It’s often forgotten that during the Cold War, the Soviet Union found itself locked into a second Cold War with China. Indeed, the military build up along the Russian-Chinese border was the largest in the world at the time and the two countries nearly came to blows numerous times.
In the new world, however, where the United States is the last standing (if stumbling) superpower, Russia and China have slowly been growing closer together. The completion of a recent natural gas deal highlights this trend.
Chris Hohn the founder and manager of TCI Fund Management was the star speaker at this year's London Value Investor Conference, which took place on May 19th. The investor has earned himself a reputation for being one of the world's most successful hedge fund managers over the past few decades. TCI, which stands for The Read More
Russia and China in Major Gas Deal
Russia is rich with natural gas. For the last decade Chinese and Russian officials and leaders have been negotiating a natural gas deal. As with most things Russian-Chinese, the talks were rather contentious. Now, however, China has struck a $400 billion dollar deal with Russian state-owned company Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP).
This deal will mark one of the largest in history and should assure China access to vital natural gas supplies for decades to come. It marks the largest deal for Gazprom OAO (ADR) (OTCMKTS:OGZPY) (MCX:GAZP). Currently, China imports most of its natural gas from Turkmenistan and a consortium of smaller countries.
As China continues to develop economically it will need more access to natural gas. Natural gas is vital for producing heat and energy and has numerous industrial applications. Natural gas can also be used as a fuel for combustion engines.
Shifting sands point to stronger Chinese Russian Alliance
China and Russia appear to be slowly gravitating towards one another. While the countries may not become close allies, like the United States and Canada, they do appear to be forging a stronger alliance that may one day allow them to counter American supremacy on the global scale.
Russia and China usually agree with each other in the United Nations. Both countries favor non-intervention in international affairs and want other countries to butt out of their own internal affairs. China and Russia frequently vote in unison on the Security Council and share many of the same allies, such as Syria and Iran.
The biggest dividing line between the two countries may be where their spheres of influence clash. For example, Russia has somewhat close ties with Vietnam, owing to the Vietnam War fought with the United States. Russia has continued to arm and upgrade Vietnam’s military, despite the fact that China and Vietnam are at odds with one another.
At the same time, China has been aggressively expanding its influence in Russia’s sphere of influence, including the many “Stans” that were once apart of the Soviet Union. Russia has proven to be quite protective of these regions and has been suspicious of Chinese expansion thus far.
Can the United States leverage differences?
While the United States still maintains a serious edge in military capabilities, the wars in Iraq and Afghanistan have already proved that military conflicts are simply too expensive for a modern country to undertake on a mass scale. It is unlikely in the current environment that the United States will come to blows with either Russia or China.
The United States does frequently find itself at odds with both countries over issues, however, such as ousting the Syrian government and encouraging stability in Ukraine and the South China Seas. So far, China and Russia have been able to restrain American efforts to intervene or at least stabilize events on the international stage.
Instead of competing with a Chinese-Russian power-bloc, the United States will likely find more success with a “divide and conquer” strategy. Owing to their close proximity and conflicting interests, Russia and China might not be as close of natural allies as they might seem at first glance. The United States must learn to leverage these differences to keep China and Russia from forming to close of an alliance.