
The phrase “Pivot to Asia” gained currency among Russian elites after the annexation of Crimea and resulting sanctions regime put in place by the West. Premised on the faith that Asian markets could make up for losses in European markets, the Kremlin would show the West that it could not be isolated and preventing from pursuing its vital national interests. The pivot needed political heft so the Eastern Economic Forum (EEF) was inaugurated in Vladivostok in 2015, an annual display of Russia’s diplomatic and economic engagement with the Asia-Pacific. But the economic and political value of the forum and the “pivot” are compromised by Russia’s incoherence over its aims and abilities in the Far East, exemplified by its two largest energy companies: Gazprom and Rosneft.

It’s no secret that Gazprom and Rosneft have different aims. Gazprom jealously guards its position as Russia’s natural gas monopolist and Rosneft hungrily eyes natural gas exports as it seeks to undermine its largest corporate rival for influence and power over state policy and the economy. The two companies and their CEOs — Gazprom’s Alexei Miller and Rosneft’s Igor Sechin — hold much sway over Russia’s aims in the Far East. The EEF ostensibly gives both a power signaling platform.

Passion Pitfall

Alexei Miller has led a large chorus touting gas diplomacy with China as a sign of company and national strength. The day before the EEF started, Gazprom clarified the initial volumes of natural gas to be sold to the Chinese market via the Power of Siberia pipeline when it comes online in 2020: 4.6 billion cubic meters (bcm). Alexei Miller and his team negotiated a long-contested contract in 2014 hoping to supply 38 bcm via the Power of Siberia. The announcement doesn’t send a strong signal.

Gazprom is the principal backbone for the development of the Far East’s petrochemical complex, the increase of regional tax revenues, and reduction of widespread dependence on budget subsidies from Moscow. Since 2007, Gazprom has been given priority to increase consumer access to domestic supplies of natural gas in Eastern Siberia and the Far East at subsidized rates. Export revenues enable such programs. Miller hoped to get China to agree to European prices by signing a supply contract pegged to oil prices, Gazprom’s standard practice on the European market. Generous estimates found that the company would break even or profit minimally if it actually got the highest prices it hoped for. It didn’t.

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The contract didn’t protect against drops in oil prices and was also undercut by price agreements for piped gas between China and Turkmenistan at around half of Gazprom’s target price range. The Power of Siberia was, in part, envisioned as a means of reminding Europe that Gazprom had other market options. But oil-indexed contracts make it a buyer’s market when prices are low. Further, Gazprom’s take-or-pay clauses — stipulations that mandate payments on supply contracts when a consumer buys significantly less than the maximum amount written into a contract — are steadily being chipped away in the EU’s arbitration courts. China is gaining the upper hand as Gazprom is forced to price gas more transparently and more closely in line with market forces in the EU over time. This year’s EEF reconfirmed that reality.

Miller’s non-China announcements from the forum were underwhelming, at best. An agreement with Mitsui on LNG cooperation does little new and other Japanese firms did not step forward, no agreements with South Korea were pushed, and most documents signed at the EEF with non-Chinese counterparts for Russian firms amount to agreements to agree. They state a shared business interest and intention, but have little force, particularly as newer sanctions have interrupted offshore exploration. The locus of financial flows into the region falls on Russian round-trip investments — Russian businessmen and firms reinvesting their money from an offshore back into Russia — and state money that winds up helping firms like Gazprom.

As of 2014, Moscow’s plan for the economic and social development of the Far East and Baikal regions called for 346.165 billion rubles ($6 billion) of state financing through the Ministry for the Development of the Far East. Current Prime Minister Dmitry Medvedev created the ministry when he was president. Medvedev is also a former chairman of the Board of Directors of Gazprom. This money would flow to different petrochemical, infrastructure, and other projects.


Through the Ministry of Economic Development, 51 billion rubles ($886 million) has been set aside from the Federal budget explicitly for the Far East for 2017-2019. The Audit Chamber found that last year, investors received only 43 million rubles ($748,000) to subsidize investments out of a much larger official allocation through the Ministry of Economic Development. In 2015, investors only used 8 percent of the subsidies provided for the Far East through the ministry.

Gazprom has officially committed 235 billion rubles ($4.08 billion) over last year and this year on construction for the Power of Siberia. The company’s total investment plan for 2017 called for 910.67 billion rubles ($15.8 billion) of spending, of which 17.4 percent is going towards Gazprom’s China-bound pipeline. The issue is simple. Pipeline projects in Europe matter more. The Power of Siberia was meant to be an instrumental display to those outside of China as well as a goldmine for billions in tenders and contracts to Gazprom’s circle.

Resources aren’t spent well, go unspent, or are simply lacking as Gazprom, its subsidiaries, and its friends benefit from the push to develop the Far East. Self-dealing and the defense of Gazprom’s monopolist position undermine the endeavor. But internal tensions regarding the region’s development are rising. Over the last year, the threat Igor Sechin and Rosneft pose to Gazprom’s institutional advantage as Russia’s gas monopolist has risen. Russia’s ability to have a coherent policy in the Far East is degrading with it.

The vanity of a bonfire

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The ongoing corruption trial of former Economy Minister Alexei Ulyukayev speaks to Rosneft CEO Igor Sechin’s power within Russia, the course of inter-firm competition, and Russia’s Far East policies. Ulyukayev was placed under house arrest for accepting a bribe in exchange for the approval of Rosneft’s acquisition of a smaller oil company, Bashneft, last October. The Kremlin was seeking to privatize the company, a move supported by Ulyukayev and others linked to Medvedev. Sechin wanted to acquire the company as its production would put a little over half of Russian oil production under Rosneft’s control.

