Vladimir Putin has left China without the Siberian pipeline deal that Moscow desperately needs, a clear sign that Xi Jinping is now driving a harder bargain with a weakened Kremlin. The Power of Siberia 2 pipeline, which would have shipped an additional 50 billion cubic metres of natural gas annually from Russia’s Arctic fields to China, was conspicuously absent from the joint statement issued after the talks.
The market’s reaction was immediate. The rouble slipped 0.8 per cent against the dollar in late afternoon trading, while the Moscow Exchange index shed 1.2 per cent. Bond yields on Russian sovereign debt ticked higher, reflecting the market’s grim assessment: without Chinese demand, Russia’s energy superpower status is evaporating faster than a winter frost in spring.
Xi’s calculus is brutally simple. China holds all the cards. The Kremlin’s desperation is palpable. Since the invasion of Ukraine, Russia has lost its European gas market worth roughly $40bn a year. Chinese state media, never one to miss a propaganda opportunity, ran headlines about “strategic patience” and “mutual benefit”. But any City trader knows this is a euphemism for exploiting a counterparty in distress.
The numbers tell the story. Russia’s budget deficit is running at 2.5 per cent of GDP, and energy revenues have plunged 40 per cent year-on-year. Moscow needs an estimated $15bn upfront for pipeline construction, funds it simply does not have. China, meanwhile, is negotiating from a position of strength, with state-owned CNPC reportedly insisting on a gas price linked to domestic Chinese hubs rather than higher-priced oil indexation.
The failure to close the deal also exposes a deeper geopolitical reality. Xi is signalling that China will no longer be taken for granted as Russia’s junior partner in the ‘no limits’ partnership. The Belt and Road Forum was notably devoid of the usual bromides about eternal friendship. Instead, Xi focused on his own pet projects: the China-Central Asia gas pipeline and the proposed China-Kyrgyzstan-Uzbekistan railway, both of which bypass Russia entirely.
For Putin, the optics are devastating. He arrived in Beijing expecting a grand ceremony to sign a multibillion-dollar deal. He leaves with little more than a vague communique about “exploring opportunities”. The message to the rest of the world is clear: China will not subsidise Russian aggression. Xi is far too astute a chess player to pour Chinese treasure into a failing Russian war chest.
What does this mean for markets? Expect increased volatility in Russian assets. The rouble could come under further pressure if the impasse continues. European gas prices may also flutter, but the real story is the marginalisation of Russia as a global energy supplier. The transition away from Russian gas, which began in Europe, is now accelerating in Asia. China’s ability to walk away from the Siberian pipeline deal shows it has diversified its supply sources, with long-term contracts from Turkmenistan, Qatar and Australia providing ample room for negotiation.
The pound of flesh that Xi extracted is also a warning shot to the West. While Brussels and Washington celebrated the Christmas tree of sanctions, Xi has quietly positioned himself as the kingmaker in the global energy order. He can tighten the screws on Russia or ease them, depending on what serves Chinese interests best.
As a financial editor, I see this as a classic case of capital flight on a geopolitical scale. Russia’s creditworthiness is ebbing. Its sovereign wealth fund, the National Welfare Fund, is being drained to plug budget holes. The Siberian pipeline was meant to be a lifeline. Now even that is in doubt. Investors should brace for Russian defaults, asset seizures, and further devaluation. The Kremlin’s financial isolation is deepening, and no amount of Chinese rhetoric can mask that reality.
Putin may have returned to Moscow with a handshake, but the markets have already priced in the rejection. The Great Game is over, and China has won without firing a shot.
