On March 20, the U.S. authorized sanctions against billionaire Gennady Timchenko amid the escalating crisis between Russia and Ukraine. Three weeks later, the Russian tycoon, who amassed a fortune trading oil and selling natural gas, appeared on Russian television. He was not in Russia at the time. He was in China. The West, he said, was “pushing us away.” China was not. In fact, Chinese companies were talking with Mr. Timchenko about buying more of Russia’s abundant energy.
“There is a market with a lot of potential developing in the Asia-Pacific region,” said the billionaire, who boasts close ties to Vladimir Putin and has been called one of Russia’s most powerful men.
This week, the country’s Prime Minister was even more explicit: “We are interested in diversifying today more so than ever before. Therefore we are implementing solutions for the export of gas and oil to Asian and Pacific countries, first and foremost China,” Dmitry Medvedev said on Russian television.
As the global fissures radiating from Russia’s moves against Ukraine call into question the future of its ties with Western powers, Russia is increasingly casting its gaze east, to a distant border long neglected. In May, Mr. Putin is expected to come to Beijing to sign a major contract that will see Russia pipe vast quantities of natural gas to China. It will mark the sixth meeting between Mr. Putin and Chinese President Xi Jinping since the beginning of 2013, as Russia pushes for a “pivot east” that has taken on sudden new urgency in the wake of the country’s moves in Ukraine, which have earned it global criticism, and an increasing likelihood of punitive sanctions.
The change stands to have wide-reaching ramifications, redrawing geopolitical alignments and altering global energy flows, a matter of concern to Canada, among others.
For Russia’s economy, Ukraine stands to create “a major crisis,” said Vassily Kasin, a China expert with the Centre for Analysis of Strategies and Technologies, a Moscow-based defence studies organization. “And China will become the major economic partner.” The two countries “will in fact move very close to an alliance, I think,” he said. “This is a major change.”
In recent weeks, Russian banking leaders have publicly discussed the possibility of joining with China’s UnionPay credit card system – the world’s third most popular – as an alternative to Visa and MasterCard, amid worries they will be shut out of Western payment systems. Russian companies are exploring ways to use Chinese public markets over Western alternatives. Russia’s defence community believes sales of highly sophisticated fighter jets and submarines to China are increasingly likely.
Driving the new urgency is a realization that, though sanctions are limited for now, there is a risk the international community will impose a more severe chokehold on Russia. “The chances of isolation from the West are a real risk that Russia has to take into account,” said Ildar Davletshin, a Moscow-based oil and gas analyst with Renaissance Capital.
Ties between the two countries have steadily strengthened in recent years. China now forms roughly 10 per cent of Russia’s trade, higher than any other individual nation (although EU zone countries are, together, roughly four times higher). In the past 12 months, Russia has signalled a willingness to move further, as the country opens some of its crown jewels to Chinese ownership. In October, oil and gas company Rosneft signed a 51-49 joint venture with China National Petroleum Corporation to explore for oil in Eastern Siberia, whose reserves could be used to fuel Chinese cars. Last June, CNPC also took a 20 per cent stake in Yamal LNG, a giant Arctic natural gas development being pursued by NOVATEK, another large Russian energy company.
Other indications suggest a broad ascent in business between the two countries. Direct trade between the ruble and China’s yuan began in late 2010. At that time, Russia’s Micex exchange said it expected three-million yuan to change hands daily. By last June, it had risen to 34-million a day, with a single-day peak in July, 2013, of 55-million (about $9.4-million at the time).