Javed Ali.
Thanks to the United States foreign policy, the Russia-China gas pipeline is bringing the two Asian nations closer than ever before. Although the balance of power among the newfound allies has a tilt towards China, Russian aspirations of achieving its former soviet glory, too, are sending chills down the spines of western policymakers.
In December 2019, Russia and China announced the launch of the 1,800 mile gas pipeline named “Power of Siberia” that would cost $55 billion when fully functional. With gas tunnels under the Amur River and the first road bridge between the two now constructed, gas shipments have begun and will raise nearly $2.3 billion per year by 2025.
The company behind the project is the Russian energy giant Gazprom. Gazprom is the world’s biggest gas producer, yet the only Russian company allowed to undertake gas pipeline exports – courtesy of the sanctions bogging down the country’s economy.
An Array of Sanctions on Russia
One of the most readily available tools in the US arsenal for policing the world is sanctions. Presently weighing down Russia, they were imposed jointly by the US, EU, and Canada in response to an incident with Ukrainian naval vessels in the Kerch Strait in 2018.
The direct affectees of these sanctions are an array of Russian defense, shipbuilding, energy and construction companies, in addition to individuals said to be involved in Ukrainian elections and the naval incident.
For previously imposed sanctions, the US states the reasons as Russia’s meddling in its elections, annexation of Crimea and cyber intrusions.
Russia’s main export is energy – natural gas to be precise. With several of its energy companies under US embargo and with new economies rising, Russia is looking eastward. Although its extensive distribution network in Europe remains intact and US criticism upon which draws the ire of European leaders, diversification of Russian energy exports remains Moscow’s prime agenda.
This is where the world’s largest energy importer, China, comes into play. Now finally at a stage in its four-decade-long development process where it can challenge the previously US-dominated world order, China is making its presence felt in the multi-polarity.
The Russia-China gas pipeline is just one of the myriad international issues where China is willing to uphold its own interests, even if they do not conform entirely with those of the US.
Trade Tariffs on China
The world was all fine and rosy till the time China was producing for it only toys, t-shirts and sneakers. After entering the World Trade Organization (WTO), it decided to change the gear.
China shifted from a rapid development phase to one that focused on quality. Touted a slowing economy, China is, in fact, transforming into a tech and innovation powerhouse which is challenging traditional leaders of the field.
These leaders have not been able to come to terms with how a move – China’s inclusion in WTO – aimed at making its market and society more accepting of western values made it a highly competitive global power while retaining characteristics peculiar to a modern socialist state.
The result was trade tariffs and the vehicle was US President Donald Trump. Tit for tat tariffs on Chinese and US goods now continue to bloat as the trade war between the two ensues unabated.
The tariffs were a wake-up call for Chinese economists, both in the government and in the private sector. The sudden decoupling of the US and Chinese economies meant that they had to look elsewhere for the raw materials of their continually growing industrial power.
The most important was ensuring the supply of energy. The Power of Siberia had been under construction since 2014 but the tariff war was a major factor in accelerating its completion.
When the first wave of tariffs hit in 2018, China imposed 10 percent on US gas. By June 2019 they soared to 25 percent. Since then, gas from the US is not entering the Chinese market. Launch of the Russia-China pipeline at this time proved extremely convenient.
Diversification of Russia’s Gas Exports
The Russia-China gas pipeline is not the only ambitious gas export project coming out of Russia. Already fulfilling a major chunk of Europe’s energy needs, Russia is racing to complete the Nord Stream 2, the undersea Baltic pipeline to Germany.
Nord Stream 2 bypasses Ukraine, a hotspot between Russia and the US, and allows additional flexibility to Gazprom in delivering Russian gas to Europe. Meanwhile, efforts by US lawmakers to sanction this project are also gaining pace. The US is treating it in a security context rather than economic. Its House and Senate armed services committees are unanimously pushing for a defense bill to sanction entities that will help Gazprom.
Another pipeline that bypasses Ukraine is the Turkish Stream. It consists of two branches, one of which takes the supply to Turkish consumers while the other extends to Southern and Southeastern Europe. Russia filled the Turkish branch with natural gas in October 2019.
Both these pipelines allow Russia to be independent of those going through Ukraine. Ukraine, on the other hand, is increasingly seeking Western support to counterbalance Russian influence. These pipelines are, in effect, beneficial for Ukraine as well since it has been complaining of politically motivated disruptions to the Russian supply.
In addition to these two pipelines, ‘Power of Siberia’ will be yet another project that will diversify Russian gas exports by adding a major customer.
Diversification of China’s Gas Imports
While US gas export to China came to a grinding halt with an escalation in the tariff war, Chinese factories did not. A steady stream from other gas pipelines along with ship-borne imports of Liquefied Natural Gas (LNG) keeps fulfilling China’s needs.
The gas pipelines China mainly relies upon originate from Turkmenistan and Myanmar. The Central Asia – China gas pipeline brings the supply from the border between Turkmenistan and Uzbekistan and connects with China’s West-to-East gas pipeline in the Xinjiang Uygur Autonomous Region.
In addition to that, LNG keeps pouring in via sea from Australia, Qatar, Indonesia, and Malaysia. Placing itself to secure a lion’s share of Chinese gas demand, Australia has been supplying over half of China’s LNG imports.
Chinese government’s push to shift factories and households to natural gas and away from coal has surged the demand across the country. This, along with the cessation of US imports, has generated opportunities for new players like Russia to capitalize upon.
Way Forward in the New Energy Calculus
Russia and China’s decision to built the landmark gas pipeline project completely changes the energy calculus that governs today’s global supplies. The volume of gas it will transport (38 bcm per year), the alternative it offers to energy-hungry Chinese industries and the impact it makes on sea-borne shipments bears effects on all energy-related industries.
The reason behind the shift remains, however, singular: a US foreign policy that is bringing a rising global power closer to one that is looking at regaining its pre-Cold War status.
The way forward for the US must include disengagement from the trade war and increase in engagement with China and Russia to ensure that all members of the World Trade Organization (WTO) adhere to the necessary tenets of free trade. Consequently, the two aspiring nations, with their expanding markets, will welcome American investors and contribute better to the global economy.
