Not every country is falling in line with the BRICS agenda of replacing the US dollar with local currencies for oil. Settling oil payments in local currency poses a significant risk that can affect a country’s foreign exchange reserves. Oil settlements have been historically paid in the US dollar as the currency controls the global flow of the sector.
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Even Saudi Arabia, which announced that it would accept local currencies for oil payments has only been receiving the US dollar for transactions. Only a few trades have been settled in local currencies while the majority of them are backed by the greenback. BRICS is finding it hard to convince other countries to use local currencies for oil trade and not the US dollar.
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BRICS: Nigeria Rejects Local Currency for Oil, Wants the US Dollar
Oil marketers and distributors in Nigeria have rejected local currencies for oil and are opting for the US dollar instead. Nigeria’s Naira-for-crude oil transaction framework laid out by the government is being frowned upon by the union. Olufemi Adewole, Executive Secretary of DAPPMAN warned that the framework could destabilize the oil industry and hamper foreign exchange. He shunted the BRICS idea of using local currencies for oil citing that foreign direct investments (FDI) could face a decline without the US dollar.
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“The naira-for-crude oil transaction framework presents significant risks that could affect Nigeria’s foreign exchange stability and deter foreign direct investment,” he said. “The global oil market operates in US dollar due to its stability. Continuing the policy (Naira-for-crude) could alienate trade partners and investors who rely on the predictability of the dollar,” he stated.
Nigeria, which wanted to join BRICS is against the principle of using local currencies for oil and needs the US dollar. Developing countries are now distancing themselves from the de-dollarization agenda as it lacks a stronger foundation.
