Policy Alert: The Russia-China Gas Deal and the Eurasian Balance of Power

Policy Alert: The Russia-China Gas Deal and the Eurasian Balance of Power

APEC Bilateral Meeting - China & RussiaThe $400 billion natural gas agreement concluded by Russia and China in May 2014 was hailed by both countries’ leaders as a game-changing development in international affairs. Many Russian and Chinese analysts also seized upon the deal as evidence of an emerging Sino-Russian partnership set to challenge the U.S.-led global order. Is the gas deal part of a broader shift in Russia-China relations and the global balance of power? Are the two countries ready to construct a formidable alliance to challenge the United States and Europe? Or should the agreement be viewed in simpler economic terms?

The gas deal is the latest in a series of political, economic, and military developments between the two countries over more than two decades that illustrates a stronger and more integrated Russia-China relationship. However, the evolution of the Russia-China relationship over the past quarter of a century has been marked by as many policy failures as successes. Economic ties are not as deep as they could be and continue to be dominated by Russian raw materials exports to China. Diplomatic relations are also characterized by a grandiose rhetoric that overstates the progress made between the two countries and undersells underlying cultural and political differences. Complications continue to surround the implementation of the May 2014 gas deal, reflecting these dynamics as well as wider political and economic events that have transformed the global energy landscape since the gas deal was concluded.

This Policy Report finds that the Russia-China gas deal is a significant strategic development but not a game-changer in Russia-China relations or in the global geopolitical environment. A review of modern Russia-China relations, and a detailed assessment of the gas deal, illustrate that economics are still the main driver in relations for both countries. However, the volume of bilateral trade has actually fallen in 2015, a symptom of an economic slowdown in China and a collapse in global energy prices that threatens the long-term viability of energy cooperation and even the gas deal itself. Should the gas deal ever be fully implemented, Russia would continue to export the vast majority of its oil and gas to Europe, while China’s flexible energy policy means that it has developed a range of options across the Asia-Pacific. Rather than a bold strategic transformation in Russia-China ties, the gas deal and its sputtering implementation reflect more closely modern economic and political realities, as well as the delicate and complex nature of modern Russia-China relations.

Read the full Report here.