Page 5 - FSUOGM Week 38 2022

COMMENTARY
FSUOGM COMMENT AR Y FSUOGM

The existing oil pipeline
system in east Russia.

starting point would be the Tayshet hub in the would face similar obstacles to those that Power
west of the Irkutsk region, where ESPO connects of Siberia 2 is facing. Cut off from Western fi-
with the rest of the Russian oil transport system. nancial systems, Russia could struggle to secure
First of all, this would provide a fairly direct route funding. China could in theory step in with
across Mongolia to the Chinese east coast, run- support, but Beijing is likely to be less enthusi-
ning past the Mongolian capital of Ulaanbaatar. astic about such a project than Moscow, which
Secondly, there is the issue of Russia’s differing is desperate to find new markets to replace
blends of oil. ESPO carries sweet crude from those it is losing in Europe.
Eastern Siberian fields that typically sells at a Exploiting Russia’s desperation, China could
premium to the sour Urals crude produced in drive a hard bargain on prices, and demand
Western Siberia. The pipeline through Mongolia increased access to Russia’s upstream industry
could carry Western Siberian sour oil to China in return for backing the project. Moscow has
that is currently sold to Europe, whereas ESPO tried to put a positive spin on the exit of West-
could continue pumping sweet crude. Keeping ern majors from its oil sector in response to the
the flows separate would enable Russia to con- war in Ukraine, claiming it is regaining control
tinue fetching a premium for ESPO blend oil, over its resource wealth. But Russia might have
and separately offer sour grade to those Chinese to cede that control once again, to China.
refineries designed for it. Russia is already competing with Saudi Ara-
For China, an additional oil pipeline from bia for the crown of China’s top oil supplier. And
Russia would help ease its reliance on supplies it is unclear whether China would be comfort-
shipped through the Straits of Malacca, seen as a able with expanding its already sizable energy
geopolitical vulnerability. China could also bar- relationship with Russia even further, especially
ter for interests in the upstream Russian fields if Power of Siberia 2 goes ahead as expected.
that supply that oil, strengthening its position in Beijing has striven to have a diversified energy
the country’s energy sector. import mix, for security reasons. And Russia will
Mongolia, meanwhile, would gain lucrative not go ahead with an oil pipeline project without
transit revenues, but also, more importantly, having a supply contract in place to cover most
access to oil supplies itself. This would allow the of its flow capacity.
country to accelerate plans for its first oil refin- It is also important to note that while Russia
ery, tentatively scheduled for launch in 2025. The and China have come together in opposition to
country currently relies completely on imported Western hegemony, their relationship contin-
petroleum products. Hosting an oil pipeline, in ues to be characterised by some mistrust and
addition to a gas pipeline, would also increase suspicion. Namely, Russia is concerned about
Mongolia’s role as a facilitator of energy trade expanding Chinese influence in the Far East, and
between China and Russia, giving it some lever- in Central Asia. In its energy war against Europe,
age over its two more powerful neighbours. Moscow has demonstrated its willingness to use
energy supplies as a weapon, and this has likely
Obstacles alerted Beijing of the dangers of entrusting its
On the Russian side, an oil pipeline project energy security to the Kremlin. ™

Week 38 23•September•2022 www. NEWSBASE .com P5