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Russia Cuts Crude Exports To China And India By 17%

China's "No Limits" Friendship with Russia is Beginning to Crumble

In a joint communiqué on 4 February 2022, China and Russia stated that: "Friendship between the two States [China and Russia] has no limits, there are no forbidden areas of cooperation." This followed the first in-person meeting between Chinese President Xi Jinping and his Russian counterpart Vladimir Putin for nearly two years, at the opening of the Winter Olympics ceremony in Beijing. Just over two weeks later, Russia invaded Ukraine in what most observers at the time believed would be a conflict lasting two or three days before Putin's forces secured an easy victory. However, as the fighting continued and became bogged down in fierce urban warfare across several major cities, the first sign emerged that China's relationship with Russia might not be as limitless as Putin imagined it to be. Xi held urgent talks with Putin and advocated peaceful negotiations between Russia and Ukraine, as analysed in full in my new book on the new global oil market order. At the same time, China's then-Foreign Minister Wang Yi told senior European officials that China respects countries' sovereignty, including Ukraine's. These strong and swift interventions by China shocked Putin, according to a senior Moscow-based source close to the Russian government and another senior source in the European Union's (E.U.) energy security complex, both exclusively spoken to at the time by He had apparently been certain before the invasion that China would stand by Russia whatever it did, in line with the 'no limit' friendship joint communiqué. According to the same sources spoken to again by last week, following new sanctions imposed by the U.S., U.K, and E.U. in recent weeks, with more to come, Putin is facing even more limits on the support he can expect from China.

At the most recent meeting between Xi and Putin on 16 May in Beijing, the Russian leader would already have been aware that the power dynamic between the two countries had markedly shifted not just from where it was before China's rapid economic growth from the mid-1990s but also from where it was even before Russia invaded Ukraine. In economic terms, China's GDP is now over ten times the size of Russia's (US$20.2 trillion in 2023 versus US$1.9 trillion). Militarily, Beijing spends nearly three times more than Russia (US$296 billion last year compared to US$109 billion). And politically, China's degree of influence across the world has continued to expand, most notably through its 'Belt and Road Initiative' (BRI) and its now de facto leadership of the Shanghai Cooperation Organization (SCO), as also detailed in my new book on the new global oil market order. The SCO has become the world's biggest regional organisation both in terms of geographic scope and population, covering 60 percent of the Eurasian continent (the biggest single landmass on Earth), 40 percent of the world's population, and more than 20 percent of global GDP. The operational scope of the SCO ranges from collective security and military cooperation (in the mould of the North Atlantic Treaty Organization, 'NATO') to economic union (in the manner of the European Union 'EU'). 

In philosophical terms, the SCO can reasonably be said to still believe in the idea and practice of the 'multi-polar world'. However, following the economic decline seen in China through its Covid years, and the increased political cohesion between the U.S. and its key security alliance partners in the West and East after Russia's invasion of Ukraine, Beijing is aware that it must tread lightly in any attempts to challenge the U.S. and the West directly, as also analysed in full in my new book on the new global oil market order. The idea that China will overtake the U.S. as the world's leading economy by GDP in the next ten years or so now looks increasingly fanciful. Militarily, China also knows that the U.S. has been an economic superpower for well over 100 years, which means that Washington has been spending a lot more money on a lot of things that matter militarily - personnel, technology, communications, global political connections - for a lot longer than Beijing. It has also fought many more wars, giving it much greater operational awareness than China and a command and communications coordination capability far greater than that of either Beijing or Moscow. Even now, the U.S.'s military spending per annum is more than three times that of China's, at over US$916 billion. In sum, in a direct non-nuclear confrontation with the U.S., the high likelihood is that Beijing would lose, and would lose quickly. Moreover, the ability to date of the U.S. and its allies to leverage their influence in key Middle Eastern states to stop the Israel-Hamas War from escalating across the region - at the same time as supporting Ukraine in its fight against Russia - still shows that the Western alliance can deal with at least two ongoing wars simultaneously. It does not appear out of the question that the alliance could even deal with three such conflicts should China indeed try to invade Taiwan by 2027.

Given this and China's still-vulnerable economy, Putin will likely have been aware that the latest joint communiqué of 17 May 2024 - underlining a "new era" of opposition to the U.S.'s hegemony in several key issues - is just words. In the world of realpolitik, U.S. Secretary of State Antony Blinken made it clear during his recent trip to Beijing that China is "helping fuel the biggest threat" to European security since the Cold War by exporting technology and components essential for Russia's ongoing conflict in Ukraine. Privately, according to the Russian and E.U. sources spoken to by, the U.S. has expressed the same concerns about such technology transfers being used by Russia through its Iranian proxies Hamas and Hezbollah in the Middle East. "China's insistence that these exports are used solely in a regular commercial capacity cuts no ice with anyone, and this is a sharp red line now [for the U.S., U.K., and E.U.," the E.U. source exclusively told last week. As part of what will be a laddered approach of escalating sanctions from now on, depending on how China continues to act regarding Russian aggression in Ukraine and the Middle East, is the U.S.'s slew of new sanctions against Beijing and Hong Kong-based banks and companies that work with Moscow in allegedly helping to evade existing sanctions. "The same applies to the new E.U. tariffs on China's electric-car makers - a major growing part of its economy - and these can be ramped up at any point," the E.U. source added. 

These signals of a greater cohesion between the U.S., the other four members of the 'Five Eyes' security alliance (the U.K., Australia, New Zealand, and Canada), the E.U., and allies in the East, to act in concert continue to isolate Russia and any country that meaningfully enables it, is likely to see the China-Russia relationship increasingly limited, and favouring Beijing, not Moscow, highlighted the E.U. source. "China wants oil and gas from Russia, which it will continue to get," he said. "It also wants the yuan to be the key trade currency between the two, which Russia has also now agreed, despite previously wanting a joint rouble-yuan basket structure," he added. "And China wants the latest military and space technology from Russia, which Moscow had been unwilling to share up until recently, but now it is cooperating with that as well," he underlined. "Russia, on the other hand, is going to increasingly find that all it gets back from Beijing is money for the oil and gas it supplies, which the U.S. and E.U. is happy enough with for the moment, as it continues to take the edge out of global energy prices," he concluded.

By Simon Watkins for

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Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for… More