2022 could be pinpointed as the year that started the current global transformation, after two rough years in which global activity stopped to combat the spread of the COVID-19 pandemic, which ravaged the globe. Factories were closed down, global and local trade was suspended, and the global supply chains suffered wide-scale disruption. According to Geoffrey Okamoto, First Deputy Managing Director of the IMF, global GDP losses estimated as a result of the COVID-19 pandemic stood at about $22 trillion, or the equivalent of 2.8% of the value of the global output. The oil sector had also recorded historic losses. All this compounded by the death of millions of people, and the overall ambiguous situation created by this mysterious pandemic.
Barely had the world breathed a sigh of relief upon the gradual disappearance of the pandemic when it was again taken by surprise, again, this time by Russia’s declaration of war on Ukraine in February 2022, when the former realized that it might lose one of the most important areas of its historical dominance to NATO and the European Union. Before the war, Russian President Vladimir Putin asked NATO to turn the clock back to 1997 and remove its forces and military infrastructure from Central and Eastern Europe and the Baltic states.
To put things into perspective, leaked documents showed that a number of European leaders were rejecting Central or Eastern European countries’ membership in NATO at the beginning of the 1990s Moreover, the West pledged in 1990 that NATO would not expand “one inch to the east”, as US Secretary of State James Baker famously said at the time , a pledge that was not respected as the alliance expanded east.
Russia started with an expanded military operation in the Donbass region. America and the EU rushed to impose sanctions on Russia as a result of its aggression against Ukraine. Part of the sanctions, which were aimed at isolating Russia internationally, was the exclusion of major Russian banks from the “Swift” system of financial transactions. In addition, the US and the UK immediately stopped buying oil from Russia, followed by the EU. Russian planes were also prevented from flying to Europe, and a ban was imposed on the export of advanced technology, including military equipment. Russian assets abroad were frozen, and as the war escalated , the Western bloc pushed for new measures, including targeting the Russian energy sector, and unprecedented sanctions on the Russian central bank, as the US and Europe effectively froze the central bank’s assets on American territory, with the aim of preventing Russia from using foreign reserves to support its currency, the ruble. Moreover, the US Treasury sanctioned two large Russian banks and banned trading in securities issued in Russia. The G7 members, which consist of some of the world’s largest economies, Canada, France, Germany, Italy, Japan, UK, and US, also imposed a price ceiling of $60 per barrel of oil exported by Russia, which kept the country’s oil revenues low. Nonetheless, Russia met Western sanctions with surprising flexibility, and sought to keep afloat the energy export sector, the lifeline of the economy, by searching for new markets in Asia. As the West, Europe in particular, worked to stop consuming Russian oil and gas, Moscow found other big buyers: China and India. Russia had initially reduced the selling prices of gas and oil, but in 2022 they went up, bringing Russia unexpected profits. At the same time, Europe could not completely wean itself off Russian gas. In the third quarter of last year, Russian fuel still accounted for up to 15% of the EU’s total energy imports, and the contribution of oil and gas revenues to Russia’s budget rose by 28% in 2022. During 2022, Russia’s current account surplus, which is the difference between money flowing into and out of the country, reached a record $227 billion. Despite sanctions and military spending, Russia was rolling in cash. Russia’s central bank also cut interest rates repeatedly last year, triggering a wave of liquidity in the financial system that helped avert a bank collapse. Since the beginning of the Russian war in Ukraine, BRICS countries have distanced themselves from the West. India, Brazil, South Africa and China did not participate in the implementation of the sanctions imposed by Western countries against Russia. On the contrary, trade levels between Russia and the BRICS countries have risen to unprecedented levels.
The US Federal Reserve and the Display of Power: Is the US Dollar Becoming Too Strong?
The US dollar began its rapid ascent journey at the beginning of 2022; in March 2023 the US Federal Reserve announced a hike in interest rates to reduce the amount of liquidity in the markets and eliminate inflation. The recent hike in interest rates is the ninth, after the Federal Reserve meetings. The main interest rate was raised from 4.75 percent to 5 percent, the highest since 2007, while interest was near zero just a year ago. The US decision casts a shadow over many emerging economies, especially as it prompted many central banks around the world to move to similarly raise interest rates, which threatens to increase the debt burden on developing countries and raise unemployment rates, in addition to bringing down the purchasing power of local currencies due to the collapse of their value, and the exit of “hot money” from countries toward the US, for the purpose of investment. Moreover, the new increase in interest rates will make borrowing money more expensive for many countries and institutions. The decision of major central banks to raise interest rates represents a risk for emerging markets due to the possibility of undermining the attractiveness of domestic debt instruments offered by countries, as investors rush to advanced economies that begin to raise interest rates, which leads to an exodus of foreign investments from emerging markets. The risks are particularly higher for developing countries that are already facing severe economic crises amid the continued accumulation of dollar debts and the difficulty of paying them, since these countries borrowed heavily during the spread of the pandemic, in 2020 and 2021, and also postponed the payment of their accumulated debt installments in the hope that the global economy will return to growth by 2022. What happened, instead, is that they were taken by surprise by the disaster of the Russia-Ukraine war and its repercussions on the global economy. All this shock wave would not have been felt if a currency other than the US dollar would have witnessed this rise, but the dollar has a special place in global trade, as at least 40 percent of global trade is conducted in US dollars, which means that the cost will rise in many countries of the world. Also, the currencies of many countries are mainly pegged to the dollar, and this puts them under pressure, so any rise in the dollar will result in a similar action for their currencies.
