May 22, 2014

China deal for Russian gas a big win for Putin

Pact weakens punch of sanctions over aggression in Ukraine.

China has signed a 30-year, $400 billion natural gas deal with Russia, handing a big win to Russian energy companies desperate for new export markets.

Put simply, the pact may strike a death blow to the foundering Western efforts to punish Russian President Vladimir Putin for his meddling in Ukraine and annexation of the country’s Crimean peninsula.

The new pact strengthens an emerging Moscow-Beijing economic alliance that’s out of the reach of Western influence and financial pressure.

Though it will be years before the gas starts flowing to China, the deal raises doubts about how effectively Western countries will be able to use sanctions as a weapon against Putin’s Russia.

Former Treasury Department sanctions official Elizabeth Rosenberg, who is now a senior fellow at the Center for a New American Security, said the deal was Russia’s “attempt to build up commercial opportunities outside of Europe where it’s vulnerable and losing friends.”

Sanctions — Western leaders’ weapon of choice in the battle over Ukraine — may have less bite now that Russia has proved it can find other foreign customers for its main export, natural gas.

U.S. and European leaders have threatened broad sanctions against whole swaths of the Russian economy.

But the China deal gives those threats less teeth in the years to come because Russia would have Beijing’s gas contract to fall back on if the West decided to go after the country’s crucial energy sector.

“I don’t think this inhibits the ability of the U.S. and its partners to impose sanctions in the short term, but I do think it could affect the ultimate price those sanctions would exact in the medium term,” said Zachary Goldman, a former Treasury Department sanctions official now with the Center on Law and Security at the New York University.

Though Europe still accounts for roughly 75 percent of Russia’s gas exports, developing countries could make up a larger proportion over time. The gas going to China wouldn’t take away from Europe’s portion immediately because the gas is being extracted from different fields, but by increasing the number of buyers, Russia would be less dependent on European markets.

China is also an ideal economic ally for Putin because Beijing, unlike Europe, is unlikely to ever agree to sanctioning Moscow over the Ukraine crisis.

Chinese leaders have historically been averse to getting involved in other countries’ political squabbles.

“The government in Beijing isn’t interested in coming out and supporting this volatile political issue in terms of the Russia-Ukraine situation,” said Nicholas Consonery, an Asia analyst with political risk consultancy Eurasia Group.

So far, Washington has frozen the assets of 45 people, including some of the Russian president’s closest allies, and 19 banks and companies to pressure Putin to reverse his annexation of Crimea and abandon his threats against Ukraine.

This week, the Treasury Department added 12 more names to the list in connection with unrelated alleged human rights abuses.

Jamila Trindle has covered policy and economics for The Wall Street Journal and PBS.


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