“This is the biggest contract in the history of the gas sector of the former USSR,” Vladimir Putin said after the $400 billion agreement to supply Russian natural gas to China was signed in Shanghai on May 21. It is much more than that, Putin went on: It is an “epochal event.” China’s President Xi Jinping responded by saying that it is an “historical responsibility for both sides to safeguard, develop and consolidate China-Russia relations.” The contract and a host of associated cooperation agreements marked a new phase in the geopolitical balancing game, the emergence of a de facto Moscow-Beijing axis. Shanghai’s potential long-term significance may be compared with the fruits of Richard Nixon’s 1972 visit to China.
What is surprising is that it has taken them so long to reach the gas deal—over ten years of haggling—considering the two countries’ compatibilities: The world’s top energy user meets the world’s top supplier. Last year’s $270 billion oil agreement, under which Russia will double her oil deliveries to China over the next 25 years (and for which Moscow received a $70 billion advance), was easier to reach because there exists a global market for oil—but not for gas, which is regionally traded. This makes a mutually agreed price easier to fix for oil. More importantly, until late 2012 neither Russia nor China had felt much pressure to speed things up. Several factors have changed the equation, not least their shared concern about U.S. strategic designs and policies.
With Obama’s “pivot to Asia,” which is perceived in Beijing as a threat, the Chinese see pipeline gas from Russia as a strategic priority. It would reduce their dependence on liquid natural gas from Yemen, Malaysia, Qatar, Indonesia, and Australia, which has to pass through maritime routes controlled by the U.S. Fifth and Seventh Fleets. As energy analyst Morena Skalamera of Harvard’s Kennedy School noted in a recent paper, many Chinese analysts view the Siberian pipeline as an important source of energy security because China still lacks a navy that can protect her seaborne imports:
Especially, with regard to possible rising tensions with the United States in the South China Sea, securing energy supply routes out of American reach, through the expansion of inland routes is best served by the Sino-Russian shared border.
The Russian gas deal will enable China to expand and diversify her pipeline supplies, which currently come from Central Asia across the restive Xinjiang region. Some ten million Uighurs, a Muslim people of Turkic origin, inhabit the area. The East Turkestan Islamic Movement, an Al Qaeda-backed Uighur group based in Pakistan, has resorted to terrorism to pursue its demand for independence and the establishment of a sharia-based state. On May 22 explosions in the city of Urumchi killed 31 people and injured 100. In March, knife-wielding assailants killed 29 and wounded dozens at a railway station in southern China. Last October, three Uighurs drove a jeep into a crowd in Tiananmen Square in Beijing, killing 2 and injuring 40 before killing themselves. If the terrorists start attacking the Turkmen pipeline, which runs for hundreds of miles through the region’s semidesert, the Chinese will be hard pressed to ensure its protection. Even more vulnerable is the long section in neighboring Turkmenistan, where locals could be sympathetic to the militants.
The development of China’s own shale-gas production is proceeding much more slowly than originally expected. A mere 100 wells have been drilled so far, compared with some 40,000 in the United States. A major limitation involves the scarcity of water, which is used in enormous quantities for hydraulic fracturing, and the competing claims of regulatory bodies and agencies. Analysts say that the government’s production objective of between 60 and 100 billion cubic meters of shale gas by 2020 is unlikely to be reached. This makes China’s diversification of supplies strategically necessary until such time when her enormous reserves of shale gas start coming online, probably at least a decade from now.
Russia’s interest in completing the gas deal antedates the Ukraine crisis. The sense of urgency in Moscow increased after September 2012, when the European Union accused Gazprom of using monopolistic practices in Central and Eastern European gas markets, allegedly acting in breach of E.U. antitrust rules, and launched a formal investigation. Earlier this year, the E.U. antitrust chief, Joaquín Almunia, indicated that he was ready to file a formal complaint against Gazprom, but he has refrained thus far. Brussels has also halted talks to grant regulatory approval for the South Stream pipeline that would bypass Ukraine and bring Russian gas across the Black Sea into the Balkans, Central Europe, and Italy.
