Will Russia Make Money With The Mega Gas Deal It Just Signed With China? This agreement looks like a political victory for Putin. The West wants to isolate Russia; but China is willing to sign a 30 year gas agreement with Moscow valued at $ 400 billion

image_pdfimage_print

WASHINGTON – While US President Barack Obama tries to isolate Putin because of his bad behavior in Ukraine, China is quite willing to support him by signing a mega deal with Russia’s Gazprom, (valued at $ 400 billion) for 30 years of gas supplies. So much for a united international front aimed at “punishing” Russia.

A good day for Putin

On the face of it, this is a political triumph for Putin. As the West treats him like a pariah, he goes ahead and signs the largest energy deal in recent history, a deal that gives Russia the  opportunity to supply the gigantic Chinese market.

Again, so much for international isolation.

How lucrative?

That said, how lucrative is this deal? We do not really know, because many of the critical details have not been made public. Do keep in mind that Russia and China have been negotiating on something like this for at least a decade. The impediment was price. China wanted a discount. Russia did not want to give it. Can we speculate that now Putin really needed a deal in order to buttress his prestige at home and that therefore he agreed on a lower price?

In the end, will Russia make a lot of money out of this, or only a little? Too early to tell.

But do keep in mind that there are many costly variables here that cannot be easily quantified. Indeed, the deal includes enormous upfront investments, on both sides, to develop the gas fields in Russia and the infrastructure, (pipelines and more), to carry all this gas from Russia to China. Russia committed to invest $ 55 billion, while China will spend $ 20 billion. Will there be cost overruns? Will there be delays on what is already a multi-year, complex project? You can count on it.

Political victory

That said, for the moment at least, this is a major political victory for Putin. With America in the lead, the West is trying to isolate Russia on account of its role in fomenting unrest in Ukraine.

Well, in response, Putin has done his own “pivot to Asia”. He has struck a historic, gigantic gas deal with China, a country that clearly could not care less about Putin’s actions in Europe and the fate of Crimea or Eastern Ukraine.

Did the Chinese get lower prices?

But the Chinese are shrewd negotiators. It is quite possible that Beijing, fully aware of the fact that Putin needed a “political” victory, agreed to sign the mega-deal only after they managed to extract more favorable terms regarding the price of gas.

Still, this agreement proves that, whatever the size of its economic gain, to the extent that Russia can sell what other countries want to buy, it will not be isolated.

America’s sanctions failed

And this implies, (sadly), that the whole American strategy of targeted sanctions against Russia is a failure. This is yet another occasion in which America’s public and loud promises to punish bad actors proved to be ineffective. If President Obama keeps threatening retributions that he cannot deliver, America, until not too long ago “The Hyperpower”, will become a joke.

, , , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *