Explaining the 2014 Sino–Russian Gas Breakthrough: The Primacy of Domestic Politics

Abstract

On 21 May 2014, during a state visit by President Vladimir Putin to Beijing, China and Russia signed a $400 billion, 30-year gas deal. Under this agreement, China will import 38 billion cubic metres of natural gas from Russia’s Gazprom, beginning in 2018. Why, after 15 years of stalemated negotiations, did this breakthrough occur in 2014? Why did a natural, symbiotic gas relationship not develop earlier and more gradually? Most studies explain this by looking at Russia’s international isolation post Ukraine. Based on interviews with both Chinese and Russian officials this article argues the following: domestic incentives, rather than foreign-policy pressures, are the real force behind the timing of Sino–Russian energy breakthroughs in 2014.

Why did the breakthrough in Sino–Russian energy cooperation come about in 2014? The long-running discussions over the gas deal had involved the price, the pipeline route, and Chinese stakes in Russian projects. In the end, more than 50 separate documents were signed. In Shanghai, President Putin boasted that the deal was ‘the biggest in the history of Russia’s gas industry’. ‘China and Russia: Best Frenemies’, The Economist, 24 May 2014.View all notes Russian foreign policy and security expert Andrei Kokoshin concurred: ‘China and Russia are moving towards a tighter alliance, one that is no longer only declaratory but is acquiring truly strategic depth’. Andrei Kokoshin, Russian international relations scholar, Moscow, Russia, 23 May 2014.

Relations, however, have not always been so rosy. The 1960 Sino–Soviet split, which came to an end with the implosion of the USSR in 1991, prevented the two communist giants from cooperating for almost 30 years (Garnett 2000Garnett, S. W. (2000) ‘Limited Partnership’, in Garnett, S. W. (ed.) Rapprochement or Rivalry? Russia–China Relations in a Changing Asia(Washington, DC, Carnegie Endowment for International Peace). [Google Scholar]; Hopf 2002Hopf, T. (2002) Social Construction of International Politics: Identities and Foreign Policies, Moscow 1955 and 1999 (Ithaca, NY, Cornell University Press). [Google Scholar]). Beijing expressed interest in Russian oil as early as 1996, when then President Boris Yel’tsin visited China for the second time. The atmosphere was cordial, but no energy deals accompanied the amicable rhetoric. It was obvious that rebuilding the long-stalled relationship would take time. Finally, in 2009, the two sides sealed a multi-billion-dollar oil deal. ‘China, Russia Strike $25 Billion Oil Pact’, Wall Street Journal, 18 February 2009.View all notes Ever since, oil cooperation has continued to grow in scale and profits, at pace with China’s insatiable growth and its overarching desire to ensure affordable and reliable oil supplies. With regard to gas, however, for more than a decade there seemed to be no way out of the price impasse. Then, abruptly, in 2014 Sino–Russian natural gas cooperation took off. To many observers, it was a sudden and astonishing turnaround.

Hence, the analytically interesting question is why the oil relationship flourished in line with a revived Sino–Russian economic and political dynamism In 2016 Putin and Xi met no fewer than five times. In the last decade their worldviews and national identities have converged on a number of strategic issues including Asia-Pacific security, Iranʼs nuclear programme, Syria, and other global hot spots. Trade between Russia and China grew rapidly from 2010 to 2012 and stabilised at around $90 billion in 2013. For a more detailed discussion, see ‘Russian–Chinese Trade and Economic Cooperation in 2013–2014’, Russian–Chinese Dialogue: The 2015 Model (Moscow, Russian International Affairs Council, 18/2015, pp. 13–20).View all notes while the gas relationship stagnated for more than 15 years? Why, despite perfect economic compatibility, cooperation in gas did not come about sooner? Why has the gas relationship become so politicised? To explain the May 2014 gas deal, which I consider a decisive transformation in the two countries’ gas trade relationship, this article draws attention to the role of domestic forces in both countries with regard to the decision to sign the gas deal. This framework is then used to provide some cautious predictions for the trajectory of Sino–Russian energy ties in the foreseeable future.

