As he talks with President Vladimir Putin a year after claiming their friendship had “no bounds” prior to the Russian invasion of Ukraine, Chinese leader Xi Jinping is keeping the West in the dark about whether Beijing will support stiffer sanctions against Russia. Despite not violating any restrictions, China increased its purchases of Russian oil and gas by nearly 60% in August compared to the previous year. This helped to replenish Moscow’s financial flow after the United States, Europe, and Japan reduced purchases and kicked Russia out of the international banking system. At a conference of the Shanghai Cooperation Organization, an eight-nation Central Asian security organisation, Xi and Putin are scheduled to meet this week in Uzbekistan.
By imposing a maximum price cap on the amount that customers can pay for Moscow’s oil, Washington and its partners in the Group of Seven big economies hope to put Moscow under pressure. That would require cooperation from China, India, and other energy-hungry Asian economies that have avoided taking sides and still buy from Russia. In a report for the Carnegie Endowment for International Peace, Sergey Vakulenko, a former strategic director for Russian gas giant Gazprom, said that India and China “may decide to remain out of the fray and negotiate separate agreements with Russia.” Given its position as the second-largest economy in the world and its reluctance to harm Russia, China might play a spoiler.
Relations between Beijing and Moscow were tense throughout the Soviet era, but since the 1990s, the two sides have developed a political marriage of convenience, motivated by a common annoyance with American predominance in world affairs. According to Alexander Gabuev, a renowned researcher on Russian relations with Beijing, Russia is looking to China for support. He pointed out that China, which contributes roughly 18per cent to Russia’s foreign trade, is the country’s greatest trading and economic partner outside of the sanctions alliance. Russia will advance further if it accepts the Chinese yuan as its primary currency and looks to China to replace technology that it cannot obtain from the West.
By the end of this year, and particularly in the years to come, when the oil embargo will be fully operational and gas supplies to the EU will decline, maybe to nil, except for what passes via the Turkish stream, Gabuev predicted that China will be a far greater partner for Russia.
According to the International Energy Agency, 20per cent of Moscow’s crude exports were purchased by Beijing in 2017. This year, more purchases have been made, which has helped Russia’s cash flow in the face of Western sanctions. According to customs data, China spent 60% more on Russian oil and gas in August than the previous year.
The People’s Liberation Army, the military wing of the ruling Communist Party, began purchasing Russian fighter planes and other weapons in the late 1990s, but those purchases have since been discontinued as China develops its own technology. On September 2, the G7 announced that they would impose price restrictions on Russian oil by forbidding their shipping firms or insurers from doing business with anyone who pays more. They have not yet specified a potential implementation date.
Other sanctions put in place by Washington, Europe, and Japan are enforced by the threat that any nation that disobeys them could lose access to crucial Western markets and the global banking system, even if it hasn’t consented to them.
With one of the largest tanker fleets and its own underwriters, China, the world’s largest energy user, may operate outside of G7 restrictions.
The G7 must choose whether to impose sanctions on their largest trading partners and “risk fighting an economic war on numerous fronts” if China, India, or other Asian governments refuse to comply, Vakulenko said.
Meanwhile, Russia has threatened to stop doing business with any country that complies.
Russian oil and gas are also seen by the government of Xi as a method to diversify supplies and lower the strategic risks posed by potential disruptions. According to the International Energy Agency, China purchased 20per cent of Russia’s crude exports in the previous year.
Because the sanctions were not imposed through the UN, where Beijing and Moscow have veto power as permanent Security Council members, China considers the existing measures to be illegitimate. However, Chinese businesses and banks have complied out of concern that they will be cut off from lucrative Western markets or the global financial system.
It is not illegal for China or other nations to purchase Russian energy. However, if Beijing aids Moscow in evading sanctions, President Joe Biden has warned Xi of potential repercussions.While some Chinese businesses are leaving Russia, Beijing seems to be exploring ways to cash in on Moscow’s exile. Last week, Gazprom agreed to allow state-owned China National Petroleum Corp. to make payments in Chinese yuan or Russian rubles rather than dollars. Due to the limited acceptance of the yuan by other exporters, Russia is more likely to purchase Chinese goods, which benefits China. Because of access to cheap Russian oil and gas, China has been able to fend off the inflation that is wreaking havoc on Western economies.
Inflation in the 17 nations that use the euro currency in Europe jumped to a record 9.1per cent, whereas consumer prices in China grew just 2.5per cent in August, down from 2.7per cent in July.
Aside from the imports that are recorded in official statistics, China may possibly be purchasing Russian oil through Middle Eastern traffickers in addition to crude from Iran and Venezuela.Merchants in Fujairah, a port in the United Arab Emirates, blend cargos from suppliers that are under sanctions and shift them between tankers at sea to hide their origin, The Wall Street Journal reported Aug. 29, citing unidentified traders.
Elsewhere, exports to China from Malaysia, an oil producer, exceed the Southeast Asian nation’s domestic output by one-third, according to Bloomberg News, suggesting it is being used as a channel for other supplies.
China gave Moscow an economic lifeline following Western sanctions imposed over its 2014 seizure of Crimea from Ukraine, agreeing to buy Russian gas in a 30-year, $400 billion deal. Moscow turned to Chinese state-owned companies to help pay for oil and gas development after Crimea-related sanctions cut off Western financing.
On Feb. 4, three weeks ahead of Moscow’s attack on Ukraine, Beijing and Moscow announced a 30-year gas contract. According to the official newspaper Global Times, this will increase Russia’s annual supplies to China by about 25 per cent.
