by Jonah Shepp
Putin closed a huge natural gas agreement with his Chinese counterpart Xi Jinping today:
The contract is worth $400 billion in total over the 30-year period, during which Gazprom will supply 38 billion cubic feet of gas per year. The details are still hazy at this point, including the most important fact of all: the price at which Russia is selling its eastern neighbor the vast supply of natural gas. Sources close to the deal seem to think the lowest the Russians would go would be around $350 per thousand cubic feet of gas, which is on the low end of the $350-$380 price range paid by their European customers.
But if that’s the lowest the Russians would go, it was likely the agreed-upon price; China was holding most of the leverage in this discussion, if only because Putin needed this more than Xi did. Negotiations reportedly went on until four in the morning, and Putin admitted that “our Chinese friends are difficult, hard negotiators.”
Mark Adomanis, however, is reluctant to read too much into this:
Although I think that Russia-China partnership is a very important story, I would advocate extreme caution in analyzing the significance of this particular natural gas deal. Why? Well when dealing with “state capitalist” entities a contract is never really a contract:
if, 10 years from now, Gazprom realizes that it is subsidizing Chinese gas imports it will do what it has always done and threaten to cut off the flow unless it gets more money. The Chinese side will act similarly: if the leadership at CNPC realizes that they are paying a significant premium for Russia gas, they will switch to other suppliers as quickly as possible. The ability to quickly enter into or revoke contracts is simultaneously state capitalism’s greatest strength and its most glaring weakness. When necessary, companies like Gazprom and CNPC can move extremely quickly and enter into agreements without the need for shareholder meetings or discussions with boards of directors. They can take advantage of opportunities ruthlessly and with little warning. And, when they feel the need to exit a contract, they do not need to worry themselves with legal niceties: they simply do what they need to.
Richard Connolly also discourages over-interpreting Putin’s “pivot to Asia”:
Even after a number of high profile energy and infrastructure deals, China, South Korea and Japan account for just over 1% of foreign investment in Russia. So while Russia may be importing a growing volume of goods from Asia, it still turns overwhelmingly to Europe for capital.
Such dense trade links between Russia and Europe took decades to form, dating in many cases back to the height of the Cold War. If the two managed to trade amicably during the Cuban Missile Crisis, they shouldn’t have a problem now. So Europe will most likely remain Russia’s key economic partner for years to come as it continues to provide capital, technology and demand for Russian energy. While the economic pivot to Asia is real, this is Russia looking for some more friends, not an entirely new set of friends.
But Dmitri Trenin picks up on another sign that may point to growing military cooperation with China:
Putin’s visit to China will coincide with the joint Sino-Russian naval exercises. These are held regularly, with the last being in the Sea of Japan off Vladivostok. This time, the venue is the East China Sea, where the territorial dispute between Beijing and Tokyo over the Diaoyu Islands (Senkaku Islands in Japanese) has heated up.
The Russians, by not objecting to the area where the maneuvers will be held, are sending a message to Japan that signing up for US-ordered sanctions against Russia would entail a cost. In a public statement in March, Putin made it clear that Moscow does not intend to conclude a military alliance with Beijing, but the mere invocation of that possibility is a signal that the vector of Russian foreign policy has changed dramatically. Only four years ago, then president Dmitry Medvedev – with then prime minister Putin squarely behind him – were offering a “joint defense perimeter” to NATO. Today, NATO again considers Russia an adversary, and vice-versa.
And Simon Denyer notices that Xi and Putin seem pretty simpatico:
The two men have a few things in common: both are strong, authoritarian leaders, fiercely nationalistic and keen to counter Washington’s influence in the region, albeit in different ways: but they also found something else they shared this week, a desire to commemorate World War II. In their joint statement, the two men talked about celebrating the 70th anniversary of the end of the war, an anniversary that does not even fall until next year. A strange priority you might think, except that both men have been intent for some time on making as much political capital as possible about their respective country’s roles in defeating fascism. …
But Xi was reported as having told Putin the two men had similar personalities last year, and the pair seem to have found common ground on at least one other pressing issue. In Russia, Putin has been ramping up censorship of the Internet to muzzle his critics, something that Xi already knows an awful lot about. In their joint statement, the two leaders expressed concern that information and communication technology was being used in ways that “go against the goal of maintaining international stability and security, and violate national sovereignty and individual privacy.”
The Dish 