Xi Jinping realises he 'needs Moscow's support' says Bermann

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While Russian cash reserves have reportedly plunged following crippling sanctions and slashed gas deliveries to Europe, China appears to be stepping in to replace European buyers, providing a crucial lifeline for Vladimir Putin amid the Ukraine war.

Xi Jinping and the Russian President are meeting this week in Uzbekistan for a summit as the pair continue to deepen ties amid Russia’s war in Ukraine, which has seen European nations attempt to scupper energy links with Russia after being dependent on its supplies for so long. 

While gradually slashing gas deliveries to Europe both in the build-up to and during the invasion of Ukraine hiked up gas prices and sent the Kremlin-controlled energy conglomerate Gazprom’s profits soaring, the EU has hit Russia’s energy sector with sanctions, such as an oil embargo, and has detailed a blueprint to completely cut ties with Moscow to slash billions from Russia’s revenue under its REPowerEU strategy.

Deliveries have also plummeted further in recent weeks after Moscow completely suspended flows through the major Nord Stream pipeline, which sends gas from Russia to Germany via the Baltic Sea. While Europe is still purchasing Russian gas via Ukraine and Turkey, the slashed Russian exports to the continent could limit the extent of cash Moscow rakes in from gas sales.

And while European nations and Western energy giants continue to pull out of Russia as the invasion rages on, the Chinese President has stepped in to purchase huge volumes of gas and other fuel sources that would have otherwise been sent to Europe.

Luckily for China, it has been purchasing Russian gas on the cheap as Russia can offset losses from the EU scaling back its purchases. This year, the nation has purchased 17 percent more Russian crude between April and July than the same period a year ago.

It has also imported 50 percent more liquified natural gas (LNG) and 6 percent more coal from Russia over the same period. China’s electricity imports from Russia also soared by 39 percent, mostly via a cross-broader transmission line connecting northeast China and Russia’s Far East. 

From May to July, Russia became China’s main crude oil supplier, accounting for 19 percent of its imports compared to 15 percent in the same period of 2021, according to Chinese customs data.

Zhuwei Wang, manager, Asia Oil Analytics, S&P Global Commodity Insights: “The upcoming meeting between Xi and Putin will likely fortify China’s ties with Russia in energy trade for mutual benefit, particularly at a time when Russia (is) grappling with intensified western sanctions while China is in need of low-cost energy to shore up its sagging economy tarnished by COVID lockdown.”

But it comes as Russia’s budget surplus plummeted to 137billion rubles (£1.9billion) in the first eight months of 2022 following its reduced gas flows to Europe, falling from 482billion rubles (£6.8billion) in year-to-date data from the previous month.

Meanwhile, prices have also since dropped as the EU eyes up a list of measures to cope with the energy crisis sparked by the Russian dictator, with prices of the fuel dropped by 40 percent from the highs reached last month down to €192 (£166) per megawatt hour. 

While EU members have failed to agree on a measure that would see a price cap slapped down on Russian fuel imports, Commission President Ursula von der Leyen has claimed that “Russia’s financial sector is on life-support” as the bloc hopes the latest measures can hammer the final nail in the coffin of the Russian economy.

However, Ms von der Leyen noted that Putin is still “actively manipulating” the gas market despite the EU slashing its energy ties with Moscow, warning that gas prices have risen by more than 10 times compared to before the Covid-19 pandemic.

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And China’s lifeline to the Russian economy is likely to help the Russian cause after it agreed to pay for Russian gas shipments in yuan and rubles instead of dollars last week. 

Gazprom CEO Alexei Miller said: “The new payment mechanism is a mutually beneficial, timely, reliable and practical solution.”

Beijing and Moscow are also striking up closer energy ties with a deal for a huge gas pipeline, the Power of Siberia 2, which is set to see Russia’s gas exports to China double. 

It is expected to begin operating in 2030 and will be owned by both China National Petroleum and Gazprom after the pair struck a landmark deal. 

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