Moscow has had to seek alternative markets following sanctions over Ukraine crisis – but strengthening ties with Beijing has been going on for a while
A flag with the logo of Russian oil firm Rosneft flies next to an derrick at the Suzunskoye oil field in central Russia. Photograph: Sergei Karpukhin/Reuters
Russia has overtaken Saudi Arabia as the largest supplier of oil to China for the first time, sending almost 930,000 barrels a day last month – up 21% on April.
China imported 3.92m tonnes of crude oil from Russia in May. In comparison, oil imports from Angola and Saudia Arabia totalled 3.26m tonnes and 3.05m tonnes respectively.
— Neil Hume (@humenm)
June 23, 2015
Presenting some granular China oil import data, via Reuters. Saudi Arabia and Russia having a good year pic.twitter.com/yxGsVjAqCo
Russian exports to China have more than doubled since 2010, according to analysis by the Financial Times.
As western sanctions over the Ukraine crisis started to bite, Moscow has had to seek alternative markets and friends. It has been, understandably, keen to strengthen ties with Beijing.
Russia steps up relations with China
The fact that Russia now accepts yuan for oil payments (Saudi Arabia doesn’t) undoubtedly also helped it top the oil supplier ranking.
The rouble-yuan currency pair reached record highs in trading volumes last summer as Russian companies and banks, traditionally dependent on dollar-denominated syndicated loans, looked to China.
In 2013, Russia’s largest oil producer, Rosneft,signed an $85bn deal with China’s Sinopec to deliver 100m tonnes of crude over 10 years.
On top of that, Rosneft struck a $270bn deal to double oil supplies to China. Last year, a 30-year deal was signed by the state-owned gas company Gazprom worth $400bn to deliver gas to China.
Last year, oil prices and the rouble both fell to five-year lows. The slump was bad news for Russia’s economy, which is strongly dependent on oil, and very sensitive to price changes. Analysts warned that plummeting crude prices could send the economy into a recession. Oil and gas make up around half of government income, and more than 60% of Russia’s exports.
Calculations at the time shows Russia needs an oil price of $105 a barrel for its budget to break-even; the country loses about $12bn-$14bn a year in revenue for every $10 decrease in the barrel price.
China is not the only way Russia has been attempting to diversify economically. Last year its central bank went on a massive gold buying spree, and earlier this year it reduced the dollar’s share in its international reserves below that of the euro for the first time since 2008.