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Russia and China Vie for Oil, Influence - 2004-09-29

Rivals for decades, Russia is keeping a close eye on its neighbor China's diplomatic offensive, in particular in Central Asia, as well as its quest for energy sources. But this past week, Russian officials had only praise for Beijing and a Russian-Chinese relationship both sides say has reached "unprecedented new heights."

Russia and China are currently celebrating what they call the "year of Russian-Chinese friendship," and this month marks the 55th anniversary of the establishment of Russian-Chinese diplomatic relations.

Russian Prime Minister Mikhail Fradkov says the bilateral relationship, already experiencing new-found heights, is still on the ascent. His Chinese counterpart, Wen Jiabao, says the two nations must never again be hostile to each other.

But beneath the surface, some analysts say the relationship is not as free of conflict as these comments might suggest. Vassily Mikhaiyev, the Moscow Carnegie Foundation's Asia scholar in residence, says Russia, on occasion, still harbors deep-seated suspicion of China, especially over its ever-expanding forays into the regional and global political arena.

"The main strategic problem in our relations with China I mean [is that] Russian leadership is not yet ready to perceive China as an equal global, political and security partner. O.K. Russia perceives China as global economic partner. That's true," he said. "Russia is ready to cooperate with China in fighting against terrorism, drug-trafficking and other new security threats. But Russia is not yet ready to perceive China as an equal, strategic and political power. And China, in its turn, is developing dialogue with the G-7 on financial issues. Russia is [a] member of G-8. China [also] tries to establish dialogue with NATO in cooperation with suppressing new threats, and events cooperation and military technology field. So, all these things can provoke some kind of political jealousy among Russian political elite."

Mr. Mikhaiyev says these same political elite also express frustration over what they see as China's growing political and economic influence in Central Asia, long a zone of traditional Russian influence.

But Mr. Mikhaiyev said he does not agree with other Asian analysts who suggest that this new-found rivalry could signal a possible return to the sometimes adversarial Russian-Chinese relationship of the Soviet past. Mr. Mikhaiyev says the two sides need only focus on improving contacts to better advance their relations.

"We, I mean Moscow-Beijing/Russia and China, need to add to traditional diplomacy new types of diplomacy," he said. "I would like to say this is elite diplomacy. We need more contacts, more discussions among political, economic, military, security and academic elites between Russia and China. What we have now is old Soviet-style committee for friendship between two countries. But it doesn't work in [the] new conditions."

Mr. Mikhaiyev says without such a change in diplomatic contacts, he fears the two nations will fail to achieve all that he says their common interests and natural resources would seem to suggest.

The Deputy Director of the Russian Academy of Sciences' Institute of Far Eastern Studies, Vladimir Portiakov, also predicts that friendship, rather than rivalry, will win out in the end.

"I think that now both sides are in the process of formulating or defining their final position. Of course, we are not enemies," he said. "We are trying to be cooperative and [the] final result will inevitably be cooperation."

But the Director of Russia's independent Institute of Globalization Problems, Mikhail Delyagin, is not so optimistic. Mr. Delyagin says he worries Russia may face possible economic and political repercussions in its long-term relations with China, especially over the latest hitches in bilateral energy cooperation.

Mr. Delyagin says Russia has blundered twice in his view. First, he says Russian government officials invited China to take part in a privatization bid for one of Russia's largest oil companies [Slavneft] and then later retracted the offer, causing China considerable domestic embarrassment.

He says Russia then erred a second time by failing to make a prompt and definitive offer to build an oil pipeline linking Siberian oil fields to North Asia, in order to expand Russia's future energy cooperation with China.

The two nations have been locked in negotiations over the future course of the pipeline for more than a decade. And in recent years, as a result of the lengthy delay, China has begun to look increasingly toward other potential suppliers and partners, such as Kazakhstan.

China's worry about access to fuel intensified in the past week when Russia's troubled oil company, Yukos - China's sole supplier of crude - announced it was suspending some shipments to China by the end of September. Yukos officials said the company could not pay the necessary transport costs and meet their multimillion dollar tax obligation to the Russian government.

The company's former chief executive, Mikhail Khodorkovsky, and main Yukos shareholder Platon Lebedev, have been in jail for the past year on multiple charges of tax evasion and fraud. The Russian government has said all people from pensioners to oligarchs must be equal before the law. But many analysts in Russia and the West view the Russian government's moves against Yukos as retaliation for Mr. Khodorkovsky's financing of opposition political parties.

The Russian Institute of Far Eastern Studies' Vladimir Portiakov says the Yukos announcement to cut delivery was nothing more than a political ploy aimed at embarrassing President Putin. The news broke two days before Russian officials welcomed Chinese Prime Minister Wen Jiabao to the Russian capital [last week] for talks that had been expected to focus on the growing Russian-Chinese relationship. But Mr. Portiakov says he does not think news of the Yukos supply cut will derail the expansion of Russia's bilateral ties with China, especially in the energy sector.

"I think this situation with Yukos will influence only [to a] small extent our bilateral cooperation, especially I should stress that the delivery of oil to another Chinese customer - company Sinatek - which takes the largest share of oil from Yukos company will go [on] as usual," he said.

Mr. Portiakov says Russian and Chinese officials are very aware that each needs the other to further their long-term strategic and economic goals.

Chief oil and gas strategist Chris Weafer of Moscow's Alfa Bank agrees cooperation is the most likely future trend between the two neighbors.

"The disputes concerning Yukos and other sorts of internal disputes have not been allowed to disrupt Russia's exports of either gas or oil and I don't think they would be allowed to be," he said. "President Putin understands that his main strategic weapon, as it were, is oil and gas - the fact that Russia can export a significant amount, and that Russia promises to be an even bigger supplier of oil and gas in the future. That is the main reason Russia continues to get other broader political and economic benefits and I don't believe that the government would do anything to put those exports at risk."

Mr. Weafer says the only positive outcome of the recent Yukos announcement to cut oil supply to China is that the company and the Russian government might "get to the end-game over Yukos quicker."

Aside from oil, Russia and China are working hard to expand their relationship in other spheres as diverse as banking, machine technology export, and space cooperation. They are also partners in the struggle against global terrorism and last week China gave its support for Russia's long-desired entry into the World Trade Organization (WTO).

Russian-Chinese relations get another chance at a boost next month, when President Putin travels to China.