Desperate Putin Not Giving Up On Asia Just Yet

As Russia reels from low oil prices and western sanctions, it continues to try to pivot to the east.

Russian President Vladimir Putin traveled to China last week to meet with President Xi Jingping and attend China’s military parade. Naturally, energy trade was on the agenda as the two leaders sought to expand their relationship and build off of last year’s $400 billion agreement that called for Russia to export 38 billion cubic meters of natural gas to China each year for 30 years.

Last week’s visit brought Putin several energy deals, including one that could see the development of yet another natural gas pipeline. Gazprom signed a memorandum of understanding with China’s CNPC to build a natural gas pipeline that would bring gas to China from Russia’s Far East. “The memorandum stipulates a third route for gas supplies to China,” Gazprom’s CEO Alexey Miller told reporters.

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However, both sides can’t even keep up with previous agreements. The $400 billion Power of Siberia project has barely progressed. A second agreement signed late last year called for a western route to China, bringing gas from Russia’s Western Siberian fields. Gazprom admitted on September 3 that the $170 billion deal will likely be delayed. In fact, the deal faces steep hurdles, not least of which is the high cost and impracticality of exporting gas to China’s west, which is a very long distance from the country’s major cities in the east.

Moreover, two years on from a 2013 deal that called for the joint development of East Siberian Taas-Yuryah project, there has been little progress.

Russia is eager to secure these energy deals, given the terrible state of its economy. The Russian ruble is experiencing a high degree of volatility, and has lost 45 percent of its value since last year. Russia’s GDP contracted at an annualized rate of 4.6 percent in the second quarter.

Related: Russian Economy In Dire Straits As Chinese Demand For Oil & Gas Slows

While Russia has in the past been protective over its energy assets, making it difficult for foreign companies to take ownership stakes, the tough times have forced a more contrite approach. One of the deals signed in China last week included the joint development of two oil fields in which China’s Sinopec would be allowed to take a 49 percent stake. Also, the Silk Road Fund, a Chinese entity, is expected to take a 9.9 percent stake in the Yamal LNG project, an iconic but struggling LNG project on the Yamal peninsula in the Russian Arctic. Western sanctions have made financing the project difficult, forcing Russia to turn to China.

Meanwhile, Putin also met with Venezuelan President Nicolas Maduro while they were both in China. Maduro is desperately seeking cooperation from Russia and OPEC to cut production in order to prop up oil prices. Despite the “initiatives” that Maduro says he and Putin agreed to, very little is likely to come from their meeting. Russia has no room to cut oil production and neither does Venezuela.

To make matters much worse for Russia, the Chinese economy is now showing serious cracks. The Shanghai Composite is down by about 40 percent since hitting a peak in June. China’s financial markets are not necessarily reflecting what is going on in the real economy, but Chinese demand for oil is also softening as the economy slows down. Trade between Russia and China was expected to reach $100 billion this year, but the first half of 2015 disappointed with only about $30 billion in trade. Much of the shortfall was due to weak Chinese demand for Russia’s oil.

Related: The Mirage Of An Iranian Oil Bonanza

Still, Putin presses ahead. On September 4, he convened a conference in Vladivostok to promote energy development in Russia’s Far East. At the Eastern Economic Forum, Putin said that Russia would establish the “best conditions for domestic and foreign investors to conduct business—so that in performance and return on capital, the Russian Far East can successfully compete with leading business centers.” The promises are grand, but many projects likely won’t come to fruition. The Far East gas pipeline may not get off the drawing board.

The relationship between Russia and China is a symbiotic one. However, just as Russia needs to sell more oil and gas to rescue its economy from the doldrums, China is suddenly a lot less hungry for Russian energy.

By Nick Cunningham of

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  • Either has the Pentagon! May 22, 2015 A Military ‘Pivot to Asia’

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  • Brockland A.T.

    Yeah. Putin looks real desperate. Look at him frantically selling of his $US FX reserves.

    Not as desperate as the spin controllers trying to convince those who might care, NATO is winning (NOT!!!) an economic war against Russia most of us with any sense didn’t want.

