BRICS tried to convince other countries to ditch the US dollar and use local currencies for oil payments is backfiring. Nigeria took a leaf from its playbook and announced in October that oil refiners in the country would only accept the Nigerian naira to boost their national currency. Oil refiners accepted the government’s mandate and started accepting local currencies for oil deals and cross-border settlements.
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Trouble began immediately as the Nigerian naira depreciated against the US dollar causing losses to all the oil refiners. Nigerian oil firms began showing dissatisfaction with the government’s policies and the unions and lobbies pressured the officials to reverse the mandate, so they could accept the US dollar to keep their company’s revenues and balance sheets in profits. Nigeria is now paying a heavy price in ditching the US dollar and following the BRICS agenda for oil payments.
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BRICS: US Dollar Faces Resurgence Against Local Currency For Oil Payments
The demand for oil is on the rise while Nigerian oil refiners are taking losses by accepting the naira. The US dollar is facing a resurgence as refiners now want the greenback to maintain profits. “The naira’s depreciation was driven by demand-side concerns, with individuals and businesses rushing to buy dollars to meet necessities and import obligations,” reported NairaMetrics. Therefore, the BRICS idea of using local currency for oil and not the US dollar is not progressing but failing.
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The US dollar is closely tied to the oil and gas industry and eliminating it can add woes to businesses. The government needs to work closely with refiners before announcing mandates to use local currencies. The BRICS bloc could also face a similar situation if they decide to use local currencies for oil and not the US dollar. The greenback is a strong force in the energy sector and upending it will only end up hurting your arm.