From Russia, Eastward Flows the Energy

Michael Richardson (Visiting Senior Research Fellow at the Institute of Southeast Asian Studies in Singapore)

Russian Prime Minister Mikhail Fradkov will go to Beijing next month amid signs that Moscow is seeking to strengthen its power in Asia. It may offer to meet an increasingly large portion of the region's rapidly growing demand for energy.

Of all East Asian countries, however, China seems most likely to become the main partner and beneficiary of Russia's Asia-Pacific strategy. This will cause consternation in Japan just when its new leader, Prime Minister Shinzo Abe, is trying to reassert Japanese influence in the region. The United States, too, will be concerned that the energy security of its key Asian ally is being undermined while China is being promised much bigger long-term supplies of Russian oil and gas.

Japan's ties with Russia are bedevilled by an unsettled territorial dispute that dates back to the end of the second world war. By contrast, China and Russia closed a long chapter of cold war enmity in 2004, when they resolved remaining issues and signed a border treaty. Political, military, trade and investment ties are expanding rapidly, and Mr Fradkov will be aiming to make them stronger still when he visits Beijing. Both Moscow and Beijing say they want to counterbalance the power of the US and its allies.

Russian President Vladimir Putin pointedly told a group of western journalists and academics last month that relations with China were at their best ever. Conditions were now in place to keep them at this level for a long time, he said, and Russia planned a massive increase in its energy exports to Asia - selling 30 per cent of its oil and gas to the region in 10 to 15 years, compared with 3 per cent today.

Is this an attempt by Moscow to use Asia as a bargaining chip in its dispute with Europe over the terms of Russian gas exports? Perhaps so, in part. But Mr Putin noted that economic activity was moving from the Atlantic to the Pacific, and that Russia - with much of its territory in Asia - wanted to take advantage of that trend.

Several recent developments suggest that Russia is serious about strengthening ties with Asia - chiefly with China - and using its energy reserves as leverage to gain greater economic and political influence. Last month, two multibillion-dollar oil and gas fields being brought into production by mainly foreign producers off Sakhalin Island ran afoul of Russian regulators. This is widely seen as part of an attempt by Russian state-owned oil, gas and pipeline construction monopolies to take control of energy reserves and distribution networks in Siberia. That would be done in preparation for government-directed sales to favoured customers in Asia.

China is keen to lock in pipeline supplies of both oil and gas from Russia. Last year, it imported nearly 13 million tonnes of crude oil - just over 10 per cent of total imports - from Russia. Sales would be growing even faster if they did not rely so much on Russian rail transport, which is expensive. Mr Putin indicated that building new oil and gas pipelines to China over the next few years would intensify shipments.

But Moscow still has not made it absolutely clear whether the pipeline being extended eastwards from Taishet in Siberia will first carry oil to China - or to Japan and other customers via an outlet on the Pacific coast. Without a firm energy foundation, the vaunted strategic partnership between Moscow and Beijing will remain a paper tiger.

(Originally appeared in the October 6, 2006 issue of South China Morning Post in Hong Kong, reproduced here with permission.)