China keeps West guessing about economic pressure on Russia – diplomat

Chinese leader Xi Jinping is keeping the West guessing over whether Beijing will cooperate with tougher sanctions on Russia as he meets President Vladimir Putin a year after declaring they were friends “without borders” ahead of the Kremlin’s invasion of Ukraine.

China avoided violating sanctions, but its purchases of Russian oil and gas rose nearly 60% in August from a year ago to $11.2 billion. This helps boost Moscow’s cash flow after the United States, Europe and Japan cut purchases and kicked Russia out of the global banking system.

Xi and Putin are scheduled to meet this week in Uzbekistan for a meeting of the Shanghai Cooperation Organization, an eight-nation Central Asian security group.

Washington and its G7 allies want to pressure Moscow by imposing an upper limit on how much buyers are allowed to pay for its oil. This will require cooperation from China, India, and other energy-hungry Asian economies that have avoided taking sides and are still buying from Russia.

“India and China may decide to stay out of the conflict and sign separate agreements with Russia,” Sergei Vakulenko, former director of strategy for Russian gas giant Gazprom, wrote in a report for the Carnegie Endowment for International Peace.

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China’s potential role as a spoiler reflects its power as the world’s second largest economy and its reluctance to harm Russia.

Relations between Beijing and Moscow were lukewarm during the Soviet era, but the two sides have formed a political marriage of convenience since the 1990s, united by shared frustration with US dominance of world affairs.

Alexander Gaboyev, a leading Russian expert on relations with Beijing, said Russia is looking to China for support.

He noted that China is the largest trading and economic partner outside the sanctions alliance, contributing about 18 percent to Russia’s foreign trade. As Russia embraces the use of the Chinese yuan as its main foreign currency and looks to China to replace some technology that it cannot buy from the West, it will rise further.

“China will be a much larger partner for Russia by the end of this year, and especially in the coming years, when the oil embargo is fully operational and gas exports to the EU will drop, perhaps to zero, except for what goes through,” Gaboyev said.

According to the International Energy Agency, Beijing bought 20 percent of Moscow’s crude exports last year. Purchases are up this year, helping boost Russia’s cash flow in the face of Western sanctions. According to customs data, China spent 60 percent on Russian oil and gas in August compared to the previous year.

The ruling Communist Party’s military wing, the People’s Liberation Army, spent billions of dollars on Russian fighter planes and other weapons starting in the late 1990s, but those purchases ended as China developed its own technology.

The G7 governments announced on September 2 that they would impose caps on Russian oil prices by banning shipping companies or their insurers from doing business with any customer who pays more. They haven’t said yet when that will take effect.

Other sanctions imposed by Washington, Europe and Japan are imposed by the threat that any country violating them, even if they do not agree to them, may also be cut off from valuable Western markets and the global banking system.

China, the world’s largest energy consumer, has one of the largest fleets of tankers and its own insurance companies, which will allow Beijing to operate outside the confines of the G7.

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Vakulenko wrote that if China, India, or other Asian governments refuse to cooperate, the G7 must decide whether to impose sanctions on its largest trading partners and “risk an economic war on several fronts.”

Meanwhile, Russia has threatened to stop the sale to any country that adheres.

Xi’s government also sees Russian oil and gas as a way to diversify supplies and reduce strategic risks from potential disruptions. Last year, China bought 20 percent of Russia’s crude exports, according to the International Energy Agency.

China rejects the sanctions already in place as improper because they were not imposed through the United Nations, where Beijing and Moscow have veto power as permanent members of the Security Council. But Chinese banks and companies practically complied, fearing losing access to valuable Western markets or the global financial system.

China or other countries are not prevented from buying Russian energy. But US President Joe Biden has warned Xi of unspecified consequences if Beijing helps Moscow evade sanctions.

Some Chinese companies are withdrawing from Russia, but Beijing appears to be looking for ways to take advantage of Moscow’s isolation.

Gazprom agreed last week to allow the state-owned China National Petroleum Corporation to pay Russian rubles or Chinese yuan instead of dollars. This works in China’s interest, as few other exporters accept the yuan, making Russia more likely to buy Chinese goods.

Access to low-priced Russian oil and gas has helped China stave off the inflation that rattles Western economies.

And while inflation in the 17 countries that use the euro currency rose to a record 9.1%, Chinese consumer prices rose only 2.5% in August, down from 2.7% the previous month.

Aside from the imports that appear in the official data, China may also buy Russian oil, along with crude oil from Iran and Venezuela, through traders in the Middle East.

The Wall Street Journal reported on August 29, citing anonymous traders, that traders in the port of Fujairah in the United Arab Emirates are mixing up shipments of sanctioned suppliers and transferring them between tankers at sea to disguise their source.

Elsewhere, exports to China from oil producer Malaysia exceeded the Southeast Asian nation’s GDP by a third, according to Bloomberg News, indicating that it is being used as a conduit for other supplies.

China gave Moscow an economic lifeline after Western sanctions over its 2014 seizure of Crimea from Ukraine, and agreed to buy Russian gas in a 30-year deal worth $400 billion. Moscow turned to Chinese state-owned companies to help pay for oil and gas development after Crimea-related sanctions cut Western funding.

On February 4, three weeks before Moscow attacked Ukraine, Beijing and Moscow announced a 30-year gas contract. This would increase annual Russian supplies to China by about 25 percent, the official Global Times newspaper said.

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