The West-Russia-China Triangle

The impact of the geopolitical storm which occurred in the wake of the Ukraine crisis reaches the ends of the Earth through a new combination of forces, new partnerships and strategies. A gas deal worth about $400 billion was signed last Wednesday between Russia and China to provide China with Russian gas. Despite the deal’s great economic value, it marks the developing of warmer relations between Russia and China when at the same time the U.S. and EU are attempting to exercise control over the two countries. These days, the 21st century is being shaped. The geostrategic moves on the world chessboard should raise concerns in the EU and every member state much more than it has until recently.

Assessing the deal for China’s importing 38 billion cubic meters of natural gas starting in 2018 for a period of 30 years, we have to take into account the fact that Beijing recently signed a deal with Turkmenistan which will build up from 20 billion cubic meters of natural gas annually to 65 billion cubic meters by 2020. It is also worth noting that 80 percent of Russian Gazprom revenue last year was generated from Europe, which consumed 160 billion cubic meters of natural gas. In other words, China cannot replace the European gas market. Neither Russia nor China disclosed the price of the contract signed after 10 years of negotiation. Reuters reported that Gazprom refused to supply gas for a price lower than $350 per 1000 cubic meters. On the European market the price ranges from $350-$380, with Greece paying $396 after a recent discounted contract lowering the price from $470 per 1000 cubic meters.

Russia is Europe’s biggest supplier of oil, coal and natural gas. It covers a third of its needs in contracts reaching $250 billion annually. The 30-year gas deal with China is estimated to be worth around $400 billion and may be smaller if we consider that the price paid for gas from Turkmenistan is much lower. Although this price also remains a commercial secret it is estimated to be much less than $350.

The economic benefits gained by this deal are great, but the warming of relations between China and Russia is more important because of the political message it sends toward the U.S. and the EU. The Ukraine crisis, with the return of the Crimean peninsula to Russia, as well as China’s conflict with neighboring countries which are calling on the U.S. for support, are some of the issues leading to general turmoil. On the one hand, the U.S. and the EU are blaming Russia for not maintaining the status quo, while on the other hand Moscow is underscoring their involvement in the Arab world and in the secession of Kosovo province from Serbia. In the Far East, Japan, Vietnam and the Philippines are calling on America to settle their disputes with China. In the meantime, Russia is taking part in joint naval exercises with China. Although in the past Sino-Russian relations were extremely tense, at present there is mutual support. With bilateral trade agreements reaching $90 billion, China is Russia’s strongest trade partner. Through the gas supply deal and the right political approach Moscow is answering back to the U.S. and EU sanctions regime. The Russia-China partnership will frequently become apparent at the international level, for example in U.N. resolutions — both countries are permanent members of the U.N. Security Council — and in bilateral relations they develop with countries all over the world from Angola to Venezuela.

The souring in relations between the U.S. and Russia finds Europe in the middle, forced to act firmly against a large neighbor on whom it depends for 30 percent of its gas supply. The 28 EU member states will be left to the mercy of decisions made by greater powers, and Europe will not be able to exploit its market power if it does not act as a leading power, in fact as one of the world’s largest economies, with a GDP of 13 billion euros in 2012. At the present time, China is taking advantage of Russia’s need to sell gas; it will be extremely interesting when the price Beijing will be paying is unveiled. Surely it will be lower than what Europeans pay! The economic crisis has taught us how to face the dangers of internal division and now the time has come to comprehend the geostrategic need of belonging to a powerful European Union.