on steroids”.
Here is the list of countries invited to join the BRICS by next year:
Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates. In a more visual form from Visual Capitalist:
Let’s look at the logic behind each addition:
Iran
The 3 components of what I have called 2 years ago the “Eurasian Tripod” are now fully re-integrated in Eurasia via the SCO, and in the world via the BRICS+6.
Iran is a crucial supplier of energy to India and China. It is also the dominant player over factions in Iraq, Syria, Lebanon, and Yemen, controlling the so-called Shiia Crescent.
As an eternal target of the USA and Israeli sanctions, Iran's integration into the BRICS is a slap in the face of the West. This is of course the logical conclusion of the pacification between Iran and Saudia Arabia negotiated by China not long ago.
If it was open to me as an investable market, I would look into consumer goods sellers in the country.
And Iran is likely to now help Venezuela reboot its oil industry.
Saudia Arabia
A US ally since 1945, the outrage in the US intelligence apparatus should not be over Iran, a logical ally of China and Russia, but over “Who the Hell Lost Saudi Arabia?”.
The massive oil producer is now selling most of its oil to China, and Asia. Soon it will also buy weapons from Russia and China instead of the US.
And Saudia is also getting rid of its US treasuries.
While planning to keep oil production up for until the end of the year AT LEAST, pushing oil prices in the $90/barrel range.
I would look out for my security and for a colored revolution if I was the Crown Prince…
UAE
Of course, bringing in the Saudis is not enough, the rest of the oil-producing Arab countries are a must, and they could not have been snubbed.
This also brings in Qatar’s massive LNG capacities.
And Dubai's financial center capacities were boosted by the exodus of Russian and Asian money out of London, NY, and Frankfurt.
I previously argued that Dubai makes for a great “neutral” place for a clearing house and exchange for a new BRICS currency, and it is likely part of the deal discussed behind curtains and put together by next year.
Premium Dubai real estate is likely to stay at a good price for the time being.
Egypt & Ethiopia
Interesting choice and somewhat surprising, especially with Ethiopia.
None are oil or resource-rich. At least for now, even if Egypt might actually have a lot of gas resources yet to be developed.
But together Egypt + Ethiopia can control the Red Sea and therefore the Asia-Europe trade. Extra pressure on the EU if needed.
The 2 have also almost gone to war over the Nile River water usage and Ethiopia’s mega dam risking to cut the supply to Sudan and Egypt. So let’s hope their integration in the BRICS foreshadows a peace & economic deal similar to the Iranian-Saudi one.
IF it manages to stay stable internally and has no war with Egypt, Ethiopia is likely to become a major African power, thanks to a large population and now a boon of cheap power, in addition to easy sea access to Chinese and Asian markets.
The symbolism of Ethiopia being essentially the only non-colonized African country is not lost either for an alliance of the “Global South”.
Ethiopia also makes a great entry point into a wide East-West corridor for Chinese infrastructure projects.
Especially as the grip of the West over sub-Saharan Africa seems to be weakening very quickly, especially French influence, with Niger as the focal point.
Maybe at one point, I should check for cement companies in Ethiopia.
Argentina
The country is a major food producer, as well as a major lithium power, among other minerals.
It is also the home of the largest non-US shale oil&gas deposit, the Vaca Muerte.
Vaca Muerte has permanently been limited by infrastructure constrain of poor access to pipelines. Nothing that a consortium of Russian/Iranian/Chinese companies could not build in exchange for a percentage of production.
Chinese companies are also getting pretty decent at shale drilling from learning how to exploit their own ultra-deep shale deposits.
The issue here is that Argentina is in the middle of a presidential campaign. A favorite is ultra-libertarian Milei.
I am split about the man. Some of his economic ideas are the anti-communist shock Argentina needs to get back to its early XXth century performance when per capita GDP was higher than France’s.
