Russia’s energy policy is well positioned to benefit from Eurasian energy trading.
On the one hand, Russia can trade with European oil importing countries. The other alternative is the economically strong East Asian region.
1. Russia’s history shapes its current energy policy
The history of Russia determines the actions of the country to this day. Due to its location in the European plain, Russia is exposed to strong nations in the West. Geopolitically, it has secure borders in the south, east and especially in the north. Russia’s geography also determines its energy policy. There are large energy reserves in the north and east of the country, some of which have not yet been fully recovered. Permafrost has frozen the oil and gas deposits in northern Siberia, but the true wealth of Russia’s raw materials is only slowly coming to light.
It should be noted here that Russia actually uses its energy reserves very strategically. Until recently, Russia was also able to secure political influence in Eastern and Central Europe by exporting its huge oil and gas reserves. This has not always been economically advantageous for Russia. Nevertheless, gas transit allowed countries like Ukraine to collect transit fees that provided a good income. It also contributed to the state budget.
2. Nordstream 2 is a major Russian energy project with some political dimensions
The construction of NordStream 2 through the Baltic Sea and the commissioning of the new natural gas pipeline, which will transport natural gas from the Leningrad region to Lubmin on the island of Rügen, will eliminate a large part of the transit fees. However, the contractors have indicated that the commissioning of NordStream 2 will not lead to a reduction in natural gas supplies for gas deliveries send through Ukraine and Poland. For transit countries, the elimination of transit fees is a bitter loss, prompting them to show their displeasure and support the U.S. over Russia and Germany to stop construction of Nordstream 2.
3. China is becoming increasingly important as a buyer of Russia’s oil and gas
It is already foreseeable that due to China’s growing economic influence in East Asia, an ever larger share of fossil fuels will find buyers in the Chinese market, if only because of China’s increasing purchasing power. It must be said that Russia has not made a good deal with the Chinese regarding the supply of natural gas to China for the next 30 years. It appears that the price negotiated by Russian energy companies is far below Russia’s expectations, and it is already clear that the new Power of Siberia pipeline will not be as profitable for Russia. Russia may see lower revenues from natural gas exports to maintain its government spending. So for now, Europe remains the most important market for Russian oil and gas, but that may well change in the long run. We went into more detail on Russia’s energy policy vis-à-vis Europe in another article. But that doesn’t make a dent in the overall plot: China has become the energy hub of Eurasia and everything in between. And energy commodities are now pivoting to East Asia.
The Russian bear likes honey very much, let’s not sugarcoat it, but the Russian bear has much more oil, and is picky about who he does business with.
Many thanks for the shared interest in the energy world!