Russia buys friends with energy
May 25, 2014

ENERGYRussia and China signed a historic deal today, marking not only US$400 billion for a 30 year gas deal, but more importantly altering the way the world will work international relations in the years to come. Furthermore, the deal was signed even as China was locked in a tense standoff with Vietnam over a Chinese oil rig drilling in the contested South China Sea.

Just over 40 years ago Richard Nixon and Henry Kissinger persuaded China to turn against the Soviet Union and ally with America. Today, Russia’s move to guarantee China with energy marks a strong alliance between the formerly communist states which are Asia’s largest nations. The tectonic shift East and strategic alliance between China and Russia not only demonstrates who will be calling the shots in international politics but also smartly sidelines the USA who has been a dominant force between China and Russia.

Next stop, India. Russia an old ally of India, is expected to sign a mega oil deal with a National Indian Oil company to secure energy for India. According to a Reuters report, Rosneft, the world’s top listed oil producer by output, may join forces with Indian state-run Oil and Natural Gas Corp to supply oil to India over the long term. Russia also has plans to triple oil flows to China to over 1 million barrels per day in coming years.

As Russia diversifies her energy resources away from Europe whose factories have been dependent to Russian oil and gas, towards Asia, she sends a clear signal to the West, as to where her interests lie. Post the annexation of Crimea, Russia, has been keen to show her prowess as an economy that matters.

On another note, China’s developments demonstrate her expansive approach to energy. As the worlds largest energy consumer, China’s energy efforts have come to dominate global markets. Its mushrooming consumption helped prompt the spike in global oil prices in the mid-2000s. China’s demand has also provided life support to coal producers suffering from declining use in the United States and other industrialized countries. China now burns as much coal as the rest of the world combined. Now as she goes green and moves towards more eco-friendly energy resources, Beijing is exploring investment opportunities in energy resources worldwide. China definitely needs energy to pump into ther buzzing factories. China consumed 10.1 million barrels of oil a day last year — one-ninth of the world’s total — the country produced only 4.2 million barrels a day, according to a recent OPEC report.

Russia’s government-controlled Gazprom agreed to supply state-owned China National Petroleum Corporation with up to 38 billion cubic metres of gas a year between 2018 and 2048 on May 21st. Titled the biggest deal in the history of Russia’s gas industry, was a geopolitical move to prove the strength of Putin’s allies in the East. Both Russia and China want to assert themselves as regional powers. Both have increasingly strained relations with America, which they accuse of holding them back. While the two neighbours waxed eloquent about their friendship, China’s president Xi Jinping also reminded them that he chose Russia as the first country he visited on becoming president in 2013.

Russia is the world’s top oil producer, pumping over 10 million barrels per day but mostly from west Siberian deposits, which are running out. Moscow is betting on offshore and unconventional oil to maintain the level. Simultaneously, China is looking for alternative stable sources of energy.

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