Emerging roadblocks to growing Sino-Russian ties

China has been the cornerstone of Russia’s Asian strategy as it is the largest buyer and consumer of Russian oil among all the nations which conduct oil trade with Russia. Russian and Chinese trade volumes are set to touch the $100 billion mark in 2018. The investment under the Chinese Belt and Road Initiative is also increasing in terms of percentage. However, it is the rise in oil prices which has spurred the trade between the two countries and not really the result of an economic surge. Furthermore, Russia has successfully delivered the most advanced air-defence system to China-the S-400 regiment.

However, the so-called positive developments were seen to be shadowed by two significant events which have added a pinch of salt over the otherwise sweet ties. The first was the withdrawal of CEFC China Energy from the purchase of 14.16 percent of Rosneft’s shares- the firm which is involved in a deep financial scandal and thus under tight scrutiny on its international expansion at home. Rosnet had to completely change its corporate strategy to enhance returns for its shareholders and also attract Qatar. Qatar finally bought the shares of Rosnet. China also raised objections and issued a warning to Rosnet for carrying out drilling at natural gas block 6.01. China owns 35% shares in the latter project and is an operator of the same. Additionally, the Russian cooperation for the offshore projects with PetroVietnam has also angered Beijing as the block falls in China’s Nine-Dash Line where China has laid its claims. This has further added to growing friction with Russia.

Rosnet and Gazprom both run projects in the offshore region of Vietnam but Russia has categorically stated that it will officially not support the claim that block 6.01 lies in the territorial waters of Vietnam as it will position it in direct contradiction of China’s maritime claims over the same. But the press secretary of Kremlin Dmitry Peskov has reiterated that Rosnet is and will continue to remain a vital arm of Russian Foreign policy and it presented the statement made by Rosnet against the Chinese claims that the company works completely in line with the realm of the licences. Peskov, however, mentioned that Rosnet does operate beyond the remit of the state.

Western sanctions, particularly on offshore equipment, have crippled the Arctic oil and gas exploration which made the giant Exxon walk away from those projects. Rosnet replaced the latter with the offshore and open-sea oil platforms for all its undertakings on the Sakhalin Island although the former has resulted in a dip in quality and a rise in costs. Japan Drilling Co. Ltd. has also drilled in two of the three disputed gas fields which are an evidence of Japan’s interest in Vietnamese reserves. The projects will help Rosnet gain the technical expertise to manage the offshore projects in partnership with Japanese companies. Latter would have been difficult owing to the growing disagreements between Russia and Japan over the claims to the territory. The developments are significant as they have come at a time when major Western nations are not open about their oil ventures outside the Sakhalin Island cooperation.

Russia has already stated that Rosnet is vital to its interests yet it does function without the direct involvement of Kremlin. The new government has priorities which have been tilted towards the recent geopolitical events like US withdrawal from the Iran Nuclear Deal. Rosnet has bagged a waning priority within the Putin team due to major geopolitical events unfolding with serious impacts on the world order. Putin has also given significance to various domestic policies in his new term. Despite these, Kremlin has always tried to maintain neutrality across the region of South China Sea and even backed China’s push to keep the US out of the region. However, Kremlin does not support China’s claims of Nine-Dash line. Both the nations held joint military exercises in the South China Sea but the disputed region was deliberately avoided. China remains a major partner for Russia but latter is rethinking its growing dependence on China in the region. Kremlin has thus sidelined itself from Rosnet. This is important because it has come at a time when the political realities have begun to envelop the economic partnership with China. Latter was reinforced by the cancellation of CEFC China Energy Deal- which also portrayed Russia in the wrong sense. Rosnet on its part has always pursued a corporate strategy which combines acquiring assets in Russia and entering into overseas deals which have huge geopolitical implications and stakes with a heavy reliance on debt. CEFC was a passport for Rosnet to secure a number of deals in China. The cancellation of the above deal is thus a major blow to Rosnet’s China Dreams as the latter will also influence the decision of CNPC for entering into talks with Rosnet. Russia has to expand its Pivot in Asia by pursuing relations with other nations in the region. Its push to develop ties with Japan and South Korea also took a hit due to its support for North Korea. Thus, countries like Vietnam offer the best bet for pursuing cooperation for offshore projects.

 

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