While the West watches and waits for the Ukraine border crisis to boil over, Moscow is striking critical and strategic energy deals, including a 30-year lucrative oil and gas agreement with China. Russia has found a new market and the red dragon a new supplier – and the West is worried.
Russia, China Beef Up Energy Relations
Russia and China are bolstering a strategic alliance as the two countries have established a new pact. Moscow will supply liquefied natural gas (LNG) to Beijing through a pipeline, and the transactions will be settled in euros. Gazprom, a Russian majority state-owned multinational energy corporation, will export ten billion cubic meters of gas to Chinese state energy corporation CNPC. The new arrangement connects Russia’s far east to northeast China and would begin operation in two to three years.
This is in addition to the 16.5 billion cubic meters of gas sent to China through the Power of Siberia pipeline. Russia maintains a target of transporting 38 billion cubic meters of gas via pipeline by 2025. Beijing is Moscow’s primary export market, with the European Union a close second. Russian exports to China are valued at more than $79 billion – oil and gas represent more than half of the products.
After facing a year of rolling blackouts and power rations, China has been adamant about increasing its energy imports, be it LNG or coal. The International Energy Agency (IEA) recently forecasted that China would be the world’s largest market for LNG import growth amid greater pipeline flows and demand. At the same time, Russia is engaged in what the Kremlin calls “a new era and global sustainable development” by working with regional partners pertaining to energy, agriculture, technology, and finance.
“Energy is one of the areas where China still has a great interest in Russia,” Niklas Swanström, director at Stockholm-based think tank the Institute for Security and Development Policy, told the South China Morning Post.
Bad News for the West?
The $117 billion agreement comes as Western nations accuse Russia of plotting an invasion of Ukraine over NATO involvement with the former-Soviet country. U.S. officials are concerned that Moscow could exacerbate Europe’s energy crisis by turning off the taps to the region amid a deadly conflict. This prompted the White House to work with other nations and energy companies to mitigate a potential power calamity by encouraging higher output and greater capacity that ensures E.U. countries can keep the lights on.
In Europe, oil and gas inventories are way below their five-year average as the region’s green energy transition triggered a power crunch during the post-COVID reopening and intense winter weather. This has made the bloc vulnerable to the Kremlin possibly suspending exports during a military dispute.
Governments have threatened to impose immense sanctions on Russia should President Vladimir Putin give the go-ahead for soldiers to step into Ukraine. By supplying more oil and gas to a hungry red dragon, it is easier for Russia to skirt these penalties, especially if trade is settled in anything but the U.S. dollar, which can further add to these large economies abandoning the international reserve currency.
Over the last several years, Russia, China, and several countries have embarked upon a de-dollarization campaign. This has seen, for example, Moscow conducting more cross-border non-dollar-denominated transactions with other nations and removing dollar assets from domestic investment funds. For the world’s second-largest economy, the central government has been accelerating its shift away from the dollar, which has ostensibly consisted of accelerating its Belt and Road Initiative (BRI) and increasing the prevalence of the yuan in global commerce. The two main objectives of this program are to safeguard these economies from dollar dependence and avert crippling sanctions.
The West Has No Hand
Thanks to enhanced Russia-China relations and the ever expanding de-dollarization blitzkrieg, the United States and potentially other Western states no longer possess an upper hand over Presidents Putin and Xi Jinping. Whether it is fostering more significant energy-related trade or supporting non-dollar transactions, Moscow and Beijing threaten America’s power and influence on the world stage. For now, Russia needs Europe. But considering its lackluster oil and gas stockpiles, Europe needs Russia a whole lot more.
~ Read more from Andrew Moran.