As part of a landmark agreement between the two nations, the Chinese Communist Party and its ally Russia announced the signing of a new contract where China would start paying in rubles and yuan for gas supplies, avoiding the dollar as the currency of exchange as they have always done. 

The agreement could be the first step in the long- to medium-term ambition of both countries to diversify cross-border payments in their quest for greater trade independence from the United States and Europe. 

Historic announcement

Russian gas supplier Gazprom published an official statement on Tuesday, September 6. The new contract signed with the Chinese communist regime stated that payments for gas supplies would be received in their own currencies instead of dollars.

Alexei Miller, CEO of Gazprom, told the media that allowing payments in Russian rubles and Chinese yuan would be beneficial for both Gazprom and the state-owned China National Petroleum Corporation.

he said, “It will simplify the calculations, become an excellent example for other companies and give an additional impetus for the development of our economies.”

The agreement provides for an extension of the gas sales contract to China for a total of $37.5 billion. Gas exports to China began in 2019 when the 3,000 (1,865-mile) kilometer Power of Siberia pipeline linking the two nations was finalized.

It was reported that the CCP will start paying Gazprom half and half between rubles and yuan, but no further details were given as to when this payment would begin and the mechanisms to be used.

According to Reuters, President Vladimir Putin praised the move as a “genuinely historic event, not only for the global energy market, but above all for us, for Russia and China.” The relationship between Russia and China appears to be strengthening after Western powers turned their backs on Putin following the war with Ukraine. 

Chinese leader Xi Jinping and Putin will meet next week in Uzbekistan, Russian state news agency Tass reported. After several virtual and telephone communications the two leaders will finally see each other’s faces to discuss strategic issues for both nations. The current situation is delicate as the rift between Western and Eastern powers seems to have widened again.

China-Russia relations strengthen amid complex international environment

The gas payment agreement comes just as the monthly value of Chinese imports from Russia reached a new record in August. China imported $72.9 billion worth of goods from Russia between January and August, a 50% increase over the same period last year.

As a result, Russia’s trade surplus with China has quadrupled from $7.3 billion to $28.7 billion. Oil, gas, and coal account for 78% of Russia’s exports to China and continue to expand. Energy, mineral and agricultural products make up the bulk of Chinese imports from Russia.

In view of this escalation in trade between the two countries, they are taking the decision to use their own currency, encouraged to abandon the dollar and generate greater independence from the West.

The increase in gas exports to China and the new forms of payment come at a time when Russia has confirmed that it will not resume, at least in the immediate future, its natural gas exports to Europe through its Nord Stream 1 pipeline. This increases the threat of a deep energy crisis this winter on the European continent.

When the suspension of gas exports became known last week, the official report from the Russian authorities attributed it to a technical failure in the pipeline that would be resolved as soon as possible. As the days went by, Russia admitted that the closure of Nord Stream 1 was due to the sanctions imposed by the West due to the war with Ukraine. 

According to European Union (EU) officials, Russia would be using the gas supply as a weapon, knowing that most European countries depend on Russian gas both to heat their millions of inhabitants in the harsh winter and for the normal functioning of the economy.

Already in August 2021, Moscow had reduced gas supplies to the EU, which many understood as an attempt to increase the price and promote the opening of Nord Stream 2. 

After the war with Ukraine started and European countries and NATO imposed severe restrictions and blockades against Russia, supplies were further reduced and the opening of Nord Stream 2 was suspended.

Russia is still delivering gas to Europe through other smaller pipelines, but at reduced capacity and with winter looming the energy situation is becoming increasingly critical.

The CCP has remained uncertain about its role in the international conflict. But it has also raised its levels of conflict with the West, especially with the United States and several of its allies. It would inevitably lead the communists strengthening the relationship with its historical ally Russia.

Although several representatives of the CCP have said that China promotes a peaceful resolution to the conflict, so far, far from condemning Russia (as most countries in the West have done), it has blamed the United States and NATO for the war.

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