Tuesday, March 25, 2014

Russia's Pivot Towards China

A status report by Nicholas Cunningham:

Visa and Mastercard reported that they will stop providing payment services for Bank Rossiya, a Russian bank, raising fears that more banks could be caught in Washington's sanctions net.
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Vladimir Putin doesn't seem to want the[Ukraine]  standoff to worsen. “I think we need to refrain from taking any retaliatory countermeasures for now,” he said, according to the Wall Street Journal. And Fyodor Lukyanov, a top Russian foreign policy official was quoted as saying, “[e]verything has happened so unexpectedly and so quickly. There's reason to end here.”

More intriguing is the prospect that the more or less severing of relations between Russia and Europe will accelerate a Russian pivot towards China. After all, one of the largest consumers of energy in the world sits adjacent to one of the largest producers of energy in the world – their marriage makes sense. Lukyanov hinted at such a shift in strategic thinking, “[t]he relationship with the West isn't a top priority anymore.”
Russia had probably hoped for a much more supportive response from China on the issue of Crimea, as both countries' interests often align in pushing back against U.S. meddling. However, that priority cuts both ways, prompting China to remain neutral – it sees Russia's annexation as flying in the face of China's policy of non-interference.

Nevertheless, the Russian-Chinese relationship could grow as a result of the brewing conflict between Russia and the West. For years, Russia and China have been unable to seal a natural gas deal that would benefit both. But the two sides are reportedly close to finally agreeing to terms, and with Putinscheduled to visit China in May, there is an added incentive there to finalizing a deal before then. It wouldn't be surprising that with Russia much more eager to reach a deal, China may get its way in terms of pricing – China is hoping for a lower price for natural gas than what Europe receives, which is around $10.54 per million Btu in 2013. That had been a sticking point for years. Now, with Russia a little uneasy, they may bend on the pricing issue. China would stand to gain even more leverage if the U.S. moves towards sanctioning Russia's energy sector.

Gazprom has plans to export as much as 38 billion cubic meters of natural gas to China beginning in 2018. This would require the construction of a $23 billion pipeline in the east. In fact, there are four planned connection points that would tie the two countries intimately together.

Several market analysts had already predicted before the Crimean crisis that a deal would be finalized this year. The latest freeze in Russian-European relations is accelerating Russia's pivot towards China, and an imminent natural gas deal could be a centerpiece of that strategic shift.

The above originally appeared as part of an analysis at Oilprice.com and is reprinted with permission.

2 comments:

  1. I hate statist...When are these old violent collectivist apes going to die!

    ReplyDelete
  2. Ahhh, the law of unintended consequences. As the gubermint of the USSA becomes more irrelevant every single day.

    ReplyDelete