May 22, 2014

Gas and Geopolitics

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China and Russia (represented by the Russian state oil major Gazprom) have signed a deal that will supply China with gas worth up to $400 billion over 30 years. Since Energy Live News and International Business Times have quoted my views, I thought I'd put up the full version, which goes like this:

For China the Gazprom deal solves an energy problem. For Russia, it solves a market problem: Russia needs to sell its energy sources somewhere, but has spoiled its traditional market among the European democracies to Russia’s south and west by applying economic and military coercion to Ukraine.

Both China and Russia are governed by authoritarian regimes. Major bilateral trade deals among such regimes have a long history. Exactly what they mean depends greatly on context, sometimes unpredictably so. In the late 1930s Hitler encouraged bilateral trade deals between Germany and countries to Germany’s east not out of friendship, but because he considered them to be part of Germany’s future colonial sphere. Most notorious of these was the German-Soviet trade deal associated with the Molotov-Ribbentrop pact of 1939, which was followed within two years by all-out war. After World War II Stalin deliberately fostered bilateral trade deals between the Soviet Union and countries like Poland and Hungary in order to tie them into the Soviet economic sphere; for the same reason he prevented them from making bilateral deals with each other. These deals were followed by closer integration, not conflict.

No one envisages war between Russia and China, but it is important to remember that ultimately the governments of these two countries see each other as rivals in the global balance of power. China’s population and wealth are rising faster than Russia’s; Russia remains an Asian power, but the balance of power in Asia is moving steadily against Russia. Smiles around the table in Beijing do not betoken true affinity.

As authoritarian rulers (and the commercial entities under them, like Russia’s Gazprom) approach bilateral deals, they have an advantage and a problem. The problem is that everyone understands the signatories are not necessarily the real principals. The real principals are Russia’s Vladimir Putin and China’s Xi Jinping. No court will punish either of them if one of them chooses to break the Gazprom contract in future. The advantage they have is over open societies, where public opinion counts. In an open society, public distaste can sometimes get in the way of business. No human rights issues are likely to derail the China-Gazprom deal.

- 2 comments by 1 or more people Not publicly viewable

  1. paul gregory


    I read an analysis by, I think, Nemtsov, that the deal is bad for Russia. Have you done any research on this question?

    27 May 2014, 02:10

  2. Mark Harrison

    No. I have no specialist insight into energy markets. I had this to add in response to a Ukrainian journalist, who asked: “Will this contract be next step for economy and political coalition between Russia and China?”

    I replied: A Russia-China coalition can already be observed on many issues, and it can continue to develop, at least in the medium term. But, under existing arrangements in both countries, it can only be an alliance of convenience. This is because China and Russia are both authoritarian states. Authoritarianism seems to predispose states to engage in conflict. In typical interstate conflicts of recent history, at least one of the powers involved has been a dictatorship.

    The Chinese and Russian governments do have one important common interest: opposition to Western values of freedom and the rule of law, to Western leadership, and to Western influence in Europe and the Pacific. This is enough to encourage them to do business together. However, the governments of Russia and China are not drawn together by shared universal values, or by the trust that shared values underpin, and they are held apart by competing nationalisms. Fearing separatists in Tibet and Xinjiang, China does not wish to sympathize openly with Russia over Ukraine. Russian nationalism emphasizes the threat of Chinese expansionism in the Far East, and Russian prime minister Medvedev has spoken of the strategic need to maintain the Russian-speaking settlements of these remote borderlands. There will be times when Russia and China look like allies, but will continue to have scope for mutual conflict.

    27 May 2014, 09:13

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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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