WHAT WILL BECOME OF GROWING ENERGY TRADE BETWEEN RUSSIA AND CHINA?

By Angela Luh
Staff Writer

On the heels of a $400 billion 30-year contract for natural gas trade signed this past May, Russia and China have extended their commitment to energy trade following the 2014 Asian Pacific Economic Cooperation (APEC) summit in Beijing. Some critics argue that the China-Russian relationship is constrained by a number of external factors (like the United States-China climate deal also announced at APEC) and others suggest that the vast nature of this economic commitment will materialize in increased political cooperation, possibly leading up to an energy strategic alliance.

In Beijing, Russian President Vladimir Putin and Chinese President Xi Jinping signed a non-binding gas-supply memorandum. This deal would see Gazprom supply China’s state oil company CNPC with 30 billion cubic meters of gas per year, on top of the 38 billion cubic meters Russia agreed to sell China in May. However, unlike the previous contact which routes from eastern Siberia, the gas would be routed from the western Siberia pipeline, a source that is currently connected to Europe, suggesting that Russia is deliberately shifting its market away from the EU. It also reveals Russia’s desire to outcompete other actors, particularly the United States, in exporting liquefied natural gas to China.

This gas deal is expected to be worth well over $100 billion if negotiations between Russian and Chinese diplomats are successful. If and when both the APEC agreement and the May Gazprom contract are in motion, China would replace Germany as Russia’s biggest gas market, which would significantly alter the landscape of global energy trade, arguably giving China and Russia the most advantageous energy trade relationship in the world.

According to the APEC agreement, Russia could begin gas deliveries to China in as early as four years from now. The May contract between Russian gas giant Gazprom and the state-owned China National Petroleum Corporation indicate that deliveries are set to begin in 2018. Russia is in a particularly urgent situation this year under the restrictions of U.S. and EU sanctions and has demonstrated its intent to boost strategic ties with China as an energy supplier and geostrategic neighbor. This latest energy deal is one of many acts of China-Russian coordination in recent years, including joint aircraft projects, trade of defense technology and cooperation within regional frameworks like the Conference on Interaction and Confidence Building Measures in China (CICA) and BRICs.

The unprecedented scale of both agreements, particularly in the context of sanctions on Russia, suggests that Russia’s break with the EU has made it increasingly dependent on China as an energy importer and, by extension, on the Asia Pacific as a regional trade network. In 2013, bilateral trade reached a record high level of $88.8 billion and has continued to grow during the first quarter of 2014.

With energy trade at the forefront of trade between the two countries, Moscow and Beijing intend to reach $100 billion worth of bilateral trade by 2015. China, as one of Russia’s largest trade partners, is “probably the only country in the world” that has the financial ability and the market capacity to consume Russia’s huge energy exports for the long term, according to Lin Boqiang at the China Center for Energy Economics Research at Xiamen University.

China is set to undergo major structural changes in the near future to sustain its growing consumer economy. The country’s rising middle class and rapid economic growth have in turn increased its energy demand, placing enormous pressure on its energy supply. While coal continues to be the dominant source within its energy mix, China intends to diversify and move away from dependence on coal in order to meet its commitment toward carbon emission cuts and the needs of new manufacturing technologies. Natural gas will account for more than 10 percent of China’s energy consumption by 2020, compared with 6 percent currently, according to China’s National Development and Reform Commission.

China’s need for reliable energy sources obliges the country to diversify its global oil and gas markets. As the world’s number one consumer of energy and the second largest purchaser of oil after the United States, China’s oil imports in 2030 could increase up to 1.6 times from the 2011 level. These new developments have renewed the debate surrounding China and Russia’s international relations and whether or not increased economic cooperation in blockbuster energy agreements will trickle into their political alignment.

The skeptics: Little economic impact in the short run

While the energy contracts have the capacity to strengthen ties between China and Russia, they also reinforce the asymmetrical nature of China Russian relations: trade between the two support China’s fast-powered growth but aim to merely sustain Russia’s position as a supplier of raw material to Beijing. Russia’s disadvantage in these agreements may prevent Sino-Russian political commitments from materializing. China’s evident cooperation with the United States suggest that widespread media attention on Sino-Russian cooperation only serves to add fuel to “the narrative of an emerging strategic relationship…as a game changer.”

Another cautionary aspect of the APEC gas deal is that it is non-binding and is likely just another one of many preliminary negotiations before China and Russia settle on the more concrete factors, like the price of the exchange. Like the decade-long proceedings that led up to the Gazprom contract in May, the new deal may be merely suggestive of a continued intent to pursue the contours of a deal.

