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Published on : Jul 30, 2015

China and Russia have signed the US$400 billion contract, after almost a decade of stalled negotiations. The contract that has been signed for 30 years includes Russia to provide China 38 billion cubic meters of natural gas every year.

At the time of initial negotiations, Russia did not accept a price that was below the average gas price in Europe, which currently is US$375-380, cubic meters.

Nevertheless, Beijing managed to close on a favorable price of US$350 due to a stronger bargaining position. Currently, China already possesses dependable energy supply from Central Asia and Russia was keen to close the deal owing to its deteriorating position with Western Europe on the Ukraine crisis.

With the closing of the deal, Russia is in a better position to withstand U.S. sanctions. At the domestic front, the pipeline revenues will offer a a major bob to the underperforming economy in Russia. This will give a chance to the Russian Prime Minister to stabilize the country and push off any major threats of public disagreement.

From a geographical perspective, this will enable Putin to divert gas from European markets to Asia to use as a diplomatic bargaining tool. This pipeline project is slated to reduce Russia’s dependence on the European gas market and will also provide upper hand to the country in dealings with Western Europe. 

As a consequence, Putin would receive more leeway to carry on an expansionist policy for the former satellite states of Russia.

As a matter of fact, the pipeline is the initial step towards Russian pursuit to expand into the energy market in Asia, and propositions for additional networks in North Korea, India, Japan, and South Korea are already in the pipeline.