Russia To Get Chinese High-Speed Rail Amid Oil Deal

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While Moscow is threatening Washington to aim its armed forces to the “territories from where the threat comes,” Russia has become China’s top crude supplier as the battle for Chinese market share intensifies.

In May, for the first time since October 2005, Russia became the key crude oil exporter in China. Russia has increased its supplies by 20%, surpassing Saudi Arabia, which was the key oil exporter before Russia but saw its import numbers fall by 42% compared to April.

In May, China, the world’s second-largest oil consumer, imported a record-breaking 3.92 million of metric tons of oil from Russia, which equals to 927 thousand barrels per day, according to Bloomberg, which cites the data from Chinese customs. According to the data by the Organization of Petroleum-Exporting Countries, Russia produces 10.54 million barrels of oil per day.

Last month, Saudi Arabia supplied China with only 3.05 million tons of oil, falling behind Russia and Angola, which sold 3.26 million tons of oil. In April, the import of Saudi oil to China had its highest peak since June 2013 with 5.26 million of tons.

Iran also remains a large supplier of oil to China wits its 2.2 million tons of exported oil. With the nuclear deal’s June 30 deadline coming closer, the country is expected to double its global oil sales within just half a year after the international sanctions are lifted.

Russia uses its warm relationship with China to increase oil supplies

“Russia is using its good relationship with China to increase supplies and has now taken the top spot,” Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, told Bloomberg by phone. “Meanwhile, Saudi Arabia is losing its crown as its selling prices in Asia haven’t been attractive enough.”

Bloomberg notes that China’s role in crude oil exports is constantly growing as the U.S. halts its imports and relies on the growth of production on shale fields. According to the International Energy Agency, this year China will consume over 11% of all the oil produced in the world.

“Following Russia’s recent acceptance of the renminbi as payments for oil, we expect more record high oil imports ahead to China,” Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc., told Bloomberg via e-mail, referring to the Chinese currency – yuan. “If Saudi Arabia wants to recapture its number one ranking, it needs to accept the renminbi for oil payments instead of just the dollar.”

China is planning to design a high-speed railway in Russia

Russia and China may agree on a contract that would allow China to build a high-speed railway connection between Moscow and Kazan.

Beijing’s state-run China Railway Group signed a contract to develop and design a nearly 800 kilometer high-speed railway connection between Moscow and Kazan, according to the Wall Street Journal report.

China Railway Group will cooperate with two Russian companies for the next two years to realize a set of designs for the rail that would connect Moscow and Kazan, according to Vladimir Yakunin, the president of Russia’s state-owned JSC Russian Railways, as reported by the WSJ.

The initial contract on building a high-speed railway connection is signed for just $383 million, with Yakunin saying that the actual contract for the building of the railway is “quite likely” to go to China Railway Group, however this is not guaranteed. “Of course, the one who is participating in the planning has an advantage. This is obvious,” Yakunin said.

The news come as the European Union has recently confirmed that it extends the sanctions against Russia for another six months. As Russia finds itself isolated from the West, with the plummeting oil prices, weakness of ruble as well as U.S. and EU sanctions, Russia seeks new pals in the East.

If it wasn’t for China, Russia wouldn’t survive

Ever since signing a 30-year $400 billion natural gas supply agreement with China one year ago, Russia has officially started encouraging Chinese companies to bring investments into Russia.

Russia is lucky to have China, the economy of which has significantly grown during the past decades. If it was any other country, Russia would not hold for so long after the West halted all its investments in Russia’s energy, finance and economy as a whole.

Furthermore, in May this year, the two countries also signed a $25 billion deal that would bring financing of up to $25 billion to Russian companies from Chinese banks.

The Chinese are known for their love to invest into other countries and keep everyone on the hook in order to get certain benefits for themselves later on. Let’s not forget that China is one of the largest foreign holders of the U.S. debt. China’s holdings of U.S. Treasuries amount to $1.28 trillion.

As for the high-speed rail, it must be pointed out that China could not be happier with the contract signed with Russia. China has attempted to sign similar contracts for building high-speed rails across the world, including in Thailand and Mexico.

The main factor that prevented the Chinese to sign contracts with other countries is transparency of such contracts, which was clearly indicated in the case with the Mexicans. However, the advantages of Chinese high-speed rails are obvious: low costs, quick construction and available financing. And as the Kremlin is not exactly the pickiest partner right now, Russia has no choice but to sign such deals even though there might be some concerns over the transparency of the deal.

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