Reinforcing this sense of a burgeoning strategic partnership is the “bromance” reporters speak of between Presidents Xi and Putin, both of whom share a common outlook. Insiders describe bilateral meetings in which the two discuss concerns about domestic unrest and challenges to their rule. Both leaders see the United States as meddling in their spheres of influence and encroaching upon their legitimate interests. Both see the value of warmer relations between their two countries. In drawing closer to the dragon to its south, Russia is able to counter the narrative of its international isolation, as well as to mitigate the pain of sanctions and locate alternative sources of finance, markets, and technologies. China sees cozying up to the bear to its north as critical to its military modernization and important in diversifying its energy sources, especially those that do not flow through the Strait of Malacca. Beijing also sees Moscow as a willing partner in Chinese efforts to use its currency internationally and considers its acquiescence as crucial in its plans to further expand Chinese influence in Central Asia.
Russia and China are making progress in overcoming deep historical memories and insecurities in order to bridge their long-standing divide. The collapse of the Soviet Union back in 1991 offered the chance to resurrect the Sino-Russia relationship. But the two countries were slow to capitalize on that opportunity and there were several false starts. They finally settled most of their border disputes soon after the signing of a Treaty of Friendship in 2001, but it took a decade longer before the Eastern Siberia–Pacific Ocean pipeline began to deliver Russian oil to China.
The pace and scope of this rapprochement, however, increased markedly after the Ukraine crisis of 2014. In addition to the natural gas deals, Chinese and Russian officials penned more than a hundred agreements related to energy, finance, infrastructure, and technology in three different settings in the months from May to November 2014 alone. Unofficial bans on selling Chinese advanced weaponry, allowing Chinese participation in bids on large infrastructure projects in Russia, and permitting Chinese equity investments in Russian natural gas fields were dropped. During President Xi’s 2015 visit to Moscow to attend Russian festivities marking the seventieth anniversary of the end of World War II, Xi and Putin signed a joint communiqué pledging to develop a bilateral strategic relationship and underscoring how the two countries would work together to ensure global stability. Later the same month, Russian and Chinese naval forces concluded their first joint exercises in the Mediterranean; even more meaningful joint naval exercises followed that autumn in the South China Sea. Russia became the third largest shareholder—after India and China—in the Chinese-led Asian Infrastructure Investment Bank, launched in mid-2015. Perhaps most significantly, China has stepped in to to help fill the financing gap created by the sanctions and thaw the freeze they have placed on Russia’s ability to raise money from western markets.
Thwarting Russia’s Asian Ambitions
Despite these outward signs of rapprochement, the relationship between China and Russia remains more opportunistic than strategic. Its future character is still in question. Of the many factors determining its trajectory, energy will loom large. But contrary to many expectations, energy is more likely to frustrate the potential for a meaningful alliance than boost it. This is largely thanks to the new energy abundance, which will exacerbate the already imbalanced nature of the relationship between the two countries. Already, Russia is relying on China to be a source of revenue, growth, and finance in the face of enduring sanctions from the West. The combination of continued sanctions and low oil prices make Russia even more constrained in realizing its pivot to the east due to insufficient access to Western capital and technology. As a result, Russia’s shift eastward will be increasingly dictated by China, will happen on China’s terms, and will ultimately reduce Russia’s capability to diversify its eastern ties. Ambitious Russian plans to meet Japanese and Korean energy demands have slowed, although not been entirely shelved, as the expensive LNG infrastructure projects anticipated to feed these markets have become less feasible.
The delay or potential cancellation of the Vladivostok LNG project is one example of Russia’s doubling down on the Chinese market. Once envisioned to supply as much as 15 million tons of LNG a year, the $15 billion project was halted in 2015. The gas once expected to flow as LNG from the eastern Russian port city of Vladivostok to Japan will now eventually be directed to the Chinese market via pipeline. Gazprom’s CEO, Alexei Miller, claimed that the venture was no longer “on the list of priority projects, and isn’t on the list of projects that will be carried out in the near future.” With large volumes of LNG anticipated to come online from Australia and the United States, and technological and financing challenges arising from sanctions, Vladivostok no longer made commercial sense.
In mothballing this project, and potentially others, Russia may well miss its opportunity to claim a significant portion of the global LNG market, given emerging global competition from North America, Australia, and North Africa, as well as smaller producers such as Papua New Guinea and Indonesia. If this window shuts without Russia claiming a share of the global market, Russia’s dependence on China as a source of growth will be even more significant.
While Russia’s reliance on China will deepen, the new energy abundance will ensure that China becomes less and less tethered to Russia. China will have more and more options to meet the needs Russia seeks to satisfy. The glut in LNG means China will have no shortage of potential suitors seeking access to its market. Moreover, the surfeit of LNG has pushed down its price, eroding to some extent the cost advantage that piped gas—and Russia—has over LNG and other suppliers. Specifically, the new price environment has already led to the freeze of the Altai project and created question marks around the viability of the Power of Siberia pipeline. Finalizing the deal only months before the oil price plunge, Gazprom insisted that the price of gas be linked to that of oil—an arrangement clearly no longer in Russia’s favor. Scholars from the U.K.-based International Institute for Strategic Studies argue that, if oil prices remain low beyond 2020, the Power of Siberia project would no longer have a small net present value, but could sustain a loss as large as $17 billion.
