The decade-long negotiations over the Russia-China gas deal are still continuing and the agreement couldn’t be signed on Tuesday during President Vladimir Putin’s state visit to China. The Kremlin spokesman Dmitry Peskov says, “The visit is not over yet. Talks will continue… substantial progress is reached but there is still work to do on price. Talks are going on today, it can absolutely happen any moment.”
This has been the refrain for the past 2-3 years, but this time around it could be a statement of fact rather than hope. A deal is imminent. No doubt, a deal estimated to be worth $400 billion is hugely strategic and both sides are striking hard bargain and for both the stakes are high. (WSJ carries a detailed report on the state of play.)
Thanks to the deal, Russia could effectively defeat the western sanctions against the backdrop of the Ukraine crisis. For China, the deal guarantees 38 bcm gas annually from Russia through pipeline, obviating the need for large scale import of LNG.
Russia has reportedly made some innovative proposals to bridge the differences over pricing such as offering to scrap taxes on some of the gas exported to China, eliciting a $25 billion pre-payment for gas supplies as concession for reducing price and so on. Details are scanty. China obviously has the upper hand in the negotiations.
One other important outcome could be the resolve to accelerate toward bilateral payment mechanisms in local currencies, dispensing with the American dollar. This will of course be an incremental process and Putin said, “Work is underway to increase the amount of mutual payments in national currencies, and we intend to consider new financial instruments.” An agreement was signed in Beijing yesterday between the Bank of China and the VTB (one of Russia’s biggest banks) to pay each other in national currencies instead of American dollar for “investment banking, inter-banking lending, trade finance and capital-markets transactions.”
Apart from energy, one big question concerns Russia’s willingness to move forward with China in the field of military technology. Putin merely said at the delegation-level talks in Beijing, “This is an important factor of stability and security in the region and the world at large.”
Most certainly, both Moscow and Beijing will be closely watching the policies of the new government in India led by Narendra Modi. The early signs are discernible already that the US and Japan are making a determined bid to woo Modi right at the outset of his regime and bring India on board the Obama administration’s ‘pivot’ strategy in Asia. The point is, powerful corporate interests in India that back Modi are also hopeful of working in India’s lucrative defence industry.
While the spectre that haunts Beijing would be any 3-way cooperation developing between the US, Japan and India in defence trade and/or military technology, Moscow would have apprehensions over the sharply rising American presence in the Indian arms bazaar, which has already made inroads into Russia’s traditional predominance.
In sum, Beijing would elicit a more positive Russian approach apropos sharing high technology in the military field, while Moscow is likely coming under renewed pressure to diversify its markets for arms exports.
On the whole, Putin’s visit has gone well from Moscow’s perspective, what with the hitherto-nuanced Chinese stance on Ukraine edging a shade closer to Russia’s stance, despite Beijing’s overall attitude of ‘positive neutrality’. The joint statement referred to the Ukraine crisis as “domestic” and calls for “peaceful, political ways to resolve existing problems,” which approximates to Moscow’s position regarding the imperatives of intra-Ukrainian dialogue.
Moscow indeed places great store at the present juncture in world politics on Beijing’s support and understanding. Even as Putin was in China, Prime Minister Dmitry Medvedev said in Moscow in an interview with Bloomberg TV that Russia is being pulled into a new Cold War with the United States and its allies by way of an economic warfare reminiscent of the Soviet Union under Leonid Brezhnev.
“We are slowly but surely moving toward a second Cold War,” Medvedev warned. Beijing has responded with a big statement. President Xi Jinping told Putin, “The further development of Russian-Chinese comprehensive partnership and strategic cooperation based on mutual interest and dictated by the need to promote justice and equality in the world, maintain peace on the planet, by the need to achieve the joint prosperity of China and Russia, is an inevitable choice that proceeds from the process of forming a multi-polar world.” (Kremlin website)
Xi’s statement, quite evidently, factors in the phenomenal shifts taking place in world politics. Beijing senses that Moscow’s “Asia pivot” is distinctly becoming strategic and can no more be viewed as merely tactical. In essence, Xi publicly acclaims this new thinking in Moscow.
Again, China too is unhappy with the US’ rebalance strategy in Asia aimed at counterbalancing China and limiting its influence in the Asia-Pacific. No doubt, Russia becomes one of the most valuable strategic partners that China could have in the emergent power dynamics regionally and globally.
By M K Bhadrakumar
By M K Bhadrakumar