An Uneasy Partnership
Russia-China Energy Deals Hit Snags

Russia and China have made some high-profile energy overtures towards one another recently, including last year’s $400 billion gas deal between the two countries. But as Vladimir Putin hosts Xi Jinping in Moscow this week, the rougher edges of these new arrangements are starting to show. The FT reports that the two countries disagree over prices, with the Chinese wanting to buy Russian oil and gas at market prices that now disfavor Russia. This and other disagreements are hampering further deals:

A second gas deal through Russia’s Altai region, which the Kremlin had suggested would be signed this week, is now unlikely in the next few months, a person close to Gazprom said.

Chinese and Russian executives and advisers said that in addition to the challenge of negotiating prices acceptable to both sides, energy deals between the countries have also been hampered by mutual distrust and Chinese concerns about antagonising the US…“The Russians are unreliable. They are always flipping things around for their own interest,” said one Chinese oil executive.

In any negotiation, it’s the one that’s willing to walk away that holds all the power. Beijing certainly benefits from having an overland source of relatively green natural gas, but Moscow needs this deal more. It’s vital for Moscow’s future that it aggressively pursue unconventional energy reserves, and to do that it needs foreign investment. That helps explain why Russia was willing to make concessions in last year’s deal, after more than a decade of negotiations (and even that deal, now, has stalled in the face of Chinese objections).

The two sides will continue to work to develop a mutually beneficial energy relationship, but don’t mistake this calculated coming together as the beginnings of a fast friendship. This was never going to be a low-maintenance relationship.

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