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Russia and China: The New Oil Alliance

46% of Russias national budget depends on oil sales. Due to low oil prices, Russia is forced to increase the volume of oil deliveries — and looks to China

The article originally appeared at NEO Presse. Translated for RI by Mihajlo Doknić

Oil Pensions: They make up half of Russia's budget. The political and economical cooling in relationships between Moscow and the West but also the oil output policy by Saudi Arabia that is supposed to contain the unconventional oil drilling methods in North America led to a decline in oil prices. This is troubling Moscow that wants to become more independent of its western customers.

<figcaption>Putin opens the valves...</figcaption>
Putin opens the valves...

Russia is pushing into the Chinese market and is doing this not only for economical reasons. For the Kremlin the alliance with China is also a geopolitical project in order to counterbalance the West, especially the U.S. Western sanctions only confirmed this. For Setchin [CEO of Rosneft] the sanctions are some sort of war, he said to Der Spiegel. The low oil prices, according to him, are being manipulated.

Moscow and Beijing have closed a gigantic oil-pact. In the coming 25 years China will pay some $270 billion and Russia commits to delivering 300,000 barrels per day. This is around 90 per cent of the total capacity of Wankor. 200,000 more barrels are to go to the Chinese Sinopec group for some $85 billion. The oil business has become high priority in Russia. Putin himself travelled to Wankor in East Siberia for the start of the production.

At the same time Russia’s dependence on the large neighbor in the East is increasing, who in turn increasingly becomes more confident at the negotiating table with its smaller European partner, aware of his increasing market power.

46% of Russia’s budget depends on the oil business. To put it differently: the country is dependent to find new potent buyers in order to pay the pensions and salaries of its civil servants. Rosneft is basically cut off from the western financial markets due to sanctions. The oil company needs capital for new explorations and drill projects off Russia’s coast. After Rosneft took over its competitor TNK-BP the debts amounted for some $55 billion. Mikhail Krutishin, an industry expert, speaks of megalomania, that can come back to roost.

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