China’s Leverage in Russia Deal Proves Putin Needs Xi More

Beijing is using its significant leverage over the Kremlin to strike a more favorable deal over a proposed gas pipeline that is vital to President Vladimir Putin’s political stability, according to the Financial Times.

Moscow’s ambitious Power of Siberia-2 project, which will connect Russia’s vast western gas fields in the Altai region to China, is facing an unexpected setback. Prime Minister Luvsannamsrain Oyun-Erdene of Mongolia, whose country’s territory is central to the transborder infrastructure agreement, said the project’s timeline could be in jeopardy.

Since Russia’s full-scale invasion of Ukraine nearly two years ago, President Xi Jinping of China has provided meaningful political support to his Russian counterpart amid sweeping Western sanctions and increased isolation from some of the world’s largest economic players.

Leaning on his neighbor to the north, however, Putin has developed what many Kremlin watchers have warned is a dangerous overreliance on China’s economy and, most importantly, its political leadership.

The Power of Siberia-2 pipeline, about a third of which will traverse Mongolia, has been a top priority for Moscow for over a decade, gaining even more prominence since Europe scaled back its imports of Russian natural gas in 2022.

If completed, the pipeline is expected to redirect 1.8 trillion cubic feet of natural gas to northern China. Its projected export capacity closely mirrors that of the Nord Stream pipelines, which supplied 1.9 trillion cubic feet of gas to Germany before being sabotaged in 2022, with the perpetrators still unidentified

Oyun-Erdene, who previously said the 1,700-mile pipeline was set to commence this year, now believes Russia and China are yet to agree on critical details, raising doubts about the original timetable, he told the FT.

One of the holdups, the newspaper said on Sunday, was China’s intention to secure cheaper gas prices from Russia as part of the contract. Beijing wants to diversify its gas supplies as part of its long-term plan for energy security, but another complicating factor is fluctuating prices for piped gas, which remain substantially lower than liquified natural gas imports.

Any major delay would come as a blow to Putin’s desire to lock in a new market for Russian gas in what is expected to be his reelection year. Russia’s Central Election Commission on Monday registered the country’s long-time leader as a presidential candidate for the March poll.

Sergey Vakulenko, a former strategy director for Russian oil producer Gazprom Neft, a subsidiary of the Power of Siberia-2’s operator, told the FT that Moscow was likely after better payment terms from Beijing than those included in their contract for Power of Siberia-1 in 2014.

Wei Xiong, a senior analyst with Rystad Energy in Beijing, told the paper that local Chinese industries—anticipating surging for energy—were pinning their hopes on the Power of Siberia-2 becoming operational by 2030.

But since the beginning of the Russia-Ukraine war, Moscow’s economy largely has been propped up by increased two-way trade with Beijing, which hit $200 billion last year. The imbalance means Putin appears to have lost any leverage in negotiations over the Power of Siberia-2.

In Novmeber, Hong Kong’s South China Morning Post newspaper said China was now wielding greater influence over project, despite both governments still promoting it as a symbol of cooperation between two friendly states.

Beijing’s assertive stance comes despite Mongolia’s efforts arrange a three-way summit to expedite collaborative projects including new railway connections and economic corridors.

“[Our] Ministry of Foreign Affairs is working with different diplomatic channels to organize the summit with Russia and China,” Oyun-Erdene said at the Davos economic forum earlier this month. No date had been agreed, he said.

The proposed China-Mongolia-Russia economic corridor—part of Beijing’s Belt and Road Initiative aimed at enhancing regional infrastructure connectivity, trade and investment flows—would be a focal point of discussion at any such summit, according to Oyun-Erdene.