Russia has a China escape hatch as sanctions loom

February 3, 2022

The threat of economic sanctions against Russia is no deterrent. Vladimir Putin has a backdoor into China that will remain wide open whatever the West tries to do.

Putin will be the guest of honour this week at Beijing’s Winter Olympics, basking in his four-star rank as a “most trustworthy partner” of Xi Jinping’s regime.

Putin will be the guest of honour this week at Beijing’s Winter Olympics.Credit:AP

The family portrait will give us a glimpse of the new world alignment: Mohammed bin Salman will be there, reflecting Saudi Arabia’s changed role as China’s oil supplier; so will Egypt’s Abdel Fattah al-Sisi, guardian of Chinese container shipping through the Suez Canal.

Putin has already thrown caution to the winds and sold China SU-35 fighter jets and S-400 missile defence systems, aware that the Chinese will copy the technology. This is the sacrifice he must make in the East to wage his wars in the West.

Daniel Yergin, author of The New Map: Energy, Climate and the Clash of Nations, said the Sino-Russian rapprochement began as a marriage of convenience. The division of labour was clear: Russia was to provide oil, gas, coal, and raw materials (increasingly food); China was to provide manufactures, electronics, and investment capital.

It has since evolved into something more intimate, entailing joint naval manoeuvres in the South China Sea. Putin and Xi even cooked pancakes together in Vladivostok: caviar blinis washed down with vodka.

Needless to say, there is much insincerity in this pact of autocracies. Kadri Liik from the European Council on Foreign Relations says it is a “tricky relationship” in which Russia increasingly finds itself in the role of junior partner, at times compelled to submit. Beijing forced Russia’s Rosneft to cancel a drilling contract in waters off Vietnam in 2020.

Nor has China recognised the annexation of Crimea. Xi did later help Russia develop its liquefied natural gas hub in the Yamal Peninsula, nullifying the US-led embargo. But solidarity has not been carte blanche. There was no rescue for the Moscow-Kazan high speed railway. “China did not rush to break Western sanctions. And, where it sought to invest, it proved to be a tough negotiator,” said Liik.

It is revealing that Sergei Karaganov, eminence grise of Moscow diplomacy, has switched from cheerleader of “greater Eurasia” to sotto voce alarmist about Chinese ascendancy. Others fret that China’s decarbonisation drive is really a push to end reliance on imported fuel. “In five to seven years, they will not need us any more,” said one Moscow sinologist.

Vladimir Sorokin’s dystopian best-seller, Day of the Oprichnik, foretells a drunken, melancholic Russia reduced to captive dependency on Chinese goods, living off tolls from a superhighway for trucks rolling between China and Europe. This lurks in the Russian consciousness.

Whether Putin pulls the trigger depends in part on what Xi whispers in his ear at the Olympics. It is a fair bet that China will offer him a get-out-of-jail card, even if the West resorts to the financial nuclear option of expelling Russia from the Swift system of global payments.

President Joe Biden had justifiable grounds last year to attempt a “reverse Kissinger”, hoping to pull Putin away from China by softening the US line on the Nord Stream 2 gas pipeline. The gamble failed. Washington misjudged how far Putin is willing to go.

The escalating Sino-American struggle for global supremacy means that Xi is likely to go further than it did after the seizure of Crimea to help his Russian confederate.

Michael Allen, a former White House intelligence strategist, said Putin has an irresistible opportunity to overthrow the post-Cold War settlement and avenge the loss of the Soviet Union. “The chances are two in three that Russia will invade Ukraine in a major way,” he told a panel at Evercore ISI. We will know one way or the other by the end of February.

The dispute is not about specific pipelines or other secondary matters that colour much of the analysis. The goal is to extinguish Ukraine as a viable democratic model for the Russian-speaking sphere, and to assert a Kremlin droit de regard over former Tsarist lands, to which he has added Sweden – as if the Battle of Poltava were insufficient remedy.

Putin is well prepared. Russia has $US630 billion ($885 billion) of foreign exchange reserves (20 per cent in gold), a balanced budget, well-capitalised banks and has spent the last eight years cutting reliance on the West. The circumstances are as good as they will ever be. The White House is perceived to be Carteresque abroad and bogged down in a cultural civil war at home.

Rare events combined to cause an extreme global gas shortage, which Putin has exploited by restricting gas flows on and off since July. European storage is now at danger levels for this time of year, falling to 22 per cent in Austria and 26 per cent in the Netherlands. Shipments of LNG in January (half from the US) have weakened Putin’s energy weapon but not disarmed it.

Liquefaction plants in the US and Qatar are running flat out. There is not enough spare LNG to cover Europe’s needs in a full cut-off, even by outbidding the likes of India or Bangladesh for scarce supplies. Germany has no LNG terminals and has just shut down three young nuclear reactors for ideological reasons.

China could link up with Russia’s financial message system (SPFS) through the cross-Border Interbank Payment System in order to keep trade and capital flowing, and link its UnionPay credit card system with Russia’s national card (Mir) if Visa and Mastercard are suspended.

No matter what the West does, China will keep buying Russia’s oil.Credit:Bloomberg

China is the world’s top importer of crude oil. It will continue to buy Russian barrels as well as LNG gas, rendering global sanctions on Russian energy unenforceable and useless.

Talk of economic sanctions in European capitals is an evasion of the real issue confronting the West. Only fear of well-armed Ukrainian resistance will change Putin’s calculation at this juncture, and that comes down to the flow of NATO anti-tank and anti-aircraft missiles.

It requires all NATO states to lock shields together like a hoplite phalanx. The US, UK, Canada, Holland, Poland, the Nordics, the Baltics and Spain are holding the line. The Carolingian core is prevaricating, and Germany’s ruling Social Democrats are signalling that they will do almost nothing that might endanger gas supplies.

Of course, the doves may be right about the risks. One feels a pang of unease at the headline “Bravo Boris” splashed across the front page of the Kyiv Post. The British nation is being committed without the proper focus of Parliament, currently distracted by cakegate at the most dangerous moment of European politics since 1945.

As Putin said on Tuesday: “Are we supposed to be at war with NATO? Has anyone thought about this? Apparently not.”

It is time people paid more attention.

Telegraph, London

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Russia has a China escape hatch as sanctions loom

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