Wednesday

21st Nov 2018

Column / Crude World

Mr. Putin goes to China

  • Putin (l) in Beijing with Chinese leader Xi Jinping. Russia’s Asia pivot is slowly running out of steam. (Photo: kremlin.ru)

Last weekend, Russian president Vladimir Putin paid a high-level visit to China. Following the meeting, news emerged that Russian and Chinese companies inked more than 30 cooperation accords in the areas of energy, finance, trade, media and sports.

From a PR point of view this is good news for the Kremlin, which is keen to show to the world that it still has powerful friends despite having been shunned by the West.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

However, as is more often the case when Russian-Chinese cooperation is concerned, the devil is in the details. Most of the agreements concern framework accords, meaning that concrete cooperation still needs to be finalised.

Well over two years into Putin’s proclaimed "pivot to Asia", these summits mostly serve as a disguise for underlying difficulties in the bilateral relationship.

Bilateral trade is down

A brief look at trade figures shows that the partnership has not exactly been blossoming. In fact, Russia’s trade with China fell as much as 26 percent in 2015 to $68 billion (€61.2 billion), a far cry from the $100 billion (€90 billion) goal.

To add to the misery, China itself is struggling with slow growth, rising debt and capital outflows. This means Beijing has bigger problems to worry about than to come to Russia’s aid. Moreover, after driving a hard bargain on many of the initial bilateral deals, Chinese investors have been put off by the depth of Russia’s recession.

Establishing sound financial relations is also proving difficult. Illustrative is the fact that in 2015 not a single Russian company carried out a public offering on Asian exchanges.

Energy cooperation

Cooperation in the energy sector is turning out to be a bit of a mixed bag. On the positive side, in March 2016 Russia surpassed Saudi Arabia as China’s biggest oil supplier.

India is also knocking on the Kremlin's door when it comes to oil sales. In September 2015, Russia’s state-owned oil company Rosneft signed a deal on the sale of a 15 percent stake in the Vankor oilfield in eastern Siberia to Indian company ONGC for $1.27 billion (€0.9 billion).

In March 2016, Rosneft agreed to a deal in which a group of three Indian companies took a combined 29.9 percent share in Rosneft’s subsidiary Taas-Yuriakh Neftegazodobycha and a 23.9 percent stake in Vankorneft, the company operating the Vankor field.

On 19 June, news emerged that Putin was considering selling off a 19.5 percent share of Rosneft itself to China and India. If a deal were to materialise, this would help Russia to plug a significant hole in its state budget.

The picture in the natural gas market is less rosy, however. One of the first casualties of changing energy market circumstances was the planned liquefaction plant in Vladivostok.

Given that liquid natural gas (LNG) supplies have mushroomed over the past few years, one could say that Gazprom’s timing in constructing this plant was less than fortunate. In scrapping the plant, Gazprom stated it would focus on supplying China by pipeline instead.

Although, gas pipeline cooperation between Russia and China appeared to have gotten off to a good start when Gazprom announced a $400 billion (€360.15 billion) gas deal with CNPC in March 2014, here too things quickly changed.

Initially eying a finance package worth $25 billion (€22.5 billion), in the form of prepayments for natural gas or loans, for building the necessary Power of Siberia pipeline, Gazprom only managed to secure $2 billion (€1.8 billion) from the Bank of China.

Aware of the risks associated with investing in Russia’s economy, Beijing pushed for interest rates that were far higher than what Moscow was willing to accept. After already having been given a raw deal on the gas price due to tough Chinese negotiating, the precipitous decline of the price of oil did the rest. The financial viability of the project is now seriously in doubt.

Add to this that Chinese natural gas demand grew at its slowest pace in 17 years in 2015 and Gazprom’s China plans more and more look like just that: dead words on paper.

A $12 billion (€10.8 billion) investment from two Chinese state-owned banks in the Yamal liquefaction plant in the Russian arctic notwithstanding, the real lock-in in a bilateral relationship is not created through LNG, but rather through long-term pipeline deals.

Putin knows this. Much to the Kremlin’s chagrin, this is precisely where the Russian-Chinese partnership is so far failing to deliver.

China knocking on Central Asia’s door

Although Russia still controls the majority of the energy exports emanating from Central Asia, its economic grip on the region is rapidly weakening.

Countries such as Kazakhstan and Turkmenistan were quick to turn to China as an alternative market and now ship significant volumes of oil and gas to the East.

The billions of dollars in Chinese investment available under Beijing’s "One Belt one Road" (OBOR) initiative is seen as attractive compared to Russia’s economic downturn and the Kremlin’s restrictive trade measures on Western agricultural goods.

Xi Jinping’s visit to Iran in January could also be an ominous sign for Russia’s Eurasian Economic Union (EEU).

Adding Iran to the OBOR initiative effectively means that China acquired the possibility of crossing Eurasia without having to go through Russia.

Whereas the EEU appears primarily set up to establish control over its members and to prevent them from taking geo-economic decisions deemed unfavourable by the Kremlin, the OBOR initiative by contrast has a strong outward vision aimed at fostering trade ties.

It has been much more successful to date at creating economic integration than the EEU.

It is telling that not much follow-up occurred after last year’s pompous announcement that the EEU would link up to China’s OBOR initiative. Perhaps what is happening is that, while China is going full steam ahead, Russia’s Asia pivot is slowly running out of that same steam.

