May 22, 2014

TSG IntelBrief: China-Russia Gas Deal Aims to Reshape Global Geopolitics

• This week, China and Russia announced the agreement of a major gas deal, over a decade in the making, and expected to amount to $400 billion over the next 30 years

• By acting jointly on such long-term projects, Russia and China are signaling the emergence of a powerful alternative to Western-formulated geopolitics—one that uses ancient history, geography, and culture to trump modern treaties, laws, and norms

• When discussing the Russia-Chinese gas deal, it’s not the numbers that are significant, but the closer ties between two of the world’s biggest and most aggressive powers.

The significance of this week’s Russia-China natural gas deal is not in the numbers, though they are surely impressive. The deal, thought to be worth $400 billion over 30 years, to begin in 2018, has Russia delivering 38 billion cubic meters (bcm) of natural gas from its far eastern gas fields to China. This largest deal ever signed by Russian gas giant Gazprom provides mutual benefits for the two petro-dependent countries—with Russia uncomfortably dependent on oil and gas exports and China uncomfortably dependent on oil and gas imports. But the larger significance of the deal lies in what it reveals about Western assumptions regarding geopolitical trend lines.

The deal doesn’t decouple Russia’s economy from European and other gas customers, nor does it free China’s reliance on other energy markets. Rather, the agreement announces the Sino-Russian intention to escape the geopolitical trends of the post-Cold War era, as both countries seek to reassert their former spheres of influence, without interference from the international community.

Russian claims in Crimea and Ukraine and Chinese claims in the South and East China Seas are currently challenging how the West understands and deals with both countries.

Since the end of the Cold War, many in the West have assumed that as China’s economic growth lifts hundreds of millions of people out of poverty, it will eventually shed totalitarianism and gradually embrace modern capitalism and democracy. Likewise, since the end of the Cold War, many anticipated that Russia, as it moves past its Soviet history, would also shed totalitarianism and embrace modern democracy. However, in the last several years, the fiction of inevitable modernization and democratization has become harder to maintain, as both China and Russia have exerted their regional power and influence to regain what both see as historic claims to territory and influence. Beijing and Moscow have increasingly sidestepped the modern diplomatic system based on laws and treaties crafted after World War II. Instead, they are relying on history, culture, and national mythology for justification—pushing a vigorous ethno-nationalism strategy and potentially chronic geopolitical tensions.

China claims disputed islands based on territorial claims originating in the Han Dynasty of more than 2,000 years ago. Russian claims on Ukraine are based on Vladimir the Great’s rule from more than 1,000 years ago. These maneuvers are largely playing to their domestic audiences, but they are beyond mere political ploys. In reality, both countries are intent on having the international community recognize their historic zones of influence.

This week’s natural gas deal signals that two of the world’s most powerful countries are agreeing to flout modern democratic trends. It will be impossible for policymakers in the West to address the regional aggressions of Russia and China with the long-term assumption that these actions will be limited by post-WWII norms. With justifications based on the Han Dynasty and the first Russian Czars, the future of geopolitics might not be so modern after all.

As Russia and China align themselves more closely, the Western world is denied leverage over Beijing and Moscow in responding to their aggressive regional provocations. And as Western Europe threatens to find other sources of energy following the crisis in Ukraine, Russia has initiated the process of transferring its revenue dependence on energy exports from Europe to China. The West will be left with few ways to credibly sanction aggressive Russian behavior.   

While there are significant logistical barriers to overcome in order for this natural gas deal to fully meet Russia and China’s intended goals, the agreement is a massive investment in the future of Eurasia, and Central Asia in particular. Whether Russia and China will come to a head in the region in which their historical claims for influence collide remains to be seen. However, through the Shanghai Cooperation Organization, Russia and China are maneuvering into political and economic dominance with relatively little friction to date: China has no territorial designs there, nor does it wish to add more ethnic tension to its western regions. Russia understands this and thus will focus on other spheres of influence. One potential destabilizing factor for Central Asia is the serious shortage of water, something that might intensify with climate change.

It’s not the numbers that are significant when discussing the China-Russia gas deal. It’s the potential inherent in closer ties between the region’s two most aggressive countries that is truly significant.



     For tailored research and analysis, please contact:

Screen Shot 2013-10-21 at 9.32.42 AM