The Kremlin’s latest strategic pivot eastwards has hit a critical snag. Vladimir Putin departed Beijing this evening without the headline pipeline deal that Moscow had banked on to offset Western sanctions. Chinese President Xi Jinping, playing a long game of hardball, refused to finalise the Power of Siberia 2 agreement, leaving the Russian delegation to face a press conference devoid of the usual triumphant rhetoric. This is not a diplomatic hiccup. This is a threat vector that exposes Moscow’s acute vulnerability in its reliance on a single customer for its redirected energy exports. The failure to secure this deal represents a strategic intelligence failure at the highest level of Russian planning, a failure that will have immediate downstream effects on military logistics and long-term force readiness.
For months, Russian state media had been hyping the negotiation as a done deal. The pipeline, which would carry 50 billion cubic metres of gas annually via Mongolia, was supposed to be the lynchpin of Moscow’s ‘pivot to Asia’. The Kremlin’s strategic calculus was simple: replace lost European market share with Chinese demand and secure a revenue stream that would keep the defence budget afloat through the protracted war in Ukraine. But Xi’s position was always clear: China would not be used as a financial lifeline. By walking away, Beijing has delivered a strategic blow that no NATO artillery barrage could match. The message is unambiguous: China will not subsidise Russian military adventurism.
The breakdown centres on price. Russia demanded a premium akin to its old European contracts, but Beijing offered a steep discount, citing its own surplus LNG capacity and its leverage as the only available major buyer. Xi’s team also pressed for a fixed-price clause that would insulate China from future conflict-driven volatility. Moscow’s negotiators, believed to be allied with the Security Council hawks, refused. This is a classic intelligence failure: miscalculation of the other player’s resolve. The Kremlin assumed that Xi’s dependence on Russian energy during winter shortages would force his hand. They misread the map. China has merely paused its imports from Australia and the US, a strategic reserve that can be reactivated at will. The pipeline was never a necessity for Beijing; it was a luxury Moscow needed to survive.
Logistically, the ripple effects are severe. Russia’s state budget for 2024 had baked in a 15% increase in defence spending, partially underwritten by expected gas revenues. Without the pipeline, those revenues remain theoretical. The Ministry of Defence will now have to choose between funding front-line operations in Ukraine and maintaining strategic nuclear modernisation. Concurrently, the energy ministry will be forced to accelerate field closures in Siberia as domestic demand stagnates. The hardware of war is at risk. Tank factories in Omsk and artillery shell plants in Perm are all tied to energy sector tax receipts. A sustained revenue gap will reduce procurement by at least 10% by 2025. That means fewer T-90M tanks, fewer Kalibr cruise missiles, and less modernised electronic warfare capability for future deployments.
Strategically, this is not merely a lost deal. It is a pivot point that reveals China’s geopolitical ambitions. Xi is no longer a passive partner. He is consolidating his own sphere of influence on his terms. By humiliating Putin publicly, he signals to Washington and Europe that China is not an adversary in lockstep with Russia. He opens a separate lane for trade negotiations while keeping the option of levering energy dependencies against Moscow at a time of his choosing. For the Kremlin, the nightmare scenario emerges: a two-front strategic squeeze with a hostile NATO to the west and an increasingly demanding China to the east, both exacting penalties on Russian missteps.
If I were in the GRU’s analysis directorate, I would be flagging this as a tier-one degradation of state resilience. The failure to read Xi’s red lines, the inability to offer a flexible price mechanism, the public nature of the rebuke: these are not the hallmarks of a competent intelligence apparatus. They are the symptoms of a regime so consumed by its own war-state ideology that it can no longer distinguish between genuine alliance and transactional necessity. The next chess move is already underway. China will push for a new deal in 2025, but with steeper concessions including troop withdrawal from Ukraine’s borders. Putin will refuse, and the strategic gap will widen. This is how empires decline: not through a single battle, but through a series of self-inflicted logistical wound patterns that compound until the whole structure groans under its own weight.