But he also seems to want to cut all ties with China and become a total vassal of the US, something rarely benefitting Latin America, which would be only second worst after going fully communist.
As usual, Argentina is its own worst enemy and dearly needs to become a sovereign nation with some economic common sense.
So it might be possible for Argentina to leave the BRICS before even entering it.
Others
Rumors are that Algeria was supposed to make the list, closing in as the last major energy supplier to Europe. The same rumors go that France’s Macron convinced India to refuse that addition in exchange for unknown promises.
I am not sure if I believe this.
What is more clear however is that increasingly India is the odd man out of the BRICS. The only one looking to:
Increasing engagement with the West, and not the opposite.
From skeptical to hostile to China
Not a country with a strategic position or resource, but no indigenous advanced tech or large industrial base either.
This puts India's interests and strategy at odds with the rest of the BRICS, and in an organization looking for consensus and soft rules, this might quickly become an issue.
I reiterate my argument that the BRICS will in the long run drop India and maybe South Africa (looking more likely by the day to become a failed state).
I will discuss this further in an upcoming “India Geopolitics” premium report.
Tech Wars
A new episode in the tech war is Huawei's release of a fully domestically produced smartphone, 5 years after being hit by the truck of US sanctions.
As a rule, it seems that the US can impose costs or delays to Chinese tech, but no definitive defeat, a totally new thing considering even Russia or the USSR could never fully do without Western technology.
This has become a pattern, where China is forced to develop its own capabilities and might never have had to without sanctions: See this video for a few examples.
Some people pointed out that Chinese tech companies are putting a ton of money into R&D, while Western companies a putting money into stock buybacks.
While this is not a straightforward effect, I do think that tech companies in the West have somewhat lost the plot with a very scattered focus, between share buybacks (at any price, when dividend would be better), ESG mandate, diversity hires, political activism, etc…
I mean, let’s look at Apple's latest ad:
Does that look like a company focused on technology?
Or their most important growth market either, as increasing rumors of banning Chinese officials from owning Apple products or even a ban on “cybersecurity concerns” loomed over Apple’s stock price.
And Western companies are likely to be seen as increasingly unreliable, with the latest move from BMW and Mercedes to disconnect Russian garages from their software. This can make any maintenance much harder or even impossible.
The same issue with SAP and Oracle dropping their Russian business, a dramatic move considering how ERP SaaS disruption can impact a company. Cloud service might be better, but only if you can trust them.
Chinese companies and individuals are likely to take notice, and question the wisdom of relying on Western cars, SaaS, operating systems, tools, phones, etc…
Let’s keep that in mind when reading about lofty plans to expand international sales in quarterly reports, especially in China.
Expansion Of Conflicts
The last events of note this summer were expansions of Eurasia vs. West conflicts to new regions, with no less than 2 major regional wars almost boiling to an explosion.
Africa
Sub-Saharan Africa seems in an open state of revolt against French influence, with the last straw that broke the camel’s back being a coup in Niger. While not directly doing it, it is likely that Russia/Wagner's support helped.
To the map below now can be added Gabon south of Nigeria.
As a result, a looming “African World War” is hanging above the whole region, with Mali, Burkina Faso, and Niger potentially at war with what’s left of ECOWAS, a West-aligned group of countries in West Africa, with Nigeria the main army involved.
Since Nigeria’s army was “ready for war” on August 15th, not much has happened.
Remember in case you got confused about all the Western press calling for an attack on Niger:
Revolution & coup in Ukraine = Good.
Invasion to restore influence by a former colonial overlord = Bad
Revolution/coup in Niger = Bad
Invasion to restore influence by a former colonial overlord = Good
Glad we sorted that out.
But would such a conflict occur with Russia supporting the “rebels” countries, this would make another area of what increasingly might be remembered as WW3, even without a direct NATO-Russia conflict.
To keep this news stream from being totally depressing, just watch this video of the failed smuggling of CROISSANTS to the French embassy in Niger, now without water and food after the ambassador refused to leave, despite the demands by the putschists.
