The rise of BRICS and its implications

Investing.com -- BRICS, once seen as an underperforming bloc, is regaining momentum as its members absorb steep U.S. tariffs, sanctions and rising trade frictions. 

The grouping, now expanded to 10 countries, is drawing closer together in trade and financial coordination after years of limited progress.

The bloc was set up after the global financial crisis to give fast-growing emerging markets greater representation in global institutions. 

At its formation, BRICS accounted for 40% of the world’s population, 16% of global GDP and 8% of oil reserves. But political and economic differences among members left it largely symbolic for more than a decade.

A shift began after Russia’s $300 billion in assets were frozen by the United States following the Ukraine war in 2022. 

Members accelerated efforts to build alternatives to Western financial systems, including domestic payment networks such as India’s UPI, China’s CIPS, Brazil’s Pix and Russia’s SPFS. 

BRICS Pay, a platform linking these local systems, showed a working prototype in Moscow in 2024.

The New Development Bank has doubled project approvals and financing since 2020, with India using $8.64 billion in loans through 2023, a figure likely above $10 billion now. 

Although most loans remain dollar-denominated, the institution acts as an emerging rival to the IMF and World Bank.

Trade ties inside the bloc have strengthened. Intra-BRICS trade, which stood near 10% of member trade in 2012, reached 18% in 2023, with imports from within the group rising to 21%. 

China has become the largest trading partner for all BRICS members. Continued elevated U.S. tariffs could push these flows higher.

Tariff pressure has become a major catalyst. The United States imposes some of its harshest tariff rates on BRICS economies.

Excluding China’s temporary truce, which could lift tariffs to 47%, Brazil, India and South Africa rank among the most heavily targeted countries. Russia faces sanctions rather than reciprocal tariffs.

Member states have also boosted gold reserves. Their combined gold share in foreign exchange reserves rose from 6% at the start of 2022 to nearly 13%. Russia’s gold share climbed from 21% to 40%. 

As foreign currency assets dropped below 85% of reserves, estimated dollar holdings for the group have likely fallen under 50%, underscoring a broader diversification away from USD.

The 2024 expansion changed the bloc’s strategic weight. New entrants from the Middle East and Africa increased BRICS control to 24% of global oil reserves and nearly three-fourths of rare earth reserves. 

Saudi Arabia has been invited but not yet formally admitted; its entry would lift the oil share to 40%. This places major oil exporters and consumers in the same grouping.

India’s position is more complex. The brokerage notes that India’s inward-focused economy, limited manufacturing base and heavy reliance on U.S. services trade constrain potential gains from deeper BRICS integration. 

New Delhi’s direction may hinge on the pending India-U.S. trade deal. A favourable agreement could stabilise the rupee and strengthen India’s developed-market ties; an unfavourable one could pull India closer to BRICS.

The analysis outlines three paths ahead: a gradual rise in BRICS influence driven by local-currency trade and reserve diversification; a sharper bloc-level pivot that could unsettle investment flows, especially for India; or another period of stagnation that limits members from leveraging cheaper oil or alternative financing.

The bloc’s trajectory will depend on whether members continue building parallel institutions and trade links at the current pace. 

For now, rising tariffs and shared financial concerns are giving BRICS the coherence it has lacked for much of its history.