Russia’s Stumbling Pivot to Asia

On May 21, 2014, after a marathon negotiating session in Shanghai, Russian President Vladimir Putin and his Chinese counterpart, Xi Jinping, finally put pen to paper on a $400 billion natural-gas deal widely heralded as the kickstart to Russia’s own pivot to Asia. One year later, though, it’s far from clear that strategic shift is genuinely taking shape.

Despite plenty of smiles and a raft of bilateral economic pacts signed on the sidelines of Russia’s big World War II victory parade this weekend in Moscow, the two countries still seem far from cementing a full-blown rapprochement. Russia’s frosty relations with the West, prompted in large part by its invasion of Ukraine, helped spur Moscow’s lurch to the east. Yet those very woes in Europe are making it even harder for Russia to conclude new accords with China on anything like favorable terms because Beijing knows it can drive hard bargains with a Russia desperate for cash, credit, and new markets. With Moscow reluctant to accept those terms, little real progress has actually been made on expanding the landmark energy deals.

In other words, while analysts in Russia, China, and even the West talk of an ever-closer strategic relationship between Washington’s two bogeymen, in reality competing interests and clashing visions everywhere from Central Asia to China’s own backyard are keeping Moscow and Beijing from consummating their courtship.

“We should not forget there is still a whole lot of distrust between the two countries,” said Sijbren de Jong, an analyst at the Hague Centre for Strategic Studies. “’BFF’ in this case stands for ‘Best Frenemies Forever.’”

On Friday, the two presidents met ahead of a gala parade largely boycotted by Western leaders — President Barack Obama is skipping, and the U.S. is instead sending its ambassador to Russia — and took steps meant to reinforce at least the economic terms of their relationship. China and Russia signed billions of dollars worth of potential deals, including Chinese loans to credit-battered Russian firms and joint investment in agricultural and infrastructure projects. Chinese soldiers will take part in the military parade over the weekend, and the two countries will hold joint naval exercises in the Mediterranean next week.

“China today is our strategic key partner,” Putin said after the signing ceremony.

Yet just as revealing is what did not happen at the long-awaited summit. No real progress was made on the second natural-gas export deal to China that Russia spent the past year touting and which is widely seen as the keystone to a strategic energy relationship. The two sides apparently agreed on the outline of terms for Russia to ship gas from Western Siberia to China’s far-western provinces — the so-called Altai route — but could not resolve core differences such as how much China is actually willing to pay for the gas. Price differences in the past pushed back other bilateral energy deals a full decade.

Turning those big energy accords from aspirations into reality matters because energy is at the heart of Russia’s long-planned pivot to the east. For more than a decade, leaders in the Kremlin and inside Russia’s energy giants have been anxious to find hungry new markets for the natural-resource exports that account for half of Russia’s budget.

There are several reasons for the stumbles so far. Russia and its effectively state-run gas giant Gazprom always wanted to ship gas to China from existing gas fields in Western Siberia to Xinjiang; China long insisted that it needed energy in the populous coastal provinces of the east. Thanks to Putin’s direct intervention last May, the two sides finally agreed to build the $60 billion “Power of Siberia” pipeline from Russia’s east to provinces around Beijing.

But Gazprom never quit grumbling and kept eyeing the cheaper, potentially more lucrative western route. Those divisions between Gazprom and the Kremlin came close to torpedoing energy cooperation between the two countries altogether, especially after people close to Gazprom this spring publicly floated the idea of shoving Putin’s pet project to the back burner. “Power of Siberia” was salvaged in extremis last week when the Russian parliament finally rubber-stamped it.

“Frankly speaking, Gazprom is a liability for Putin’s pivot-to-Asia policy,” said Keun Wook Paik, an expert on Sino-Russian energy cooperation at the Oxford Institute for Energy Studies.

While Russia’s open conflict with Europe — including the West’s imposition of tough sanctions on energy firms such as Gazprom and a landmark antitrust investigation by authorities in Brussels — has accelerated Russia’s pivot east, it has also made it harder to carry off. The sanctions have hampered the ability of firms such as Gazprom and Rosneft to raise the billions of dollars they need to build the infrastructure required for the new projects, and the Chinese have slammed shut their wallets so far. Compounding all of Russia’s other financial woes is a sharp decline in the price of oil, and thus natural gas, over the past year, which has battered corporate earnings and national coffers.

“For the Western pipeline to succeed, Russia will need credit and the Chinese will need to provide this. But China is not crazy: It is willing to help, but only on its terms and strictly commercial terms at that,” said de Jong.

Russia’s efforts to reinvent itself in the European market, paradoxically enough, are also hampering its pivot to Asia. Putin’s latest European gambit is an undersea gas pipeline that would ship Russian gas to Turkey, thus bypassing Ukraine but keeping Gazprom’s grip on the huge European market. Russia and Turkey announced an agreement Thursday on the so-called Turkish Stream with ambitious hopes of opening the export route late next year — greased by a hefty discount in the price of natural gas for many private buyers in Turkey.

China, of course, has taken note of those Turkish discounts, as well as other shifts in the global energy landscape that for now have clearly made it a buyer’s market, to squeeze Russia for steep discounts on gas deals between the two countries. That not only delays the final accord but also limits the economic upside for Russia’s energy trade with Asia.

What all this means is that Russia’s full energy pivot to Asia will likely take longer to reach fruition than Moscow initially hoped. That will only entrench Russia and Gazprom’s reliance on the European market. And that could force Russia and Gazprom to reach some sort of deal with European Union authorities who have taken aim at the energy titan’s anticompetitive practices and who could slap the firm with multibillion dollar fines or dismantle its entire business model.

More broadly, the stumbles so far in Russia’s pivot belie the notion that the two countries are close to cementing a profound, ideological alliance that could bring together a has-been superpower with a rising superpower to create a durable anti-American bloc stretching across Eurasia.

“Putin claims Russia is pivoting to Asia, but progress is limited. China is simply cherry-picking from what Russia has to offer,” de Jong said.

Photo credit: KIRILL KUDRYAVTSEV/AFP/Getty