In the Russia-China Gas Deal, Did Putin Win?

FRENEMIES VLADIMIR PUTIN AND XI JINPING. PHOTOGRAPHER: ALEXEY DRUZHININ/AFP/GETTY IMAGES

137 MAY 21, 2014

By The Editors

So in striking a big new deal to supply natural gas to China, has Vladimir Putin outmaneuvered the U.S. and its European friends yet again? Much as Russia's president would like you to think so, not really.

Putin called today's accord an "epochal event." The governments'joint statement contained thinly veiled criticism of U.S. and European Union actions over Ukraine, inviting the world to view the deal in the context of that dispute. The timing is certainly no accident, and a closer relationship between Russia and China is hardly a matter of indifference to the rest of the world.

At the same time, this agreement to supply China with gas has been in the works for 10 years, and a deal had been widely expected this year. The two countries had been haggling mainly over price. The terms announced this week don't make the true price of the gas (including how much each will spend on the necessary pipeline infrastructure) explicit, but it appears that China will pay a bit less than Europe pays for Russian gas. If so, both sides have moved from their earlier positions in closing the deal.

If there's a winner, it's China. It used Russia's desire to send the U.S. and Europe a message as a lever to get both a better price and its preferred pipeline route for the gas. For his part, Putin has a big new customer for Russian exports, and can tell the U.S. and Europe that Russia is fine without the European market, thank you. China diversifies its energy supply -- among other things, it's keen to rely less on coal -- and does so on favorable terms. Expressions of solidarity about the drawbacks of democratic capitalism and the merits of other value systems are a bonus for both sides.

What the deal doesn't signify -- not yet, at least -- is a global realignment that puts the U.S. and Europe at a grave disadvantage. The tortuous history of Russia-China relations shows that their long-term interests are not complementary. Putin won't want Russia to depend on China any more than he wants it to depend on Europe. Anyway, the gas exports in the new pact, once onstream in 2018, will be about a quarter of what Russia sells to Europe. Even if the deal is enlarged later, the idea that Russia can now get along fine without the European market is nonsense.

Russia will have every reason to repair relations with Europe once the crisis in Ukraine has passed. In the meantime, Europe should use the leverage it has. So far as Ukraine is concerned, the new deal doesn't change Europe's calculation. For the longer term, Europe already knows it has to diversify its energy supplies. The new agreement only underlines the point.

Yes, it's always cause for concern when two tyrannical governments, presiding over such big and powerful countries, deepen their ties and find new ways of cooperating. In this case, however, the new alliance is unlikely to change the underlying logic of a longstanding rivalry.

And for as long as this partnership lasts, it's worth noting that there's even a global benefit: It's in everybody's interest that China, whose share of worldwide greenhouse-gas emissions is rising fast, use less coal and more gas. Thank you for that, President Putin.

To contact the senior editor responsible for Bloomberg View's editorials: David Shipley at davidshipley@bloomberg.net.