Economically, it is uncertain whether or not the deal will make a sizeable impact. The two Russian gas deals together, if realized, would meet just 1.7 percent of China’s overall energy demand mainly because natural gas currently only comprises just 6 percent of the its energy mix. China’s goal to grow its proportion of natural gas to 10 percent of its energy mix is projected to take a decade, and even then, the gas deals with Russia still make only a minor contribution to its supply. Furthermore, since the price of gas in Asia is higher than in Europe, Russia would have to accept economic losses by heading east instead of west.

The alarmists: Future strategic alliance?

Given China’s commitment to restructure its energy mix and its intent to increase its usage of natural gas, the two gas deals together could meet nearly 18 percent of China’s natural gas needs by 2020, effectively making Russia the main supplier of the world’s largest exporter.

In addition to diversifying its energy resources, China has also actively sought a diversity of arrival routes for energy, and Russia’s position as a geographic neighbor decreases the costs of transit. Russia faces the possibility that Europe will curb its gas demands and, by proving that it is willing to move its supply to the East, increases its political leverage in Europe by creating a viable threat.

On the political end of the relationship, Putin’s willingness to absorb the economic costs of supplying oil to the East suggests that the geostrategic gains of energy trade outweigh the loss of shifting Russian resources to Chinese markets. China and Russia have often cooperated on the international stage, with a mutual interest to insulate U.S. influence in the region. Both countries have expressed shared geopolitical concerns and a commitment to strengthening regional trade and security. They also wield veto power on the United Nations Security Council and often vote together, sometimes to oppose Western powers.

In a world where developed countries are characterized by growing consumerism, energy wealth has become more essential than ever before. China and Russia’s energy trade will be a slow and gradual process, but the energy agreements of this past year have revived the debate over energy politics. It is uncertain whether or not China and Russia’s energy trade will have significant political bearings, but its potential impact on the global energy trade network compels all other actors to reinforce their strategies in an era of emerging energy competition.

Image by Greg Westfall

DEBATING THE “UKRAINIAN PROBLEM”: WHAT SHOULD THE UNITED STATES DO? (PART II)


Following former Secretary of State Condoleezza Rice’s recent comments on how to approach the “Ukrainian Problem,” two writers of Prospect Journal debate the merits of hard and soft power in dealing with Russia’s actions in Crimea. This is the second article in a two-part series. Part I can be viewed here.

By Patrick Johnson
Staff Writer

We really need to start trusting in international institutions. That’s what this debate ultimately comes down to. When Former Secretary of State Condoleezza Rice criticizes Obama for leaving a “power vacuum,” she cannot do so without simultaneously devaluing the international institutions that can fill that void. Rice’s speech critiquing the “American Withdrawal” is a typically hawkish attitude. She views the world in the Cold-War mindset: a zero-sum game that is won or lost on the basis of hard (read: military) power. Not only is this a flawed understanding of the Crimean situation, it is an archaic policy that will, like a self-fulfilling prophecy, drag us back to the Cold War.

President Vladimir Putin, and every other world leader for that matter, does not view us as weak. Rather, he has a very nuanced understanding of American interests, of what we’ll fight over, and what we won’t. We won’t go to war for Crimea. Putin knows this, and operates according to Russian interests regardless of who is sitting in the Oval Office. Remember, U. S. foreign policy has remained largely unchanged since World War II.

Nor is Obama by any measure a weak president. He has ordered 50 times more drone strikes than his predecessor, President George W. Bush. Yes he has strengthened international alliances and focused on rebuilding American soft power, but these were measures necessitated by the policy catastrophes Rice herself helped to orchestrate. Not intervening in Syria, the go-to example of American “weakness” that war hawks embrace as proof of their claim, is actually a poor example. Intervening in Syria was never a clear case for U.S. military intervention, but a veritable quagmire, complicated by a very jumbled picture on the ground, and a host of conflicting regional parties and interests–not intervening was a demonstration of proper restraint and sheer prudence.

The reality is exactly the opposite of Rice’s view that this invasion is unprovoked. When the U.S.S.R fell, President Bush Senior promised President Mikhail Gorbachev that the U.S. would not take advantage of Russian weakness, and that we would incorporate them into the international system. This proved false, and NATO has steadily expanded its membership right to the borders of Russia, including Latvia, Lithuania and Estonia. Now, like a caged animal, Russia is lashing out against expanding U.S. influence and strength.

Stop and listen to Putin’s speeches and this becomes immediately evident. Putin announced to a cheering crowd that he would no longer stand Western aggression. I’m not arguing that the Crimean seizure was legal or justified, but perhaps it was more reactionary to Western actions than Rice suggests.

Rice correctly points out that Ukrainian independence was guaranteed after 1990, when they voluntarily gave up nuclear weapons. Yet we should not be so callous as to deny Russia a sphere of influence, especially when we have had a sphere of influence that included the entire Western Hemisphere since the Monroe Doctrine. Independence and influence is simply a paradox in the 21st century with which states must learn to deal.

