November 20, 2018

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    Russia-China Gas Deal; The Rise of the Multipolar World

    June 17, 2014

    (by Dinusha Wijesinghe ) In the wake of the Ukrainian crisis and rising tensions between China and Vietnam in the South
    China Sea, Russia and China signed a historic gas deal that will bolster the regional relationship between the two countries for the next thirty years. While Russia and China have proven to be a cooperative force in global politics and security, as they share similar interests and ideologies in this arena, the neighboring countries have historically faltered in creating effective economic  relations.Both Russia and China have prioritized looking to Western capital and markets for economic development and stability instead of looking to each other. The landmark gas deal between Russia and China, however, could change this global dynamic indicating the pervasive rise of a multipolar world.

    After ten years of negotiations, Russian President Vladimir Putin and China’s President Xi Jinping sealed a long-term natural gas deal between state-owned Russian firm Gazprom and its Chinese counterpart China National Petroleum Corporation. Signed on May 21st, 2014 in Shanghai, the thirty-year deal supplies China with 38 billion cubic meters of gas each year through a pipeline from Siberia to China. The new supply of gas to China will account for roughly a quarter of China’s energy imports, and will supply Russia with a much needed alternative export market. Although details about the price of the deal have not been released, it is estimated to be worth about $400 billion.

     

    Mr. Xi’s meeting with Mr. Putin was not the first time that the two powers had met at a dramatic juncture.  Almost exactly twenty-five years ago, Mikhail Gorbachev, the then-Soviet leader, paid a similar visit to China to develop reconciliation and relations between the two countries. The 1989 trip to Beijing took place on the political landscape of spiraling inflation and frequent protests in China. With the increasingly isolated China in need of a friend, Russia stepped up to the plate. It seems that today the roles have switched.

     

    It is by no coincidence that the gas deal, which has been in the works for the past ten years, was finally signed in the month of May. As a result of Russia’s involvement in Ukraine, the west has imposed sanctions on Russia such as bans on visas and asset freezing. Threatening to impose tougher economic sanctions, the west is said to target Russia’s gas industry which could cripple Russia’s energy export dependent economy. As sanctions and isolationism towards Russia increase, and western countries seek to reduce their dependency on Russian gas, the gas deal marks a pivot to the east providing Russia with a new export market. Carnegie Moscow Centre director Dmitri Trenin writes, "The US sanctions upgrade China's importance to Russia as the one major economy in the world that is not susceptible to the US-led sanctions drive.”The deal also advances China’s agenda. With tensions rising in the South China Sea due to the recent development of an oil rig in waters claimed by Vietnam, and dispute over administration of the Senkaku islands, there is strategic value for China in developing regional relationships with Russia. Furthermore, China is one of the largest consumers of energy, and Russia has the biggest energy reserve; the new relationship will help foster China’s growing economy. China isdiversifying its energy supply base and focusing on energy security. Perhaps most importantly, China is positioning itself as a power that is not afraid to disagree with and stand in opposition to western powers.

     

    While Sino-Russian relations serve to reinforce and promote the legitimacy of one another's actions on the global stage, the two countries are naturally driven by their own interests first. Although both countries can glean significant benefits from one another, China holds the upper hand in this relationship for the time being. Largely dependent on natural energy exports, Russia's economy is not as multifaceted or fast-growing as China’s economy especially in light of recent international sanctions. China holds more negotiating power as Russia struggles to maintain its economic stability in the face of a regional crisis. The imbalance of power in the Russia-China relationship could breed impatience from China and resentment from Russia setting the stage for a repeat of the Sino-Soviet split. A history of relations colored by mistrust
    and unpredictability could also affect the stability of the relationship. Despite an asymmetry in negotiating power between the two countries, this relationship does have serious implications on both a regional and global level.

     

    The gas deal between geographic neighbors Russia and China have both economic and political impacts on the region of South and East Asia. The gas deal will affect gas prices in the Asian gas market. Obtaining natural gas from Russia is cheaper and more geographically convenient than procuring Liquefied Natural Gas (LNG) from Asian markets. An increase in China’s natural gas supply from Russia is likely to lower the market price, paving the way for more favorable conditions for development and growth in South and East Asian economies. Additionally, Russia’s new long term relationship with China could lead to improved relations and future gas deals for Russia with other Asian neighbors such as Japan and Korea.  Strengthened relations between Russia and China as a result of the gas deal suggest a major shift in the global balance of power. In an interview with Chinese media, President Putin stated that, “Now Russia-China cooperation is advancing to a new stage of comprehensive partnership and strategic interaction. It would not be wrong to say that it has reached the highest level in all its centuries-long history.”Whether a veneer of amity or a genuine stride toward harmonious relations, a clear message is being sent to the global community: Western dominance is not a permanent state. The Sino-Russian bilateral relationship is providing a source of change to the status quo. Historically, Russia and China have acted as a check and balance to the majority power held by the west in international bodies such as the United Nations. When the U.N. Human Rights Council called for an investigation concerning human rights violation in Sri Lanka, Russia and China opposed this resolution. When the U.N. Security Council drafted a resolution that threatened Syrian authorities with sanctions, Russia and China vetoed it. The power play between the West and Russia and China indicates a shifting balance of power. As Sino-Russian clout increases, will the western world lose its unipolar power to influence in international governing bodies?

     

    More specifically, the confluence of economic interests that the energy deal provides has elevated shared political interests in balancing the influence of the west. Amidst western imposed sanctions, Russia’s turn to China proves that even if the west will not purchase Russian energy, Russia has other options. China’s failure to follow the western example of isolating Russia, upsets the current world order. Russia and China have revealed that the western world’s ability to deter other countries and dictate global politics is on the decline.

     

    The Sino-Russia $400 billion, 30-year deal also has great impacts on how the global economy operates. For years, Russia and China have aimed to weaken the importance of the US dollar. The two countries definitely made progress in advancing their strategic goals by signing an energy deal that would be the first major commodities contract to be settled in Russian rubles and Chinese yuan rather than US currency.  If Russia and China continue to trade using their own currencies, the international status of the dollar as the reserve currency of choice could be seriously undermined. Because the US dollar acts as an international reserve currency, the US has been able to run huge deficits and increase its standard of living by acquiring inflows of capital from trading partners. While a decline in the dollar as the reserve currency is not an immediate effect of the gas deal, the rise of the ruble or yuan as international currencies could cripple the US market and ultimately undermine economies throughout the global economy in years to come.

     

    Improved relations between Russia and China, as indicated by the signing of the thirty-year gas deal, illuminate an end to a world of unipolar dominance. Emerging in its place is a multipolar world with the US, EU, China, Russia, and the other BRIC countries as key players. Despite western anxiety over developing relations between countries like Russia and China, the rise of the multipolar world does not imply a loss of western power. Rather, a system of unipolar power will be kept in check. The world today consists of deeply interconnected economies and interests. Western nations rely on eastern nations just as much as eastern nations rely on the west. The rise of a multipolar world has the potential to benefit the global community as a whole if embraced with caution and sincerity. (KH/SI)

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