China’s growing appetite for reduced Russian oil has made it the leading financier of the Kremlin war in Ukraine, giving Moscow a reliable source of revenue that dulls the impact of harsh Western sanctions on its economy.
Four months after Moscow’s invasion of Ukraine, China overtook Germany as Russia’s largest single buyer of energy, selling oil to China – and India, another Asian country hungry for energy – that helped fill the void left by Europe, Russia’s largest export market. .
China and India together bought about 2.4 million barrels of Russian crude oil a day in May, which is half of total Russian exports.
Despite being sold at big discounts, the purchases – along with rising oil prices – have allowed Russian revenues to rise in the face of Western pressure and given Moscow key financial assistance to continue funding its war efforts.
The purchase of cheap Russian oil has allowed China to diversify its reserves and given India a lucrative revenue stream by re-exporting refined products such as gasoline and diesel from Russian crude oil. At the moment, the purchase does not risk triggering secondary sanctions, while the current oil ban in the European Union is still partial, but the readiness of Beijing and New Delhi to buy Russian oil will be put to the test later this year when stricter measures take effect.
Meanwhile, Chinese President Xi Jinping hosted a virtual summit on June 22 and 23 for the leaders of Brazil, Russia, India, China and South Africa, known collectively as the BRICS, where condemned Western sanctions as the “arming” of the global economy and called for closer cooperation of the group.
Speaking at the summit, Russian President Vladimir Putin said the BRICS countries were “developing reliable alternative mechanisms for international settlements” and “exploring the possibility of creating an international reserve currency based on the BRICS currency basket.”
But how much can Moscow count on non-Western markets and partners, such as China and India, to help it deal with the consequences of sanctions?
To find out more, RSE / RL spoke with Maria Shagina, an associate at the British International Institute for Strategic Studies (IISS).
RSE: During the war in Ukraine, China has now become the largest buyer of Russian oil. What does this mean for the advancement of China-Russia relations and is it a sign of their deepening partnership or has Beijing simply made an opportunistic move to buy energy at a discount?
Marija Šagina: We have heard on several occasions that Russia and China have established a partnership without restrictions, and recently [on June 15]Xi reiterated support for mutual co-operation with Russia.
But we know that Chinese rhetoric and deeds are quite different and that has been clear since 2014. [when Beijing and Moscow deepened their ties at a faster pace]. China wants to take advantage of Russian isolation, including buying Russian cheap crude oil. But when it comes to violating Western sanctions, the Chinese private sector is usually quite cautious.
In this case we still don’t [Western] sanctions on Russian oil and an oil embargo from the European Union will begin on December 5th. So there is still this period of phasing out before sanctions are launched, and this is the time for China – and also India – to take advantage of the very cheap oil they can buy from Russia.
RFE: In addition to buying oil, China has shown itself to be very cautious when it comes to avoiding secondary sanctions imposed by the West on Russia. Should we expect Beijing to give more support to Russia in the future, especially when it comes to advanced technology like semiconductors?
Shagina: Chinese balancing is very delicate and, as the war progresses, it will be harder for Beijing to maintain this position of so-called “pro-Russian neutrality”, where they are officially neutral but lean towards Russia.
Since 2014, Russia has quite high expectations from Beijing to get involved in aid [with] this is very difficult [financial] situation for Moscow. The Kremlin has since had a more sober assessment of how realistically aid can be expected from China, but Russia is even now quite disappointed with China’s lack of support.
We know that there has been dissatisfaction on the part of Russia when it comes to the lack of Chinese support in terms of financial assistance and technology transfer after the sanctions hit [following the February 24 invasion]. These are two areas where Russia is now heavily dependent on China and other non-aligned countries for their support China will be one of the main countries to observe when it comes to helping to mitigate the impact of sanctions. It is not just about whether Beijing will provide any financial assistance, but also whether it will provide technology that is now under sanctions, such as chips and semiconductors.
The 2014 lessons tell us that the Chinese private sector is very risk-averse because it is so dependent on the U.S. dollar for transactions and tends to stay away from sanctioned Russian entities and even over-adhere to sanctions to be especially vigilant. So, in the current situation where we have an unprecedented number of sanctions in terms of their scope and their severity, I would say that they will be even more risk averse by the Chinese private sector.
But we need to know that state-supported institutions behave differently. In 2014, Chinese banks such as the Export-Import Bank of China and the China Development Bank collaborated with [Russian] companies like Novatek, Russia’s second-largest natural gas producer, to fund projects. Thus, there is room for support for sanctioned entities and individuals, but we need to be careful with the limited scope of that support.
RFE / RL: Xi Jinping hosted the BRICS summit and spoke about the group’s importance to the global economy, while Russian commentators have repeatedly said the group is key to blunting Western sanctions. Does the war in Ukraine give her the opportunity to finally realize her potential and play a more significant role?
Shagina: I think rhetorically there is a very strong narrative to reject the West, especially the United States and the EU, for their use of unilateral sanctions that are not supported by the UN.
India is another example [within BRICS] where Russia also wants to expand cooperation, but we have not seen much progress other than buying oil. For example, Russia put forward the idea of using different mechanisms for payment systems and alternatives to SWIFT, which has been blocked by sanctions. But none of these initiatives took off and they were mostly dormant.
I mean a rhetorical summit [was] an opportunity to resist American hegemony, but whether this will materialize into something greater remains to be seen.
RFE / RL: Is there anything you expect to happen regarding China’s economic involvement in Russia that you might think is coming or is worth watching out for?
Shagina: One area is semiconductors and wider technology transfers. This is something worth looking at to see if China will help. So far, U.S. officials have said, there has been no systematic support on the part of China, but whether China will be willing to supply them to alleviate this pressure of technological sanctions on Russia is not unbelievable given the level of partnership of both countries.
Another area worth watching is whether Chinese companies will help procure energy equipment that the EU’s ban on liquefied natural gas (LNG) and LNG equipment has lifted and that Russia cannot replace on its own. Since 2014, Chinese engineering companies have shipped up to 80 percent of this equipment, so there is room for China to step in to consolidate its positions and potentially secure additional funding for Chinese support. [energy] projects in the Arctic.
This interview is edited and summarized for clarity.
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