OPEC and OPEC Plus Respond Strongly to the Federal Reserve Decisions by Voluntary Cuts in Oil Production
In October 2022, the decision of the Organization of the Petroleum Exporting Countries (OPEC) and the oil-producing countries allied with it “OPEC Plus” to reduce oil production by two million barrels per day sparked unprecedented anger in Washington, due to its negative political and economic repercussions on the US, and in oil-consuming countries alike. The decision to cut production came at a critical time for President Joe Biden’s administration: about a month before the midterm congressional elections. Naturally, there was a risk that this cut, which will take effect on the first of November, would cause a rise in gasoline and gas prices. If prices rise in America, it will be a complete political disaster for the Biden administration. His republican opponents will use it as proof of the failure of his economic policies, and to influence the voters on polling day. A report published by CNN stated that Washington may consider OPEC Plus decision to cut its oil production a “hostile act” against the US and may take unprecedented measures against its ally, Saudi Arabia, to reduce its influence in the oil market. Washington believes that Russia will be the biggest beneficiary of the step to reduce the volume of oil production, because the reduction will lead to an increase in the price per barrel, and higher prices will help the Russian treasury finance Russia’s war effort against Ukraine. Moreover, this rise will also slow down the rate of economic growth across the world and will affect the volume of Western financial and military support for Ukraine to combat the Russian invasion. In response to the continuation of the recent US policies in 2023, which spell disaster for emerging economies, Saudi Arabia and the UAE approved in April 2023 a coordinated voluntary cut in oil production in several countries in the Middle East, in a move considered a “precautionary measure” to achieve “stability and balance” in the crude oil markets. Saudi Arabia, UAE and Kuwait decided in a coordinated manner to reduce their daily production by a total of 772,000 barrels per day, starting with May 2023 until the end of this year. Iraq followed suit, and Algeria announced a “voluntary” reduction of 48,000 barrels per day within the same time frame. The first three countries stated that this reduction is in addition to the reduction announced by OPEC and OPEC Plus alliance in October 2022, which required a reduction of two million barrels per day until the end of 2023. In response, the US administration said that the sudden cuts in oil production announced by Saudi Arabia and the countries in OPEC Plus are illogical. “We don’t think the cuts are reasonable at this time given the uncertainty in the market, and we’ve made that clear,” said a US National Security Council spokesperson. Moreover, Saudi Minister of Finance Muhammad Al-Jadaan announced at the annual meeting of the World Economic Forum in Davos, in January this year, that Saudi Arabia is open to settling its trade in currencies other than the US dollar (such as the euro, the riyal or others); most analysts believe that those statements reflect a serious willingness by Riyadh to accept the Chinese yuan to settle part of its commercial transactions, especially oil transactions, given that China is the most important trading partner of Saudi Arabia. In the event that this is actually implemented, the Saudi approach may support China’s efforts to internationalize its currency, and that will gradually chip at the dollar’s share in financial and commercial transactions worldwide. China has already completed the first purchase of liquefied natural gas from the French company TotalEnergies in Chinese yuan and Saudi Arabia seeks to strengthen its strategic relations with China, in particular in the field of energy, since China is the largest oil importer in the world, and accounts for nearly a quarter of Saudi Arabia’s oil exports. Overall, it can be said that the Ukrainian-Russian conflict, together with other geopolitical upheavals, has forced many countries to reconsider their position vis-à-vis US. But above all, Russia has lowered the level of confidence in the American currency as it needed to resort to other currencies after the US imposed financial sanctions on it, and everyone realized that it was not safe to keep savings in dollars.
Iran and Saudi Arabia Resume Diplomatic Relations through Chinese mediation
In March 2023, Iran and Saudi Arabia announced the resumption of their diplomatic relations that had been severed since 2016, following mediation efforts by China. The Chinese mediation between Saudi Arabia and Iran is the first successful political initiative taken by Beijing in the Gulf region and the Middle East. At the same time, the value of the BRICS countries improved greatly at global level. When the BRICS group was established, many expected it to be one of the fastest growing economy in the world. The countries currently forming the group, Brazil, Russia, India, China and South Africa, now also present themselves as an alternative to existing international financial and political entities. “The myth of the emerging economies that accompanied the founding period has faded,” said Guenter Meihold, deputy director of the German Institute for International and Security Affairs. “The BRICS countries are currently witnessing their geopolitical awakening – and Brazil, Russia, India, China and South Africa are trying today to present themselves as representatives of the countries of the South and as an alternative ‘model’ to the G7.”