The Crude World monthly column on Eurasian (energy) security and power politics in Europe’s eastern neighbourhood is written by Sijbren de Jong, a strategic analyst with The Hague Centre for Strategic Studies (HCSS), specialised in Eurasian (energy) security and the EU’s relations with Russia and the former Soviet Union.

Column / Crude World

Empty Gazpromises

Why let Gazprom take on Brussels alone, when it can have EU states do its bidding?

Magazine

Nord Stream 2: Business unusual

Neither sanctions, EU law nor politics can stop the Nord Stream 2 gas pipeline from being built, its small army of European lobbyists has said.

Panic is not answer to EU's security challenges

EU foreign ministers must choose between contaminating their civilian missions and operations with panic over security and migration, and reaffirming the EU's core values as a global actor for peace and development.

EU must recognise new force for Balkans destabilisation

EU foreign ministers will discuss Bosnia and Herzegovina on Monday. The EU has the opportunity to show that it is not a political dwarf in the Balkans, where not only economic, but also political reforms are necessary.

News in Brief

  1. Interpol rejects Russian candidate after outcry
  2. Investors seek compensation for Danske Bank losses
  3. Analysis: one-in-four Europeans vote populist
  4. Italy moves to seize Aquarius for illegal waste disposal
  5. EU parliament approves Italian to check European banks
  6. EU agrees tightening rules on foreign strategic investment
  7. Soros' foundation demands apology from Facebook
  8. Hungary grants asylum to ex-Macedonia PM

Why 'Spitzenkandidat' is probably here to stay

The power of the parliament to 'appoint' the president of the EU Commission is new, highly-contested - and not universally understood. In fact, even some of the lead candidates to replace Jean-Claude Juncker are against it.

Stakeholders' Highlights

  1. NORDIC COUNCIL OF MINISTERSNordic Region has chance to become world leader when it comes to start-ups
  2. NORDIC COUNCIL OF MINISTERSTheresa May: “We will not be turning our backs on the Nordic region”
  3. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  4. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  5. NORDIC COUNCIL OF MINISTERSState of the Nordic Region presented in Brussels
  6. NORDIC COUNCIL OF MINISTERSThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  7. NORDIC COUNCIL OF MINISTERSThe Nordic gender effect goes international
  8. NORDIC COUNCIL OF MINISTERSPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  9. NORDIC COUNCIL OF MINISTERSNordic design sets the stage at COP24, running a competition for sustainable chairs.
  10. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  11. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  12. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue

Latest News

  1. Deutsche Bank dragged into Danish bank scandal
  2. New EU human rights sanctions to focus on Africa
  3. Boycott threats mount on eve of Interpol election
  4. EU parliament to renege on transparency promises
  5. Cyprus and Greece to create EU spy academy
  6. MEPs likely to delay vote on greater transparency
  7. Cold shoulder for Franco-German euro budget plan
  8. Whistleblower: Danske Bank gag stops me telling more

Stakeholders' Highlights

  1. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  2. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All
  3. International Partnership for Human RightsCivil society asks PACE to appoint Rapporteur to probe issue of political prisoners in Azerbaijan
  4. ACCASocial Mobility – How Can We Increase Opportunities Through Training and Education?
  5. Nordic Council of MinistersEnergy Solutions for a Greener Tomorrow
  6. UNICEFWhat Kind of Europe Do Children Want? Unicef & Eurochild Launch Survey on the Europe Kids Want
  7. Nordic Council of MinistersNordic Countries Take a Stand for Climate-Smart Energy Solutions
  8. Mission of China to the EUChina: Work Together for a Better Globalisation
  9. Nordic Council of MinistersNordics Could Be First Carbon-Negative Region in World
  10. European Federation of Allergy and AirwaysLife Is Possible for Patients with Severe Asthma
  11. PKEE - Polish Energy AssociationCommon-Sense Approach Needed for EU Energy Reform
  12. Nordic Council of MinistersNordic Region to Lead in Developing and Rolling Out 5G Network

Stakeholders' Highlights

  1. Mission of China to the EUChina-EU Economic and Trade Relations Enjoy a Bright Future
  2. ACCAEmpowering Businesses to Engage with Sustainable Finance and the SDGs
  3. Nordic Council of MinistersCooperation in Nordic Electricity Market Considered World Class Model
  4. FIFAGreen Stadiums at the 2018 Fifa World Cup
  5. Mission of China to the EUChina and EU Work Together to Promote Sustainable Development
  6. Counter BalanceEuropean Ombudsman Requests More Lending Transparency from European Investment Bank
  7. FIFARecycling at the FIFA World Cup in Russia
  8. Nordic Council of MinistersOECD Report: Gender Equality Boosts GDP Growth in Nordic Region
  9. Centre Maurits Coppieters“Peace and Reconciliation Is a Process That Takes Decades” Dr. Anthony Soares on #Brexit and Northern Ireland
  10. Mission of China to the EUMEPs Positive on China’s New Measures of Opening Up
  11. Macedonian Human Rights MovementOld White Men are Destroying Macedonia by Romanticizing Greece
  12. Counter BalanceControversial EIB-Backed Project Under Fire at European Parliament

Join EUobserver

Support quality EU news

Join us