To explain why 2014 was such a turning point in Sino–Russian natural gas relations, I draw on data from a variety of sources. Some are open-source analyses appearing in specialised academic and industry publications, others are documents and statistics in the public domain. Given the secrecy that usually surrounds such contracts and the two governments’ lack of openness on strategic questions involving energy security, I faced predictable constraints in accessing detailed information. To some extent, however, I overcame these limits through interviews with energy specialists, most of whom have been involved in the discussions revolving around Sino–Russian cooperation in gas and oil. To address this important topic, underexplored in the broader discipline of international political economy (IPE), more than 20 in-depth semi-structured qualitative research interviews were conducted in Moscow and Beijing between July 2013 and February 2016. Each of which lasted between one and two hours. All interviews were recorded and transcribed and transcripts were reviewed using a grounded theory approach.View all notes I interviewed senior energy experts, gas executives, academics, and officials involved in the Eurasian gas trade, as well as Russian and Chinese diplomats. While experts were primarily chosen according to their specific position, I also used ‘snowball’ sampling, that is, personal references from interviewees to identify additional respondents. Public figures—including appointed and elected officials and well-known political observers—are identified by name, except in cases where they asked to remain anonymous. All other respondents, including energy industry insiders, remain anonymous and are identified only by the nature of their expertise. Interviews allow respondents to present their own notions of who they are, what matters to them and why, and how they decide on their particular interests, without being classified according to the researcher’s prior biases and interpretations. Intentions and/or notions of appropriateness are difficult to observe. However, if interviewing is done carefully, with attention paid to where the interviewee fits into the decision process, with follow-ups, with careful wording of questions, with sensitivity to the interpersonal dynamics between interviewer and interviewee, and with triangulation interviews with others, one can reduce some of the measurement error that inheres in using face-to-face self-reporting of intentions behind actions (Johnston 2008Johnston, A. I. (2008) Social States: China in International Institutions, 1980–2000 (Princeton, NJ, Princeton University Press).[Crossref], [Google Scholar], p. 43). Instead of relying only on interviews as indicators of ‘the primacy of domestic politics’ or the ‘domestic factor’, the article triangulates various sources, such as texts in Russian, documentary sources, secondary literature, and interview material to infer the presence or absence of specific effects. The analysis, as is the case with the conventional explanations that it engages, is primarily interested in drawing causal inferences between stipulated effects and observed behaviour.

Based on a review of the literature (Paik 2012Paik, K.-W. (2012) Sino–Russian Oil and Gas Cooperation—The Reality and Implications (Oxford, Oxford Institute for Energy Studies). [Google Scholar]; Henderson 2015Henderson, J. (2015) ‘Competition for Customers in the Evolving Russian Gas Market’, Europe-Asia Studies, 67, 3.[Taylor & Francis Online], [Web of Science ®], [Google Scholar]; Chow & Lelyveld 2015Chow, E. & Lelyveld, M. (2015) ‘Russia–China Gas Deal and Redeal’, CSIS Commentary, 11 May. [Google Scholar]), analysis of the available macroeconomic and industry data, and the interview data described above, I draw a number of conclusions as to how domestic politics influences foreign-policy decision-making. A growing body of empirical literature (Mansfield & Pollins 2001Mansfield, E. D. & Pollins, B. M. (2001) ‘The Study of Interdependence and Conflict: Recent Advances, Open Questions, and Directions for Future Research’, The Journal of Conflict Resolution, 45, 6.[Crossref], [Web of Science ®], [Google Scholar]; Lake 2007Lake, D. A. (2007) The State and International Relations, 28 June, available at:http://ssrn.com/abstract=1004423, accessed 18 October 2017. [Google Scholar]; Freire 2012Freire, M. R. (2012) ‘Russian Foreign Policy in the Making: The Linkage between Internal Dynamics and the External Context’, International Politics, 49.[Crossref], [Web of Science ®], [Google Scholar]) indicates that the effects of interstate economic intercourse depend on the linkages between various domestic and international factors. Domestically, national identities can have profound effects on interests and policies (Tsygankov 2001Tsygankov, A. (2001) Pathways after Empire: National Identity and Foreign Economic Policy in the Post-Soviet World (Lanham, MD, Rowman & Littlefield). [Google Scholar]; Abdelal et al. 2009Abdelal, R., Herrera, Y., Johnston, A. I. & McDermott, R. (2009) Measuring Identity: A Guide for Social Scientists (Cambridge, Cambridge University Press).10.1017/CBO9780511810909[Crossref], [Google Scholar]).

