Pushing East

            In June of 2013 Russian oil giant Rosneft inked a deal to supply China with $270 billion worth of oil over the next twenty five years. This was just one in a number of substantial deals negotiated between Putin and Hu Jintao.  While the shear value of the deal is momentous in itself, the move exemplifies a growing trend of Russia looking to engage in business dealings with its eastern neighbors rather than the ones to their west. Russia currently sends 15 million tons of oil to China through the Eastern Siberia Pacific Ocean pipeline that opened in 2009. This number is now set to double. The agreement will also result in increased invest and development in Eastern Siberia to meet growing demand. The long-term consequences of this deal are difficult to predict. What we can be certain of is that these deals, along with a number of other energy agreements, exemplify growing ties between Russia and China.      

            As the Kremlin attempts move away from its reliance on European imports of energy it leaves European nations in a precarious situation. Last July, Russia shipped merely 2.1 million barrels of oil to European Union (EU) nations. This is was a ten-year-low. This seems to be part of Russia’s overall strategy to shift export to satisfy rising demand in China and away from sinking demand in Europe. The consequence of this action is that it is forcing EU refineries to pay an even higher price for its energy resources. Because the Kremlin now has a steady export market for its energy resources, they now possess greater advantage in negotiations with EU nations. Gennady Timchenko, a majority owner of Novatek commented on a separate deal his company signed with China at the St. Petersburg International Economic Forum saying, [t]oday, we are going to sign an agreement for delivering [LNG] to China, and I think this will send a signal to the Europeans about how to operate in this sphere.”   

            While the slew of energy deals Russia is making with China is showing a shift in the Kremlin’s international trade policy some of the agreement will possibly encounter some of the same issues EU nations had when dealing with their massive energy neighbor. For example, China has agreed to help finance a number of energy projects including a gas pipeline and the two nations have even formed a Russia-China Investment Fund. The presidents of the two countries have set a goal of raising the level of bilateral trade from $83.5 billion in last year to $200 billion by 2020. These joint project will likely will bring up issues regarding investor security. Possibly, in response to the anticipated and realized international investment, Russia’s Duma has adopted Resolution No. 62 regarding the liability of a company’s officers. The main provisions of the resolution (1) extend the range of persons to whom liability will apply, (2) sets out rules defining the burden of proof and (3) listed the main circumstances where a director will be liable for damages. This law may offer some clarity to Chinese and other international investors who want to ensure there is a remedy they can seek in Russian courts for director malfeasance. While the influx of foreign capital will be seen as a positive inside the Kremlin questions still remain as to what will happen if issues arise during the course of an agreement.  

Sources

Ajay Makan, Russian Oil Shipments to Europe at 10-year-low, Financial Times, (July 3, 2013) available at, http://www.ft.com/intl/cms/s/0/e2e95fc2-e3f3-11e2-91a3-00144feabdc0.html#axzz2edgKqMbP.   

White & Case, Liability of a Company’s Officers, (Aug, 2013) available at, http://www.whitecase.com/files/Publication/1aa33536-5bce-4214-889c-a38fe91e6b03/Presentation/PublicationAttachment/8ce5e68b-fb75-4f35-a145-afb32c738d8b/alert-liability-of-a-company-s-officers-august-2013-english.pdf.

Stephen Blank, Pipeline to Nowhere: The Beijing-Moscow Dance Continues, World Affairs, (Apr – Jun, 2012) available at, http://www.worldaffairsjournal.org/article/pipeline-nowhere-beijing-moscow-dance-continues.

Courtney Weaver & Neil Buckley, Russia and China Agree $270bn Oil Deal, Financial Times, (Jun 21, 2013) available at, http://www.ft.com/intl/cms/s/0/ebc10e76-da55-11e2-a237-00144feab7de.html#axzz2edgKqMbP.

Yuri Kogtec, Latest Oil Deal Making Russia Dependent on China, Russia Beyond the Headlines, (Sep 1, 2013) available at, http://rbth.asia/world/2013/09/01/latest_oil_deal_making_russia_dependent_on_china_48667.html