Glad to see the French still get their priorities straight.
Caucasus
The other potential hotspot is the Caucasus, with the Azerbaidjan-Armenia Second Nagorno-Karabakh War barely interrupted in 2020 and might be flaring up again, with reports of massive troops at the contested border.
While it mostly stayed between the two back then, it might expand with Iran unwilling to see Azerbaijan, and through it, Turkey, becoming too powerful in the Caucasus.
Meanwhile, a long and gruesome history of genocide against the Armenian people makes any action of Turkey in the region worrying.
In such a conflict, it is likely that Israeli-armed Azerbaidjan could get help from Turkey, which itself could trigger an Iranian reaction.
Meanwhile, Russia, the traditional guarantor of Christian Armenia against its Muslim enemies seems to sit on the fence, as Armenia has of late courted more the US & EU than its neighbor.
In the background, Turkey and the US are still occupying part of Syria’s territory, so Syria might get dragged into the conflict as well, expanding the conflict to Israel’s borders.
Could this degenerate into a Russia+Iran+Armenia vs. Turkey+Azerbaidjan+Israel?
For now probably not.
But here too, would this turn into an expansion of the Eurasia vs. West-aligned powers conflict, it would represent a significant escalation and degradation of the international situation.
One that could threaten the last non-Arab source of oil to the EU, with Central Asian and Azerbaijani oil supposed to help replace Russian oil.
Korea?
Just as I am writing this article, news about the North Korean dictator visiting Russia on its own train came out.
That included a visit to Russia’s new space center.
While North Korea could be asked to supply weapons to Russia, I suspect Russia is good enough on weapon manufacturing volume on its own.
It however seems to have a chokepoint on the production of barrels for its tanks and artillery guns. Especially as intense firing cadency like in Ukraine will not destroy a gun, but wear out the barrel.
We can easily imagine that anything from technology to grain and energy could be provided by Russia in exchange for North Korea's spare capacity or inventory of missing components like barrels.
Among the things discussed and officially admitted were rockets and satellites.
Maybe extra shells are an option as well, especially if Russia supplies the steel and gas to manufacture them.
And while the USA is threatening sanctions on North Korea if it provides military support to Russia, this sounds more like empty/impotent threats than anything else.
I would argue this is the problem with learning that sanctions were “efficient” against North Korea, Venezuela, Iran, or Iraq. These were small, isolated, and backward nations, often hindered by inefficient ideologies.
Then they expand to China, Russia, and overall a few BILLION people, when you add other regions, what happens when they start working together? Especially when they are no longer dependent on Western tech, but can find alternatives in China…
List of countries sanctioned by the US:
Afghanistan
The Balkans
Belarus
Burma
Central African Republic
China
Cuba
Democratic Republic of Congo
Ethiopia
Hong Kong
Iran
Iraq
Lebanon
Libya
Mali
Nicaragua
North Korea
Russia
Somalia
Sudan
South Sudan
Syria
Ukraine
Venezuela
Yemen
Zimbabwe
Conclusion
With the fading of Ukraine's chance to recapture territories, Russia seems now on the offensive, with the African coups likely to be somewhat helped or encouraged by Wagner.
Meanwhile, China is VERY quickly closing its last strategic vulnerability, chip making. This might turn into a more aggressive move like more open support of Russia, or investments in Iran, etc.
Instability seems to accumulate in the international system, with a background of stagflation likely to persist due to rising oil prices.
As a rule, I think investors should look twice at global companies with a lot of business in rival jurisdictions. They are at risk of getting caught in the crossfire as Apple is discovering.
I am also starting to develop a theory of an investing methodology looking to take this risk into account, while also not neglecting the potential gain in, for example, high-growth Chinese tech at low prices.
I will probably publish it after the report on India and before the report about investing in Sri Lanka's recovery and the report on Turkey's geopolitics.