    Pipelines take years to build; designs have to be drawn up and approved, drill field and land routes have to be surveyed, pumping and monitoring infrastructure put in place, before pumping even begins.

    Saudi Arabia will have burned through its FX reserves long before this Gazprom deal pumps its first barrel. Safe to say, oil prices will have rebounded by then, while Europe will have depleted most of its North Sea reserves.

  • diogenes

    I realize that as far as America is concerned, the prospects for speculators in oil are far more significant than the welfare of the 99% of America’s workers and unemployed but seeing as it’s Labor Day I want to mention that in their important book, The Spirit Level, Richard Wilkinson and Kate Picket demonstrate by cross-comparison of statistics for 23 “developed” “free market” (sic) economies that in every category — distribution of wealth, infant mortality, life expectancy, public health, mental illness, drug use, educational difficulties, public trust, rates of imprisonment and severity of punishment, rates of kllings by police, obesity and teenage pregnancy, our great country — America (not Wall Street) — comes DEAD LAST. Another cute statistic Wilkinson and Picket bring to light — and worthy of mention on Labor Day — is that Americans also work hours totaling TWO MONTH MORE EVERY YEAR than the citizens of the other 22 “developed” countries in order to come DEAD LAST. HOORAY FOR AMERICA!!! HOORAY FOR AMERICAN LABOR — the dumbest labor on the planet, or the must deceived. Take your pick.

    • Brockland A.T.

      Perhaps, the most intimidated.

      Fear of consequences keeps people from thinking and challenging deceptions.

      • diogenes

        Are you saying that American labor is the most cowardly and that’s why we end up with the worst social conditions as well as the worst working hours and worst maldistribution of wealth? That’s what Hugh Grant Adam thought, an Australian labor journalist who toured the United States in 1928 and wrote about it in An Australian Looks At America. He observed that American labor is accustomed to put up with conditions and treatment that would produce instant strikes and revolts elsewhere. I don’t think it’s cowardice, myself; I think it’s programming. The American public is fed a steady diet of lies — by media, education, and “entertainment” — so that only exceptionally inquisitive individuals with research skills ever learn the basic facts of life in America — where “hired liar” is the most numerous category of employment because it is an absolute necessity to the predatory regime of the pirates of Manhattan.

        • Brockland A.T.

          No; the American labour force is not cowardly, its intimidated. Give them a straight up fight – impose coercion – and they will fight.

          The Utah miners won the war, but homes and livelihoods were destroyed and lives lost. That was, though, the beginning of the end of the company town. Although, they have made a resurgence elsewhere.

          Intimidation is more subtle. Corporations backed off giving American workers a straight fight for the rest of the 20th century. It all went on behind closed doors, between the unions and the corporations. The American worker went along with it as long as wages went up and never noticed when the Unions sold them out.

          Programming certainly played a great part in this; the ideal of tough individualist blue collar man able to take whatever comes, including getting screwed over. Its like a country song; its hip to be screwed. Belief in the system as its willing participants and benefactors raised the critical level of distress; people want to make ‘the system’ work for them.

          There’s also an element of natural outcome; in order to be good workers, time and energy has to be devoted to doing and learning the job, not politicking and cutting deals with the boss. Anyone who’s worked in the trades for any amount of time knows the boss’ pet is in fact despised. Getting in good with the shop steward and union rep… well, then that’s a grey area.

          Cowardice; no. Intimidated; yes. At every level the system has slowly turned against the working man. Bad cops are tacitly encouraged to be brutal enforcers – but its victims seem random. We all ‘know’ cops are really supposed to be cool guardians of fair laws and just order and wait for the abberation to correct itself. Taxes were supposed to help build society’s prosocial institutions, but everyone fears the IRS and civil forfeiture; but its not personal, its the system. Head down, work hard, avoid trouble and somehow good will prevail on its own. The system intimidates without the coercion needed to trigger a physically courageous response by actively misrepresenting morally courageous responses.

          That trigger to hesitation, soft power persuasion to self-censure, is intimidation. Its everywhere. Like the refugee crisis; the meme is now ‘accept more refugees’ not ‘stop making wars’.