In 2014, BRICS launched the New Development Bank, with an initial capital of $50 billion, as an alternative to the World Bank and the International Monetary Fund. The group also established an emergency reserve fund to support member states struggling to repay debts, with the aim of avoiding liquidity pressures. These projects attracted not only BRICS countries, but also many other developing and emerging economies that have suffered from painful experiences under the weight of harsh austerity programs imposed by IMF. This has made more countries interested in joining the group
The five BRICS countries are characterized by powerful economic strength; they contribute to the growth of the global economy by more than 50 percent, and their total economy represents 23 percent of the global economy. And with more than 39 million square kilometers, or 27 percent of the total land area, the size of the BRICS economies exceeds the GDP of the G7 major industrialized countries.. More importantly, BRICS presents itself as a decisive factor in the structure of global governance, and as a voice for the so-called “Global South”, which calls for an economic and political alternative to Western domination of the current system. According to Brazilian analyst Oliver Stoenkel, despite the different political systems, economic characteristics, and geopolitical rivalries among the BRICS countries, BRICS members are united by their deep skepticism about the US-led liberal international order and the perceived danger that unipolarity poses to their interests. China has proposed starting the process of expanding the BRICS group, as representatives of Argentina, Egypt, Indonesia, Kazakhstan, Nigeria, UAE, Saudi Arabia, Senegal and Thailand, which are considered potential members of BRICS, joined the BRICS Plus consultations. Ahmed el Souig, a Saudi economic banking and financial advisor, said that China’s invited the Kingdom of Saudi Arabia to join the BRICS, and if it happens, his country will add substantial weight and value, especially since Saudi Arabia is the largest oil exporter in the world and has become a key player in any movement to change the global trade and economic landscape.
Also Algeria announced on November 7, 2022, through Ministry of Foreign Affairs Special Envoy in charge of international partnerships Leila Zerrougui, that Algeria had submitted an official request to join BRICS, and that Russia and China welcomed Algeria’s request. Following in the footsteps of Algeria, the Iranian Foreign Ministry spokesman stated, on June 28, 2022, that his country had submitted a request to join BRICS, and that Tehran’s membership in the group “will bring added value”. At the same time, coinciding with the group’s 14th virtual summit, the Russian Foreign Ministry spokeswoman Maria Zakharova said that Argentina had also applied to join BRICS.
Egypt expressed the desire to join the bloc years ago and actively participates in the summits chaired by China – including the last meeting – under BRICS Plus, which was proposed by Beijing and announced at the Xiamen summit in 2017 and that has become one of the axes of the rapid pace of expansion of the group’s activity. The Chinese proposal in this regard stemmed from the group’s regarding itself as an expression of the Global South.
Vice President of the Arab Center for Political and Strategic Studies Dr. Mukhtar Ghobashi said that the world is now at a stage when countries that share common, strong and influential interests in their regional environment form blocs . For example, the US is a partner in many blocs with countries far from it, geographically, such as England, Australia and India. This must have prompted China to suggest creating balanced economic and political blocs.
Ghobashi stated in Sputnik News that China knows very well that the inclusion of Egypt, Saudi Arabia and the Gulf countries in this bloc adds great strength to it, in terms of the power of influence in the global oil and gas markets, and the strength of their strategic locations. In return, the bloc will lend support to these countries to benefit economically and in terms of investments, as well as becoming a supporting power to the bloc’s member states at international and regional levels.
Ghobashi further said that Egypt secures balance in the region, and has an important voice in the existing mechanisms of war and peace, and a major role in the Middle East. It has a strong army, constitutes a big consumer market with its 100 million population, and is also an attractive area for investment. On the other hand, the Kingdom of Saudi Arabia represents a third of OPEC countries petrol production, and the country with the most impact on global oil prices, and China is one of the world’s largest importers of oil and gas. This bloc, Ghobashi stressed, could provide services and great investment opportunities for Egypt, but it is equally necessary to study the goals behind the attempts to join this bloc, in light of the alliances that are currently created at international and regional levels.
Conclusion
This paper reviews the most important developments taking place in the global arena and traces the indicators of the emergence of a new era and a new global system tending toward a multipolar world. It has become clear that there is a rejection of unipolar hegemony, and of the oppressive role of the dollar in the economies and policies of world countries.
It is believed that a multipolar world will restore some balance to the world, and that trading in other currencies will have advantages and create opportunities, while reducing the dominance of the dollar and the euro.
It can be said that the COVID-19 pandemic and its catastrophic economic consequences on nation states accelerated the global transformations the world is witnessing. The fourth industrial revolution that is occurring in parallel brought about new ways of operation and international cooperation, transformed trade and supply chains, and accelerated the adoption of cryptocurrencies. It also highlighted the importance of investments in artificial intelligence and renewable energy to overcome climate change and rely less on fossil fuels with all their negative consequences.