The outbreak of the crisis in Ukraine and the threat of additional U.S. and E.U. sanctions made it essential for Moscow to find an alternative long-term outlet for some of its gas. Although China cannot replace Europe as Russia’s primary gas market for years to come—new pipelines are yet to be built—the European Union, likewise, will not be able to find an easy replacement for 30 percent of its demand, which is now covered by Russia. The United States may start liquefying her natural gas and then exporting it to Europe in significant quantities, but completing the requisite infrastructure of terminals and pipelines will take time. Even then, price differentials could make it more attractive for U.S. producers to ship American liquid natural gas to Asia.
Fracking is banned in Germany, France, and several other E.U. countries, and any change in legislation is certain to encounter stiff domestic resistance. The European Union’s overall energy dependency rate is set to rise to 80 percent by 2035 from the current 60 percent, according to the International Energy Agency. The much-heralded development of renewable sources is not expected to make much difference to the total. Algeria, a major supplier to France and Italy, is potentially vulnerable to political unrest. On balance, for years to come, Europe will need Russia more than Russia needs Europe.
Energy provides a solid basis to expand Sino-Russian cooperation in other areas—technology, industrial and commercial sectors, military hardware. President Xi framed the task in openly geopolitical terms:
Further facilitating the all-round strategic partnership based on common interests is a requirement for promoting international fairness and justice, maintaining world peace, and realizing prosperity in both countries. It is also an “inevitable choice” for the development of a multi-polar world.
Without naming any nation, he added, “Beefing up military alliances targeting a third party is not conducive to maintaining common regional security.” Thanks to Xi, Putin has retained the global legitimacy that the Obama administration wanted to deny him, and enhanced his country’s geopolitical clout. Other BRICS countries (Brazil, India, South Africa) and “rising powers” (Indonesia, Nigeria, Argentina) may not follow China’s lead in establishing an outright alliance with Moscow, but it is an even bet that they will not support Washington in condemning, let alone isolating, Moscow.
“We don’t see any relationship whatsoever to an agreement with respect to gas and energy supplies between Russia and China that they’ve been working on for 10 years, for 10 years,” Secretary of State John Kerry told a news conference on May 21. “This isn’t a sudden response to what’s been going on.”
Many Western commentators of different persuasions saw that relationship clearly. Writes The Economist:
That an agreement should come now, after a decade of haggling, is no accident. The deal will help the Kremlin reduce Russia’s reliance on gas exports to Europe . . . Both Russia and China want to assert themselves as regional powers. The two have made common cause in geopolitics.
Anatole Kaletsky of Reuters declares,
Check-mate . . . Against a different diplomatic background [the] agreement might have been just another trade deal. It would seemingly have had no great geopolitical significance . . . But things look very different in the light of recent global confrontations, not only between the West and Russia over Ukraine, but also between the United States and China—over Japan, Vietnam, the Philippines and, most recently, cyber-espionage.
And Forbes adds that, “For Vladimir Putin’s reputation as a geopolitical necromancer, the deal with China couldn’t have been timed better.”
That John Kerry does not see “any connection whatsoever” means that he is deluded or obtuse. Either way, clearly U.S.-initiated global confrontations will continue as before. Instead of de-escalating the bloody mess to which she has made a hefty contribution, Victoria Nuland will continue encouraging her blood-soaked protégés in Kiev to seek a military endgame in the east. Instead of calming the South China Sea, Washington will continue encouraging its clients to be impertinent. And Putin and Xi will draw their conclusions: that they do have a powerful common enemy, a rogue regime not amenable to reason or rational calculus.
An administration guided by the American interest would seek common ground with Moscow on Ukraine, based on an acceptance of that country’s federalization and military neutrality; and with China, based on the reality that a colossus seeking recognition of its legitimate regional sphere of interest cannot be “contained” forever. But an administration capable of acting prudently and reasonably would not have made this two-front mess in the first place. Even an aggressive yet rational great power—Bismarck’s Prussia, say—would not have done it in relation to its two strongest adversaries simultaneously.
“Obama’s goal of ‘isolating Russia’ will likely have the opposite effect,” I wrote in my May column (“Moscow Rules”). “Putin will be motivated to upgrade relations with China, possibly to the level of a full-fledged alliance.” I did not expect that it would come about so quickly and so decisively. The unipolar world is now dead. And that is a good thing.