Thus, the answer to ‘why now?’, I propose, lies in domestic preference formation. For Russia, the revived ideational paradigm of Eurasianism (Weygandt & Katzenstein 2017Weygandt, N. & Katzenstein, P. J. (2017) ‘Mapping Eurasia in an Open World: How the Insularity of Russia’s Geopolitical and Civilizational Approaches Limits Its Foreign Policies Perspectives on Politics’, Perspectives on Politics, 15, 2.[Web of Science ®], [Google Scholar]) consists of several domestic elements, the most important of which are a strong image of the West as a hostile opponent and an emphasis on Russia’s Eurasian great-power status. As a Eurasian power, Russia looks to the dynamic Asia-Pacific region as its engine of future growth. Other elements of this new paradigm are a centralised state apparatus, state control of major strategic physical resources (metals, energy, oil and gas, the weapons industry), and the military and police forces. This reflects an ideational change toward rekindled interest in supporting a massive security apparatus and the militarisation of the society, a further strengthening of the ‘vertical of power’ and the concept of ‘managed democracy’, a veneer of democracy that barely masks lingering authoritarianism (Nygren 2012Nygren, B. (2012) ‘Using the Neo-classical Realism Paradigm to Predict Russian Foreign Policy Behavior as a Complement to Using Resources’, International Politics, 49.[Crossref], [Web of Science ®], [Google Scholar]; Tsygankov 2013Tsygankov, A. (2013) Russia’s Foreign Policy; Change and Continuity in National Identity (Plymouth, Rowman & Littlefield). [Google Scholar]). The central argument of the article is that, although the majority of Western observers of Russian foreign policy portray its international resurgence largely in realist terms, the constructivist approach offers better insight into the timing of this turning point in Russian foreign policy, which occurred despite an absence of improvements in Russia’s material capabilities.View all notes Such views, underlying the deteriorating relations between Russia and the West, reached their apex in the aftermath of the Ukraine crisis. In turn, the biggest beneficiary of Russia’s standoff with the West has been China: in 2014, Russia was finally prepared to make substantial concessions to conclude the long-anticipated Sino–Russian gas deal.

Moreover, as the article demonstrates, the present ideational basis for Chinese foreign policy also reflects a changed set of social constructions. Shortly before the Sino–Russian deal was reached, efforts to address environmental degradation had been replacing economic growth as China’s main social concern (Rosen & Houser 2007Rosen, D. S. & Houser, T. (2007) China Energy: a Guide for the Perplexed, White Paper (Washington, DC, Peterson Institute for International Economics). [Google Scholar]), as the government became engulfed in widespread air-pollution motivated social protests across the country (Wang 2014Wang, T. (2014) ‘China’s Energy Future at a Crossroads’, Carnegie Endowment for International Peace, 17 March, available at:http://carnegietsinghua.org/2014/03/17/china-s-energy-future-at-crossroads/h4g2, accessed 18 October 2017. [Google Scholar]). In other words, in China one set of social constructions replaced the other. In the words of Chinese international relations scholar Jia Qingguo, ‘in the old days, pollution has always been secondary to economic growth, now the environmental factor is becoming a larger social concern, especially in the last few years’. Author’s interview with Jia Qingguo, Beijing, 5 August 2013. See also ‘2013 Will be Remembered as the Year that Deadly, Suffocating Smog Consumed China’, Quartz, 19 December 2013.View all notes Russian overtures came at a time when China was seeking additional gas as a cleaner fossil fuel in response to disruptive air pollution. With higher use of gas, China hoped to address environmental problems by offsetting the use of coal in power generation, a major air pollutant responsible for China’s status as the world’s biggest emitter of energy-related carbon dioxide.

Proponents of allowing the deal to go through (such as the National Development and Reform Commission (NDRC) and China’s major energy companies Sinopec and China’s National Petroleum Corporation (CNPC)) emphasised the broad benefits in combating climate change and China’s struggle with air pollution. After a period in which the NDRC had been limiting the approval of coal-to-natural gas projects and their supporting projects from local governments, the worsening of air pollution in China in 2012 led the government to change its stance. In the first month of 2013 the NDRC started promoting both domestic generation and large-scale imports of natural gas, as demonstrated by NDRC’s 12th Five-Year Plan (2011–2015). However, domestic coal-to-gas projects as well as shale gas exploration are expensive and hindered by the big national oil and gas companies who own the transmission network and the land. Given such constraints, as China’s gas demand has steadily risen both the government and major NOCs supported the notion that Russia would inevitably loom large as a reliable and affordable gas supplier.