China reaches “breakthrough” agreement with Russia

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According to an article on, China has found a way to substantially increase oil supplies and exports by coming to an agreement with Russia. The article states “China agreed to double oil supplies and supported construction of a natural gas pipelines from Russia”. This landmark decision has the potential to significantly grow China’s economy. Furthermore this deal symbolizes strong fiscal ties between Russia and China. An agreement of this magnitude clearly has significant financial implications. The article states, “OAO Rosneft, the world’s biggest traded oil producer by output, will borrow $2 billion from China Development Bank Corp., backed by 25 years of oil supplies”. The article seems to imply that this was a strategic move by China to “counter U.S. influence in the Asia-Pacific and the Middle East”. What sort of implications could this have on the world economy? In my opinion a deal such as this should give Chinese and Russian investors confidence. It is clear that both governments are taking steps to grow their economies and should be viewed positively by investors. The other question I pose is what kind of effect (if any) will this deal have on the U.S. economy?

One Response to China reaches “breakthrough” agreement with Russia

  1. This partly reflects the (mistaken) belief that direct deals and diversification of sources improve energy security. The real (in)security issue is price risk, not physical access, and if prices skyrocket, such direct deals won’t insulate China from them. But such deals also have a political component, making interdependence visible and so complementing foreign policy initiatives to keep China from being “encircled” by hostile countries, as per a strategic concept Henry Kissinger propounded.