Israel-Iran Conflict Spurs China to Reconsider Russian Gas Pipeline

Hindustan Times

6 hours ago

The original Power of Siberia pipeline opened in 2019. The war between Israel and Iran has revived Chinese leaders' interest in a pipeline that would carry Russian natural gas to China, according to people close to Beijing's decision-making, potentially jump-starting a project that has been stalled for years.
The Power of Siberia 2 pipeline project has been mired in disagreements over pricing and ownership terms, as well as Chinese concerns about relying too heavily on Russia for its energy supplies. But the recent war in the Middle East has given Beijing reason to reconsider the reliability of the oil and natural gas it gets from the region, the people said, even as a fragile cease-fire between Israel and Iran takes hold.
China imports around 30% of its gas in the form of liquefied natural gas from Qatar and the United Arab Emirates via the Strait of Hormuz, a maritime chokepoint that Iran threatened to close, according to consulting firm Rystad Energy. Meanwhile, China's independent refineries, known as teapots, have in recent years become hooked on cheap Iranian crude.
More than 90% of Iran's oil exports now go to China, analysts say, even though the U.S. has sanctions designed to prevent Iran from selling its oil abroad. Trump made an unusual acknowledgment of China's Iranian oil imports Tuesday after announcing a cease-fire in the Israel-Iran conflict. 'China can now continue to purchase Oil from Iran. Hopefully, they will be purchasing plenty from the U.S., also,' he said in a post on social media.
A White House official later said Trump was simply calling attention to the fact that the cease-fire prevented disruption to oil flows through the Strait of Hormuz. He continues to call on China to import U.S. oil rather than Iranian oil in violation of U.S. sanctions, the official said.
But, even with a cease-fire in place, the recent conflict has spurred Beijing to cast about for alternatives, the people and analysts say.
Beijing is also looking to increase oil purchases from Russia, which supplies around one-fifth of China's oil, analysts say. Moscow has been pushing to boost its energy sales to its neighbor as it needs cash to fund its war in Ukraine.
'The volatility and unpredictability of the military situation have shown the Chinese leadership that stable land-based pipeline supply has geopolitical benefits,' said Alexander Gabuev, the director of the Carnegie Russia Eurasia Center and an expert on China-Russia relations. 'Russia could benefit from that.'
Russian state media have linked the tensions in the Middle East to the revival of the Power of Siberia 2 project. 'LNG Armageddon: China Urgently Returns to Power of Siberia 2 Project,' read one recent headline on Prime, a Russian state news website. Russia is expected to try to put the project on the agenda when President Vladimir Putin visits Chinese leader Xi Jinping in China in September, analysts say.
The Power of Siberia 2, a sequel to the original Power of Siberia gas link that opened in 2019, has long been more urgent to Moscow than to Beijing. Russia lost its biggest energy market when much of its gas exports to Europe stopped after its invasion of Ukraine.
Since then, Moscow has become increasingly dependent on China as a buyer. But limited pipeline infrastructure and small LNG capacity meant that only a new, bigger pipeline could significantly boost supplies to China.
For Beijing, on the other hand, LNG supplies from the Middle East and other places meant that a deal was far less crucial. One official reason they have given to Russia is that China limits the import of oil and gas from a single country to 20%, according to the people close to Beijing's decision-making. As a result, talks have dragged on for years, even as Moscow has repeatedly indicated a deal was imminent.
That might now be changing.
The Strait of Hormuz, which flows between Oman and Iran and connects the energy-rich Persian Gulf with the Arabian Sea, is deep and wide enough to handle the world's largest tankers. That makes it a critical pass-through point for oil and gas, and its closure could disrupt markets and raise energy costs.
The likelihood of a complete closure of the Strait is low because of Iran's reliance on it and the potential U.S. military response it could draw, analysts say, but the recent conflict has highlighted the impact such a move would have.
'The escalation of the Middle East tensions underscores the severe consequences of a potential blockade in the Strait of Hormuz,' said Wei Xiong, head of China gas research at Rystad. If the chokepoint is blocked, 'China's LNG supply situation will face huge change, moving from being over-contracted to supply deficit.'
Beyond the current turmoil in the Gulf, the U.S.-China trade war has in recent months led to a halt in U.S. LNG exports there, reversing years of growing energy trade between the two nations. Longer term, as China pursues its green energy goals, Beijing foresees an expanding role for natural gas as a so-called bridge fuel between the hydrocarbon and post-carbon eras, analysts say.
China is also interested in strengthening its relationship with Russia at a time when the Trump administration has openly discussed trying to drive a wedge between Beijing and Moscow, the people close to Beijing's decision-making said. Moving ahead with the stalled pipeline could help solidify those ties.
To be sure, even if an agreement on the pipeline is reached, analysts estimate its construction will take at least five years, similar to the original 1,800-mile long gas link. Other significant hurdles remain, including a disagreement on gas pricing and the considerable investment required for the large-scale construction.
Another sticking point is China's demand for ownership stakes in the project, a concession Russia has been unwilling to make. The disagreements are ultimately a sign of mistrust that has lingered between the two countries—despite what Putin and Xi once declared was a 'no-limits' friendship.
Write to Georgi Kantchev at [e-mail] and Lingling Wei at [e-mail]