Russian gas will maintain some advantages. Because it comes overland, it helps mitigate what former president Hu Jintao called “the Malacca Dilemma” and therefore, as mentioned, will maintain a preferred status with Chinese buyers. Moreover, China will use the possibility of cheaper Russian gas to negotiate better prices for the LNG it receives. But the fact remains that if China receives the other piped gas and LNG for which it has contracted, it will not need both the Power of Siberia and the Altai natural gas pipelines from Russia to materialize. Rather than weaving the fabric of the ever-deeper mutual dependence that Russia envisions, China will be seeking to diversify its supplies and balance its reliance on as many sources as possible.
This dynamic will accentuate what in the past has been a persistent impediment to a closer Sino-Russian relationship: Russia’s sense of inferiority. The widening gap between a rising China and a declining Russia will strain the concept of a strategic partnership. As Russia becomes weaker and more dependent on China, the perception and reality of this imbalance will expand beyond Russia’s having one energy partner in Asia and China having many. If China gets involved in constructing expensive infrastructure, for example, it will likely only provide finance if Chinese companies and workers are the ones to build the projects. In this situation, Russia’s sparsely populated east could experience a major influx of Chinese workers and companies, laboring to deliver the resources that Russia only recently yielded to Chinese equity investments. Not only will this create friction on the ground, but it could further exacerbate Russian insecurities over alleged Chinese territorial ambitions in Russia’s Far East. Moreover, while Russia has long resented the idea that it could become simply an “energy appendage” to China, all signs point to the realization of that vision.
Declining Leverage over Central Asia
Any efforts to buck this system were squashed. Just ask the Turkmen, who halted gas exports to Russia in the summer of 1997 in an effort to secure better terms for the sale of their gas. Negotiations between the Turkmen state company and Gazprom followed, with Gazprom CEO Rem Vyakhirev declaring that Turkmenistan would be “forced to eat sand” if it did not sell gas under Russia’s conditions. For nearly two years, the gas trade was suspended, wreaking havoc on the Turkmen economy, which had depended on its sales of gas to Russia for 85 percent of its revenues. In 1999, gas trade resumed, although the question of long-term price remained unsettled.
The new energy abundance was one factor in changing this dynamic. Russia is now looking for markets, not for gas. It no longer truly needs Turkmen gas or Kazakh oil to meet commitments elsewhere. But if Gazprom is less interested in buying Central Asian gas, even at low prices, it is now focused on ensuring that such gas does not squeeze into its fiercely protected European markets. This is another lesson that the Turkmen discovered the hard way ten years after the first confrontation. After a tense 2009 summit between then–Russian president Dimitry Medvedev and Turkmen president Gurbanguly Berdymukhamedov in which the possibility of building a pipeline from Turkmenistan to the west was to be discussed, a mysterious explosion damaged the pipeline linking Turkmenistan and Russia. Two days later, Gazprom asked Turkmenistan to reduce its gas sales to Russia by 90 percent. Eight months of negotiations followed, in which the Turkmen economy contracted by 25 percent. An agreement was then struck in which Gazprom bought considerably less Turkmen gas than it had before. The Russian-Turkmen gas trade resumed toward the end of 2009, and Turkmenistan has refrained from any negotiations indicating an interest in sending Turkmen gas west, despite a period of intense interest from the West related to the doomed Nabucco pipeline.
The shift from energy scarcity to abundance changes the dynamics of regional competition in Central Asia in subtle but important ways. Russia remains interested in forging closer links between itself and the former Soviet republics, as evidenced by the launch of the Eurasian Economic Union in June 2014. Energy will help it consolidate such links with smaller, energy-poor countries, such as Armenia, Belarus, Kyrgyzstan, and Tajikistan, all of which had either joined, or were contemplating joining, this union as of 2016. But the new energy realities weaken the pull Russia has over Central Asia’s big energy producers and the tools it has to integrate their economies into its own.
At a strategic level, this change will have consequences for the orientation of the whole Central Asian region. Whereas Russia and China used to be in competition with one another for Central Asian gas, today it is Russia and Central Asian countries that are vying for Chinese markets. Russia, in the words of Tatiana Mitrova, “has completely lost control of Central Asia to China.” Tension may grow between Russia and China over the implementation of the One Belt One Road initiative—Beijing’s big push to link China physically, culturally, and technologically with more than sixty countries to its east. However, there is little competition between Russia and China for the energy molecules of Central Asia—which many had anticipated to be the next Great Game in that part of the world. Since 2009, relations between China and Central Asian countries have burgeoned.
