U.S. president-elect Donald Trump has threatened BRICS nations with 100% tariffs if they decide to challenge the U.S. dollar's dominance in the global economy. BRICS is an acronym denoting the emerging national economies of Brazil, Russia, India, China and South Africa.

"The idea that the BRICS countries are trying to move away from the dollar while we stand by and watch is OVER.," Trump wrote in a social media post early Sunday.

"We require a commitment from these countries that they will neither create a new BRICS currency nor back any other currency to replace the mighty U.S. dollar, or they will face 100 per cent tariffs and should expect to say goodbye to selling into the wonderful U.S. economy. They can go find another 'sucker!' There is no chance that the BRICS will replace the US dollar in international trade, and any country that tries should wave goodbye to America," the president-elect said.

The global de-dollarization drive has been going on for years with BRICS countries and the so-called pariah states trying to ditch the American dollar in favor of other currencies. Back in 2019, Putin declared that time was ripe to review the dollar's role in trade. At that time, Russia and China considered switching to the euro, the world's second most dominant currency, as an acceptable stalemate, with the ultimate goal being to use their own currencies. Last year, Russia and Iran took a bold move after declaring they will be trading in their local currencies instead of the U.S dollar, Iran's state media reported.

"Banks and economic actors can now use infrastructures including non-SWIFT interbank systems to deal in local currencies," Iran's state media declared.

Also last year, Russia paid dividends from the Sakhalin 1 and 2 oil projects in Chinese yuan instead of the dollar. Last year, Russia was cut off from the US dollar-dominated global payments systems following sweeping sanctions off the Ukraine war. Russia declared it will no longer accept the American currency as payment for its energy commodities but will instead switch to Chinese and Emirati currencies.

However, global de-dollarization efforts have borne little fruit with the vast majority of cross-border transactions involving BRICS members continuing to be invoiced in dollars. Indeed, exchanging BRICS members' local currencies with each other and with other emerging market currencies frequently requires using the dollar as an intermediary. Further, a large share of public and private debt in these economies is dollar-denominated. The relative stability of the dollar compared to many local currencies makes it more attractive as a medium of payment in cross-border trade. The dollar's widespread use in these cases has become self-reinforcing, thus preserving its dominant global role and impeding efforts to de-dollarize.

Canada Tariffs

But it's not just BRICS that Trump has beef with. He has also threatened to impose 25% tariffs on all imports from Canada and Mexico for failure to clamp down on drugs and migrants crossing the border, with Canadian oil imports not exempt. However, analysts have pointed out that imposing tariffs on Canada would drive up fuel prices for Americans, throwing into turmoil the biggest supplier of crude to the U.S. According to GasBuddy analyst Patrick De Haan, more than 20% of the oil processed by U.S. refiners is imported from Canada. According to De Haan, consumers in the Midwest, where refineries process 70% of the 4M-plus bbl/day of Canadian crude imports, could end up paying ~10% for their gas if Trump goes ahead with his tariffs.

"Canada and PADD 2 refiners are inextricably linked, with few options to divert and substitute," Rapidan Energy president Bob McNally told Bloomberg, referring to the market in the upper Midwest.

Refiners like Marathon Petroleum (NYSE:MPC) and Phillips 66 (NYSE:PSX) would be forced to either pay a higher price to import oil from Canada or to find alternative--and more expensive-- suppliers. According to commodity analyst Rory Johnston, in either scenario, "tariffs on Canadian oil [would] increase pump prices given the dependence of much of the U.S. refining industry on Canadian crude," adding that the cost of crude feedstock carries the biggest weight in determining retail gasoline prices.

BP Plc (NYSE:BP) would also be impacted thanks to its Whiting refinery in Indiana, the largest fuel supplier in the Midwest. Last year, the refinery imported more than 250K bbl/day of Canadian heavy oil, or 57% of its 440K bbl/day refining capacity, according to RBN Energy.

By Alex Kimani for Oilprice.com

COMTEX_460423867/2559/2024-12-03T06:42:54