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Russia: Moscow Testing China's Patience On Oil Exports

China is showing signs of aggravation and impatience with Russia and Japan over their competing plans for oil pipelines in the Far East. After the first friendship treaty in 50 years, Beijing is letting it be known that Moscow should honor its accord to build an energy link from eastern Siberia to China rather than Japan.

Boston, 26 February 2003 (RFE/RL) -- China is waiting with waning patience for Russia to end its debate over who will control its oil exports and where they will go.

In an unusually blunt article this week, the official Communist Party newspaper, "People's Daily," is drawing attention to the unresolved question of whether Russia will build an oil pipeline to China, in accordance with bilateral pacts.

The question has gained urgency for Beijing with concerns about cuts in Middle East oil during a possible war with Iraq. China gets more than 46 percent of its imported oil from the Persian Gulf, primarily from Saudi Arabia, Iran, and Oman, according to the Reuters news agency.

Pushed by the same concerns, Japan has tried to convince Moscow that its eastern Siberian oil should flow through a longer pipeline to the Far East port of Nakhodka instead. China has grown increasingly upset by what it calls Moscow's "vacillating" between the two suitors for Siberian oil.

This week, "People's Daily" notes that Russia signed an accord for an oil pipeline from Angarsk in the Irkutsk region to China's Daqing oil center in July 2001. The paper said pointedly, "Thus, there should have been no more suspense regarding who will be the purchaser of oil in [the] Far East."

The report glossed over the fact that the framework agreement for the $1.7 billion project came during President Jiang Zemin's summit with President Vladimir Putin in Moscow, where the two countries signed their first friendship treaty in 50 years. But friendship counted for little after Japan offered to buy one-fourth of its oil imports from Russia during Prime Minister Junichiro Koizumi's visit to Moscow in January of this year.

Japan's tempting bid coincided with an internal battle between Russia's Yukos oil company, which planned the pipeline to China, and the state pipeline monopoly Transneft, which backed the Nakhodka route. The 3,800-kilometer alternative would cost a staggering $5 billion, which Japan has shown some willingness to finance.

Transneft pegged the plan for a privately run Yukos pipeline to China as a ploy to break its monopoly and argued that Russia's oil should reach multiple markets from the Pacific port. Transneft has persisted, even though analysts argued that eastern Siberia does not have the 1 million barrels per day needed to fill such a long and large line.

After months of conflict, the dispute seemed resolved in mid-February when the Russian Energy Ministry urged the government to split the difference between the two plans by building the 2,400-kilometer line to China first to carry 600,000 barrels of oil per day. Russia would then add a link later from the Siberian city of Chita to Nakhodka with a 1 million-barrel capacity.

Last week, Japan's Kyodo news agency reported on an interview with Transneft spokesman Vyacheslav Tarbeev, saying the company now considers the Nakhodka plan "unprofitable," adding that priority will go to the China line instead. If that is Transneft's new and final position, it has yet to be confirmed.

China's comments in "People's Daily" are a sign that it does not see the matter as settled, and, in fact, it is not. The Russian government is scheduled to decide the issue at a 13 March cabinet meeting, giving it time to weigh China's stand. In the meantime, China has agreed to increase its more costly oil imports from Russia by rail.

Beijing kept largely silent after another affront in December, when the Russian government sold a controlling stake in the Slavneft oil company and invited the China National Petroleum Corporation to bid. But the company was forced to withdraw after the State Duma passed a resolution saying that foreign attentions were unwelcome. China now seems to be seething over the suggestion that Russia might jilt it again.

Beijing's patience also seems to be wearing thin with Japan, where China continues to export small amounts of oil despite its own import needs. "People's Daily" pointed to Japan's even higher import dependence on the Persian Gulf, which it estimated at 82 percent.

It also cited unnamed analysts as explaining that the real reason behind Japan's "enthusiasm" for the Nakhodka pipeline is to gain leverage in its dispute with Russia over the "northern territories," or what Russia calls the Kurile Islands. The remark may be a measure of how much China resents the entire pipeline affair.

Despite the reasons to end the frictions, there may be just as many that will make it go on.

Under another preliminary settlement proposal, private oil companies like Yukos would agree to give up their quest for privately run pipelines in Russia and submit to continued Transneft control in exchange for preferred access and tariffs, if they invest in the lines. But it is hard to see how the plan will work, as long as Transneft has the last word.

This week, the pipeline monopoly abruptly turned away 400,000 barrels per day in Russian oil exports from the Yukos, LUKoil, TNK, and Rosneft oil companies, the Moscow investment bank Troika Dialog reported. The move is believed to be tied to backups at Russian ports, but with the exception of state-owned Rosneft, all the companies have been trying to break free of Transneft.

The curb, which will cut Russia's oil exports outside the Commonwealth of Independent States by 13 percent, is hardly likely to end the infighting with the companies or enhance the spirit of compromise. While China seeks more energy trade with Russia, it may need more patience than it has.