Given Russia’s historical relationship and its reliance on Central Asian natural gas to meet its contractual commitments in Europe, China worked carefully to build closer ties with Central Asia in a way that included, rather than excluded, Russia. For example, in 2001, China became a founding member of the Shanghai Cooperation Organization, a body aimed at increasing cooperation primarily on security and political issues between China, Russia, and Central Asian countries. China used this organization as well as its bilateral ties to promote bilateral trade, infrastructure, and financial assistance to the countries to its west. Critical—and delicate—energy deals followed, moving Central Asian oil and gas to China’s thirsty markets. Perhaps today, with considerable amounts of Turkmen gas flowing to China since the 2009 dispute between the Russian and Turkmen governments, Gazprom regrets not fighting eastward-flowing pipelines as well as westward ones. While not posing a challenge to Gazprom’s traditional markets in Europe, the Turkmenistan–China gas pipeline and Kazakhstan–China oil pipeline complicate Russia’s goal of capturing eastern energy markets. They also tie Central Asian countries formerly in the Soviet sphere physically and economically to China, a trend that will only deepen as China’s One Belt One Road effort unfolds.
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In 1997, while Russia’s economy teetered, Vladimir Putin defended his dissertation at the St. Petersburg Mining Institute. Whether he actually wrote the thesis is an open question, but the core topic highlights his interests—how Russian natural resources are critical to reestablishing Russia as an important economic power. Since Putin was awarded his degree, he has made it his personal mission to restore Russian greatness. No doubt, since he was elected president in 2000, he has seen energy as a key tool in that pursuit. When, in the 2000s, the world was wringing its hands over rapidly diminishing energy supplies, Russia stood strong as the world’s largest producer of oil and gas, and the holder of the largest natural gas reserves and the eighth largest oil reserves. Released in May 2009, Russia’s National Security Strategy to 2020 clearly states: “Russia’s resource potential and a pragmatic policy of using it have broadened the Russian Federation’s capabilities for strengthening its influence on the world stage.” For years, Russia’s energy prowess afforded it all kinds of geopolitical leverage and was one important factor in giving the country global stature. In 2009, when Fiona Hill, a Russian expert and former official at the U.S. National Intelligence Council, came to speak to my students at Harvard, she rightly referred to Putin as “Lord of the Gas.”
The new energy abundance had thrown a very unwelcome wrench into the plans of Russia, making strategies to reassert itself and reorder the international system much more difficult. Russia still has ambitions, and still has serious capabilities, to thwart the United States and to create global difficulties and disruptions. But its tools for doing so are both fewer and less potent given the changed energy environment. Although lower oil and gas prices will not likely unseat Putin from power, nor spur radical reforms of Russia’s most important economic sector, they will create persistent and significant problems for the government, forcing it to make tough decisions, unwelcome trade-offs, and what will be increasingly difficult excuses to the Russian people for the hardships they will endure. Moreover, as we explored in the previous chapter, the structural changes in energy markets, particularly natural gas ones, are making it harder for Russia to use its natural gas trade to advance its political agenda.
Unfortunately, economic duress at home will not translate into a more quiescent Russia. In fact, the result will likely be just the opposite as Putin and his inner circle look for emotional ways to placate impoverished citizens. But although Russia in the next five or more years will be more petulant, it will also be less powerful and less able to achieve its other foreign policy goals in many domains. On account of the new energy dynamics, Russia’s influence is decreasing in Europe. Perhaps more importantly, Russia is also incapable of reaching its potential in the Far East and in Central Asia.
Russia will and should hold the attention of policymakers in the co
ming years, if only because its weakness can be as problematic as its strength. In fact, its economic weakness will likely be the cause of puffed-up shows of military strength. Energy is not the only issue determining Russia’s political future; Russian nationalism, country demographics, European politics, American leadership, and even Putin’s physical health will be other determinants. But it is an absolutely critical factor given Russia’s great resource wealth and its traditional reliance on energy to bolster its international stature. In today’s low-price environment, the trajectory is clear: the new energy abundance is a bane to Russian brawn.
TEN
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China
Greater Degrees of Freedom
In October 2000, Xinhua News Agency ranked “China’s Top 10 Figures in a Century.” Mao Zedong, Deng Xiaoping, Sun Yat-sen, and others on the list are familiar historical figures, even to foreigners. But one name is almost unknown outside China. Born into poverty in the northwest of China in 1923, Wang Jinxi was a shepherd and coal bearer before he went to work at an oil field at the age of fifteen. In February 1960, in a drive for self-sufficiency, Chinese leader Mao Zedong called for “a massive battle” to dramatically expand Daqing, a remote swampland on a bleak plain believed to have mass amounts of oil. Soviet technical advisors had just left China because of the worsening Sino-Soviet split, and the Chinese Communist Party decided to use the Daqing project not only to meet China’s oil needs, but to demonstrate the country’s resilience in the face of the crisis with its northern neighbor.
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