Rather than riddle over the details of the case here, it’s important to note Ulyukayev’s role in Far East policy. Though not a final decision-maker, Ulyukayev was the main governmental contact for many negotiations with Japanese counterparts on joint projects. That extended to leading relevant meetings at the EEF. Transcripts from the conversation Sechin had with Ulyukayev during the sting operation that resulted in his arrest touch on the privatization of 19.5 percent of Rosneft’s shares last December. Ulyukayev backed a Japanese acquisition of Rosneft’s shares, as did Sechin formally. The arrest caught the Japanese by surprise.

Though Japanese officials were adamant that the arrest would not trigger a change in course, it presented Japanese investors with a new political risk: Putin may not intervene to stop Igor Sechin or similar figures from picking off high officials threatening their interests. Ulyukayev was the highest-placed official to be arrested in Russia since the collapse of the Soviet Union.

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Sechin’s more recent lawsuit against the conglomerate Sistema, owned by Vladimir Yevtushenkov, over its acquisition of shares in Bashneft before it was seized by the government in 2014 has threatened the company with bankruptcy. An arbitration court has ruled that Sistema owes Rosneft 136.2 billion rubles ($2.36 billion). Sistema is only avoiding bankruptcy because of a delayed payment agreement and a soft intervention from Putin that pushed Sechin to abandon any hopes of stripping Sistema of its assets. Putin did intervene and the Ulyukayev case is not going smoothly, but Sechin’s reach is considerable. The irony is that Japan and South Korea would benefit most from a stronger Putin able to convince and coerce firms to execute a shared strategy.

Rosneft and Chinese firms have deepened cooperation against the backdrop of a potentially weakened role for Putin as policy-decider. The privatization of 19.5 percent of Rosneft shares went to the Qatar Investment Authority (QIA) and Glencore last year, but the loans have run into trouble due to sanctions. As a result, CEFC China Energy stepped forward and acquired a 14.16 percent stake from shares initially sold to QIA and Glencore as well as signing a supply deal and exploration deal with Rosneft. Where Sechin and Ulyukayev expressed hopes for other partners, the reality of sanctions and Sechin’s own greed — Putin reportedly wanted to privatize the Rosneft shares to Lukoil among others — made a deal with Chinese firms the only possibility.

At the end of June, Rosneft finalized a sale of a 20 percent stake of a natural gas field in Eastern Siberia to Beijing Gas, looking for access to the Chinese market through the Power of Siberia pipeline. Now that a Chinese group owns stakes in the company, Gazprom’s failures in its gas diplomacy with China will only amplify as Rosneft and China share an interest in destroying Gazprom’s monopolist position in Russia. If that comes to pass, Far East development will require a new corporate approach.


Where Sechin was relatively quiet at the EEF this year — as with most China deals, everything was worked out quietly and away from public fora — Rosneft reached an agreement to form a joint-venture with Norway’s Statoil to exploit onshore Arctic oil. Japan’s JOGMEC signaled interest in further cooperation with Rosneft, though whatever shares it hoped to acquire immediately went to CEFC. But as usual, little substantively happened. Where Gazprom’s announcements revealed its weakening negotiating position, Rosneft’s announcements revealed its reliance on China to achieve its aims. In both cases, the EEF was more a sideshow than a harbinger of success.

Schrodinger’s Pivot

The growing internal tensions behind Russia’s development aims in the Far East are not aided by foreign policy tensions. Russia refuses to entertain any return of the Kuril Islands to Japan and continues to provide oil and coal supplies to North Korea. Where China looks for profits, Japan and South Korea view their Far East investments as political instruments to induce desired behavior in Moscow. Unfortunately for both, Russia has no coherent outlook for the region aside from maintaining its relevance, particularly regarding North Korea. Rosneft alone has a tightrope to walk due to its opportunism: its Indian counterparts for the Essar Oil deal will not be happy that a Chinese group now owns 14.16 percent of a company that controls a strategically critical refinery in Gujarat.

Energy markets have shifted to non-OECD states and hundreds of thousands of barrels per day in oil refining capacity are set to come onstream in the Asia-Pacific in coming years. Gazprom, Rosneft, and resource exporters have to go where economies and demand are growing. Russia’s businessmen and criminals are moving their money as sanctions take effect and Asia’s offshore havens overtake Switzerland in terms of registered accounts. Yet there is no logic coherently marrying domestic aims with foreign policy aims or aligning today’s acquisition or sale with tomorrow’s agreement. The continual deepening of Sino-Russian partnership is a result of China’s ability to exploit Russia’s domestic divisions and Russia’s lack of unified policies as much as a desire to align. As Putin seems to be facing more pressure from those connected to Russia’s security services, Russia will likely be less able to balance against absolute dependence on China with Japan and South Korea.

Russia’s “Pivot to Asia” is like Schrodinger’s cat. Observation determines how one answers the question “does the Pivot to Asia exist?” It at once exists and does not, has life in the business world and in some movement on trade agreements and none when one searches for a coherent strategy or policy. Though tempting to declare the EEF a reality check on Sino-Russian ties, it’s much more and much less than that. The Pivot, as Carnegie Moscow senior fellow Alexander Gabuev has noted, goes nowhere. Yet in fits and starts, it goes. Dostoevsky’s famous line “in Europe we were hangers-on and slaves, while in Asia we shall be masters,” rings hollow. Russia is currently a hanger-on in Asia. The adhocracy that defines much of Russian policy is only set to worsen in Asia.

Nicholas Trickett holds an M.A. in Eurasian studies through the European University at St. Petersburg with a focus on energy security and Russian foreign policy.