Russia's President Vladimir Putin (L) and his Chinese counterpart Xi Jinping shake hands during a signing ceremony at the Diaoyutai State Guesthouse in Beijing on November 9, 2014
Russia and China just agreed to a second major gas deal, worth slightly less than the $400 billion agreement reached earlier this year, according to Bloomberg.
The details of the deal mean Russia will supply China with another 30 billion cubic metres of gas every year for the next three decades through the Altai pipeline, a proposed pipe transporting the gas from western Siberia to China.
Earlier in the fall, Keun-Wook Paik at the Oxford Institute for Energy Studies said this kind of deal would be "Putin’s revenge," according to the Financial Times.
Many analysts see the move as evidence that Moscow is pivoting away from reliance on European customers and toward East Asia, where relatively rapid economic growth should prop up demand.
It's also a political move, as relations with the rest of Europe have become increasingly cold after Russia's invasion of Ukraine, and the tit-for-tat sanctions between the European Union, United States, and Russia.
The value of the Russian rouble has collapsed recently as the price of oil has declined. Russia's economy is dependent on oil, so the currency fluctuates with the oil price. The price declines in turn threaten Russia's ability to meet its budget obligations and pay debt. In sum, the country faces an economic crisis if it can't find new demand for oil and currency.
But the rouble is rallying against the dollar today. Here's the US currency dropping by about 3% against the rouble after the central bank announced it would stop trying to defend the currency's collapse.
The China deal helps both Russia and China lessen their economic dependence on the West. It also helps Russia get around the economic sanctions imposed by the West because of the Ukraine situation. The Moscow Times notes:
Curtailing the dollar's influence fits well with China's ambitions to increase the influence of the yuan and eventually turn it into a global reserve currency. With 32 percent of its $4 trillion foreign exchange reserves invested in US government debt, China wants to curb investment risks in dollar.
The quest to limit the dollar's dominance became more urgent for Moscow this year when US and European governments imposed sanctions on Russia over its support for separatist rebels in Ukraine.
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Most of China’s energy resources are imported via the Pacific, and is threatened by the US military presence. The gas deal with Russia allows China to minimize the risks, China-based journalist Brendan O'Reilly told RT.
Russia and China have agreed a second gas deal, the so-called western route. President Vladimir Putin and Chinese leader Xi Jinping signed a memorandum of understanding at the Asia-Pacific summit in Beijing. The deal is expected to be signed next year and secure a yearly supply of 30 billion cubic meters of gas to China.
Brendan O'Reilly: For Russia and China obviously there is a lot of mutual interest involved in this deal. Russia has tremendous reserves of natural gas and other energy resources, and China needs this natural gas to fuel its economy which is still going quite robustly.
RT: Why is China looking to Russia, not Europe?
BO:One of the most attractive things about Russian gas for the Chinese is the fact that it can be transported overland. Most of China’s energy resources are imported via sea through the Pacific, and this route is a little bit threatened by the American military presence in the Pacific. And of course there are a lot of territorial disputes right now between China and Japan and various other countries in the East China Sea and in the South China Sea. Basically, by strengthening energy ties with Russia China can avoid the most dangerous maritime route.
RT: Europe has nothing to worry about as there is enough gas to supply both East and West, right?
BO: In theory yes, but obviously Russia stands to benefit from this development of China very much because right now the vast majority of Russian gas is being exported to Europe, so Russia having a second large buyer improves the situation of demand for Russian gas by creating more demand in the East.
