Energy Buddies

11.13.14 2:19 AM ET

China Is Financing Putin’s Aggression

Russia’s economy is tanking, but Putin is sending long-range bombers on sorties in the Gulf of Mexico and combat troops into Ukraine—thanks to billions in new energy deals from Beijing.

President Obama may say China can be America’s “partner,” as he did Monday in Beijing, but the Chinese calculate their interests differently. The real partnership is between the Dragon and the Bear.

On Sunday in Beijing, on the sidelines of the Asia-Pacific Economic Cooperation summit, Russia’s state-owned gas giant Gazprom signed a contract to sell gas from western Siberia to China’s own state energy giant, China National Petroleum Corp.

The Gazprom-CNPC deal is not the only major recent Russia-China energy deal. Last October, state-owned Rosneft, Russia’s biggest oil producer, gave CNPC an equity stake in an oil field in eastern Siberia. This May, Gazprom and CNPC inked a 30-year, $400 billion gas pact, another landmark arrangement in what AFP has described as a rapidly expanding “energy alliance.”

And this week CNPC agreed to buy 10 percent of Vankorneft, a Rosneft subsidiary, which operates the lucrative Vankor oil field. As the Financial Times noted in September, the deal “represents a stunning change in strategy.” In the past, Russia brought in a foreign energy company only if it needed technology. For Vankor, Russia has all the expertise it requires, as the field is already in production. In short, it looks as if Russian President Vladimir Putin sold a stake to China because he needed cash quickly.

At the moment, the Russian economy is deteriorating fast. Last year, Russia’s gross domestic product underperformed all expectations, growing only 1.3 percent. This year, the country will manage only 0.2 percent growth, according to the IMF. With the price of oil dropping to three-year lows and the Saudis apparently driving oil down, Russia’s economy is heading for a severe—and probably prolonged—contraction.

But Russia still sent tanks, artillery, air-defense systems, and combat troops into Ukraine last week, said NATO’s supreme commander, U.S. General Philip Breedlove, on Wednesday. And long-range Russian bombers are about to begin patrols from the Arctic to the Caribbean, including the Gulf of Mexico, said Russian Defense Minister Sergei Shoigu. Sorties by nuclear-capable bombers had been discontinued in 1992 as the Cold War came to an end, but Putin resumed them in 2007.

These unwelcome events come on the heels of Putin’s threats in late August to use nuclear weapons to grab control of Ukraine.

So this is how the world is changing: China is financing Russian aggression.

Many argue that Beijing and Moscow have differing interests, and indeed, some of them are irreconcilable. They have quarreled more than cooperated over the last six decades. Yet in the last several years China and Russia have joined together to oppose America and the rest of the international community.

And now, as Putin realizes he needs Chinese money, he is tying his economy to China’s, embracing Beijing like never before. As Kang Wu of FG Energy told Reuters of the China-Russia energy deals, “This will really cement their relationship in a big way, and the political implications are huge.”

A partnership between Moscow and Beijing is America’s No. 1 foreign-policy challenge. Washington has not faced two peer competitors since the end of World War II or a united China and Russia since the end of the 1950s. Today, Beijing and Moscow are working to make most of the world’s problems worse.

But we have the ability to make the world better. Ronald Reagan employed an economic strategy to get rid of the Soviet Union, intentionally forcing commodity prices downward to starve its military. At the moment, the same dynamic is at work, but largely the result of market forces, not intentional policy in Washington.

In the next few years, before Chinese money flows in great quantities to the Russians pursuant to the newly signed deals, Putin is vulnerable. Without firing a shot, we can save Ukraine—and end bomber patrols off our shores.

After all, it’s been done before.