Rice uses the 2008 war between Russia and Georgia to illustrate her argument: the problem is, she gets it wrong. She uses the example as a case when Putin was aggressive, but vigorous American action rebuffed him. What a terrible example to offer. It shows that Putin was willing to invade even with Bush’s hawkish administration in power, and with a much larger military budget. Moreover, Putin was not entirely rebuffed. 1/5th of Georgian territory is still firmly in Russian control. The takeaway from this example should be that Russia is willing and able to control neighboring territory, regardless of who is president, or whether they project hard or soft power appropriately.

So let’s trust international institutions and soft power. Deny Russia a seat at the G8 summit, and form an international coalition (that includes China) to denounce these actions. Russia may not break over such measures, but it will bend. Invest energy in helping Kiev consolidate power in reforming the state in order to stabilize Ukraine’s currently tumultuous situation. And ultimately recognize that this situation does not herald the end of U.S. supremacy on the world stage or prove the existence of a power vacuum. It is the result of a defeated rival being continuously threatened, and now lashing out.

Putin’s actions should be vigorously resisted and, more critically, reversed. But so should Rice and her hardline critique. Her criticisms confuse the causes of the Crimean invasion and dilute American involvement. What’s worse, they threaten a return to Cold War policies. If Rice had her way, the defense budget would continue to expand, and America would police the world with a metallic fist. I challenge America to be smarter than every other superpower in world history. The U.S. must value international institutions that can solve global conflicts, just as it must figure out a way to operate and exert global influence independent of pure military strength. Otherwise, as new powers emerge, we may find ourselves with policies suited to 1914, not 2014.

Photo by poniblog

DEBATING THE “UKRAINIAN PROBLEM”: WHAT SHOULD THE UNITED STATES DO? (PART I)


Following former Secretary of State Condoleezza Rice’s recent comments on how to approach the “Ukrainian Problem,” two writers of Prospect Journal debate the merits of hard and soft power in dealing with Russia’s actions in Crimea. This is the first article in a two-part series.

By Bijan Mehryar
Staff Writer

Whether the United States should or should not be the world’s superpower does not change the facts on the ground. When protesters from around the world clamor for American support, it is because of what America represents to these people. When Russia invaded the Crimean peninsula in blatant violation of international law, America’s tepid response indicated that we were not going to put up a strong enough fight for the Ukrainian people who had risen to overthrow the Yanukovych government. The fact of the matter is that the Obama administration has pursued a soft power strategy where hard power is needed. Rice is right in advocating for a nuanced post-cold war mindset, because Putin is very much a leader who is attempting to reclaim the prestige and eminence lost by Russia since the early 1990s.

In the span of a couple weeks, Russian troops amassed on the Russian-Ukrainian border, entered Crimea, took control of the peninsula and annexed it within the context of a referendum and treaty that have been widely criticized by the international community. However, the international community has issued no ultimatum to Russia. By March 26 the Russian flag had been raised in all of the 193 military bases in Crimea following the withdrawal of Ukrainian troops. Despite a recent meeting in Paris between Secretary of State John Kerry and his Russian counterpart Sergei Lavrov, the debate over what will become of the annexation is still unresolved with Russia demanding Ukrainian constitutional reform and greater autonomy from Kiev for ethnic Russian regions.

While Obama has excelled in other areas of his foreign policy, such as the use of the drone strike program to eliminate terrorists, he has far too often painted a picture of himself as having to catch up with international events, not leading the change the world needs in affairs such as this. The Iranian protests of 2009, the Egyptian Revolution in 2011, the Syrian civil war and now the annexation of Crimea, all exemplify how America has been unable to effectively promote and protect its interests. Obama, if he wishes to solve this process, cannot go about in a tit-for-tat sanctions game against Russia. Rather he needs a combination of demonstrative military force in the name of protecting Ukrainian sovereignty, and stalwart international condemnation to make Putin scale down the conflict. This is not to say that a rigorous sanctions regime should not be used at all, but rather that these sanctions should not be the only tool for solving these situations. Time and time again we have learned that sanctions, unless pursued for decades, like in the case of Iran, do not lead to immediate turnarounds in policy.

Putin has a long history of aggressive action. This is a man who lived through the defeat of his nation at the hands of the West, and piece-by-piece he is attempting to rebuild and strengthen the Russian sphere of influence. On principle, a strong Russia is not necessarily a bad thing, but when that strength becomes the means by which other nations are threatened and conquered then we must, in the strongest ways possible, move against such unchecked expansionism. Putin did this once with Georgia, then with Crimea and now he is using the situation in Crimea to negotiate for the support of a breakaway Russian state in Moldova. Men like Putin only understand one thing – power. He is a strongman who needs to be strong-armed back into place and be taught that in the 21st century, you cannot use pieces of other countries as means to rebuild a collection that you lost 24 years ago.

Photo by poniblog