While the world fears for the fate of Ukraine China is making deals

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It is no exaggeration to say that the start of Russia’s military action in Ukraine and the ensuing sanctions against Russia have brought about a tectonic shift in the global economy, in which trade relations and links that have existed for decades risk being severed.  One of the areas most affected by the crisis is energy. 

Russia now faces the real risk of losing its entire western energy market, at least inasmuch as the United States has announced an embargo on supplies of Russian oil, Britain has given up Russian oil, and the European Union has announced plans to gradually end energy supplies from Russia.

The result of this will inevitably be a radical change in the direction of Russian energy supplies.  China intends to play a key role in Russia’s reorientation from west to east. 
It is precisely China that seems likely to be the main beneficiary of the global economic reordering that has begun.
China has experienced energy shortages for decades and it is certainly interested in buying Russian energy. 
Beijing also needs gas from Russia in the context of its energy transition process, development of renewables and construction of major wind and solar power stations.

Meanwhile, against a background of sanctions, the competitiveness of Russian energy resources is only growing. For China, the price of Russian gas is both maximally competitive and attractive since it is tied to the oil price with a nine-month lag. 
Russian gas was therefore already costing China less than Turkmen or Uzbek gas and was also much cheaper than gas from Myanmar, which China also imports. The price of Russian gas supplied to China could now fall even further: Beijing knows full well that China is now becoming the main buyer of Russia’s gas and oil.

As for Russia itself, the situation could by contrast prove rather unprofitable: following the introduction of sanctions against Russia, Moscow can no longer dictate the price of gas to Beijing as it has done with the European Union. 
In trade with China, energy supplies are becoming a buyer’s market: whereas previously Russia could at least to some degree bargain with Beijing, China will now have every reason to dictate its terms.  Therefore, it is highly likely that Moscow will have to sell gas to the East at reduced prices: it is hardly likely that China will manage to resist the temptation to take advantage of its position as the major buyer of Russian energy. Russian oil will also be supplied to China at prices that are not advantageous to Moscow since, one by one, European countries have already started to give up even what has not yet fallen under officially imposed sanctions – including purchases of Russian oil.   
This is precisely why the discount on Russian oil reached an unprecedented $25-28 per barrel at the beginning of March.

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Russia will inevitably once more fall into a position where it is dependent on its main buyer: after many years of dependence on the European market, a yet more enduring dependence on China could develop.  Strategically, Moscow has been trying to move away from such a position for a long time but its attempts have failed. However, Russia will have no alternative for several decades than to supply its energy resources to China, counting on these supplies allowing it to compensate for the loss of western markets.

Russia will now hardly be able to get by without Beijing, which receives the lion’s share of Russian energy exports. 
But for China, Russia is just one supplier. 
China does not put all its eggs in one basket and makes highly diversified oil and gas purchases. Moreover, it has been doing so for a long time: the same cannot unfortunately be said of the European Union. It is very unlikely that Beijing will be able to do without Russian energy completely, but it is more than able to set terms for Moscow. 
Russia is the second largest supplier of pipeline gas to China after Turkmenistan. It is the fifth largest supplier of LNG after Australia, Qatar, Malaysia and Indonesia. 
As for oil, it is the largest supplier after Saudi Arabia. There is therefore no shortage of competitors.

Andrei Ostrovsky, head of the Centre for the Socio-Economic Research of China at the Institute of the Far East, believes that Moscow would of course like to increase the volume of raw materials its supplies to China and at least partially make up for what it has lost in sales to the West. If the West gives up Russian oil and gas completely, Russia could increase its exports to China, since Beijing’s requirement for gas is immense. “The issue is that the Chinese market is so vast that it will easily absorb any volume,” he says.  This is not to mention the fact that there are quite a few other countries in Asia that also desperately need oil.  In other words, Moscow needs to reorient its hydrocarbons to the East as soon as possible,” he maintains.

However, in doing this Russia will inevitably encounter the problem of a basic shortage of transportation capacity. Experts assess the share of Russia’s west-bound oil and gas sales that the country is likely to lose at around 70 billion cubic metres (bcm) or 80 million tonnes of crude oil per year.

As far as China is concerned, Russia is currently linked with it by just one operational gas pipeline, Sila Sibiri (Power of Siberia). 
Its planned capacity has been stated as 38 bcm per year but the pipeline will only reach this in 2025.
At the beginning of February, Gazprom signed a long-term sales contract with Beijing for Russian natural gas via the Far East route. According to this document it is planned to increase the volume of supplies of Russian gas to China by a further 10 bcm. 
Finally, there is a third project, Sila Sibiri 2, for which a feasibility study was completed in January this year. 
Its design capacity is stated to be 50 bcm per year but construction is only planned to start in 2024. Thus, the current volume of Gazprom’s supplies to Europe is of a different order of magnitude from its exports to China. And there are no pipelines through which it would be possible to redirect gas from the European market to China and compensate for the losses.

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In solving the task of increasing the volume of oil supplies to China, Russia will have to grapple with the problem of increasing competition for the Chinese market, primarily from Middle Eastern countries.

As Steven Wright, an expert on international relations at the College of Humanities and Social Sciences at Bin Khalifa University in Qatar notes, China is becoming the main market for oil-producing countries, and Russia will be forced to compete for it with the oil-rich Arab states. He says that Russia will be forced to try to squeeze China’s traditional oil suppliers from the Persian Gulf, namely Saudi Arabia, the UAE, and Oman. Meanwhile, he says, Beijing will face the task of how to maintain the balance between supplies from Russia and those from long-standing partners from the Gulf region. 
He says that China is becoming a key economic partner for Middle Eastern countries and their economic integration with China is significantly closer than it is with the United States – and that this integration will grow.

It seems that Beijing will be able to make extra money on Russian oil by processing it in its refineries and selling the resulting petroleum products to third countries that have imposed embargoes on the purchase of Russian oil. In March China signed a huge contract with Saudi Arabia worth $10 billion for the construction of an oil refinery in northeastern China by the Saudi state-owned company Aramco. The installation will help to satisfy China’s growing demand for energy and chemical production. 
Experts note that the design capacity of 300,000 barrels per day is a very large volume even for the global oil market.

Competition always means a reduction in prices and Russia is counting on becoming a long-term supplier for China by offering it energy resources at attractive prices. Moscow is therefore counting on Beijing not giving in to the United States’ attempts to persuade it to reduce imports from Russia. 
This hope is at least this is supported by the talks that took place in March 2022 between US president Joe Biden and Chinese leader Xi Jinping. Washington has not yet succeeded in convincing Beijing to join in sanctions against Russia. 

However serious alarm bells were ringing for Moscow at the end of March. 
According to information from Reuters, the Chinese oil and gas company Sinopec suspended talks about major investment in Russia’s petrochemical industry and the sale of Russian gas in China. 
According to the agency’s sources, the decision to temporarily abandon investment worth $500 million according to various assessments has been motivated by a desire to avoid falling under sanctions from western countries.
Russia is still hoping that other Chinese companies will not follow Sinopec’s lead.
There are grounds for this hope: China, the world’s oldest civilization, always has the last word. 
What it gains from collaboration with Moscow could exceed potential losses from American restrictions imposed by America for its lack of unwillingness to join sanctions against Russia.