Hurriyet: Russia-China gas deal and the Ukrainian crisis

The Ukrainian crisis played an implicit role in compelling Russia to conclude a deal with China as soon as possible. That is, the current crisis threatens the sustainability of the Russian energy trade with Europe in the future as EU countries have already started to seek alternative supply routes. Likewise, Russia also aims to elude mutual interdependence in energy trade with Europe, and circumvent economic sanctions to be implemented by the West as a result of the Ukrainian crisis by diversifying its export markets and reaching out to Asian horizons.

It is a fact that Russia’s diversification of its natural gas export markets cannot immediately change the overall picture. That is basically because Russia’s mid-term plans for diversifying its energy markets primarily look toward the post-2020 period. Europe is still the largest export market for Russian natural gas and it will probably remain so for years to come considering that around 30 percent of Europe’s natural gas consumption, an amount which corresponds to 170 bcm, was procured by European countries from Russia in 2013.

But Russian President Vladimir Putin is already threatening Europe with halting the flow of natural gas to Ukraine, through which 50 percent of European gas imports from Russia are transported westward. That is why the issue of diversifying trade partners in the energy field entails a high level of urgency for Moscow. Putin was evidently in a rush to conclude a deal with China in order to guarantee access to alternative markets.

It is also worth noting that after the annexation of Crimea by Russia, Moscow was subjected to several economic sanctions in addition to asset freezes and visa bans by the West. This situation poses a noteworthy challenge to Putin’s goal to modernize the Russian economy through FDI and integration to international value chains of manufactured consumer goods as Russia finds itself gradually more alienated from the West, i.e., Western capital and markets. Therefore, drawing itself closer to Chinathrough an energy deal that foresees the realization of the world’s largest construction project to date in Siberia, and entails increased Chinese investment in various other fields, was a shrewd commercial move just in time on Russia’s part.

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Source: Hurriyet, 2014

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