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| Europe has traditionally been Russia's largest trading partner. In 2021, the region accounted for half of Russia's exports and imports. (Source: Moscow News Agency) |
Asian economic and geopolitical expert Hubert Testard commented that nearly two years after the special military campaign in Ukraine, Russia's pivot to Asia strategy has made significant progress.
Trade keeps Russia afloat
European sanctions are still in place. In 2023, Russian exports in value terms will remain at the same level as in 2019, or about $422.7 billion, while imports will increase. After 2020 and the shock of the Covid-19 pandemic, 2022 will be a favorable year for Russian exports due to soaring energy prices, bringing the total export turnover of this sector to more than $500 billion.
2023 will be less “glorious” as oil prices fall. However, Russia’s trade surplus will remain significant, at around $140 billion. Meanwhile, imports are set to rise by nearly 20% in 2023, to an estimated $284 billion.
One highlight of Moscow's export performance is the strong flow of goods towards Asia and Türkiye.
Europe has traditionally been Russia's largest trading partner. In 2021, the region represented half of Russia's exports and imports.
Asia comes in second, with a third of Moscow’s trade. But the picture looks very different in 2023.
Of Russia’s 38 major partners listed by the Bruegel think tank’s Russian Foreign Trade Monitor, nearly two-thirds of its exports now go to five Asian countries. Between 2021 and 2023, a drop in sales to two Western allies, Japan (-49%) and South Korea (-47%), created a trade deficit of more than $15 billion.
In return, Russia's sales to China and India totaled $108 billion, almost making up for the drop in Russian exports to the European Union (EU), which was -$106 billion.
The European Union (EU) has now dropped to a second-tier importer, accounting for 16.5% of Russia's total exports, and Russia's sales to the US have become extremely "tiny".
Türkiye is also becoming an important partner for Russia. Among the 38 countries listed, Ankara now accounts for more than 13% of Russian exports, up from 7% in 2021, with additional exports reaching $21 billion. That is more than enough to make up for the drop in sales to Japan and South Korea.
In short, the “trio” of China, India and Türkiye has helped Moscow’s exports reach $130 billion over the past two years, which is equivalent to the decline in Russian sales to the 27 EU member states, the US, Japan and South Korea (-$139 billion).
Energy loss
Energy products – Russia’s strong point – are largely exported to Asia and Türkiye, which have more than compensated for the decline in Moscow’s sales to the EU and the US.
By energy type, Russian coal exports to the EU, the US and the UK fell to zero.
However, China and India bought 60% of Russian coal by 2023. South Korea and Taiwan (China) also continued to import in significant quantities.
In total, according to the Center for Research on Energy and Clean Air (CREA), Asia today buys almost all of its coal from Russia.
The sale of crude oil and petroleum products is the Kremlin’s main source of foreign currency. Russia has cut its oil exports to the EU by 93% since 2021, but India has increased its purchases 14-fold and China has increased them by 25%.
The two Asian giants currently account for 80 to 90 percent of Moscow’s crude oil exports. Türkiye, for its part, is also the Kremlin’s top importer of oil products.
The $60/bbl oil price ceiling imposed by the G7 and the EU in December 2022, based on a ban on using Western-flagged or Western-insured vessels, has had limited effect. The proportion of vessels supplying Russia insured by G7 countries reached 80% in April 2022.
After 18 months, this ratio has dropped to 35%, and the two main flags used for Russian oil export vessels today are China and the United Arab Emirates (UAE). As a result, Moscow recorded a loss of oil revenue in 2023 of only about 14%. This suggests that exports have remained relatively stable.
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| China currently imports 22 billion cubic meters of gas from Moscow via the Power of Siberia pipeline. (Source: DPA) |
"The missing link"
In the gas sector, Russia seems to be in a more difficult situation. Its exports are mainly in the form of pipeline deliveries.
The country's gas pipeline network supplies gas to Europe, Central Asia, China and Türkiye. For decades, Russia's main gas market has been Europe. So when exports to Europe fell by 80%, they could not be compensated by other destinations.
China currently imports 22 billion cubic meters of gas from Moscow via the Power of Siberia pipeline. It could increase its Russian gas import capacity to a maximum of 50 billion cubic meters by 2025-2026, using the full potential of the Power of Siberia and adding another 10 billion cubic meters from another pipeline from Sakhalin.
But doubling China's imports to 100 billion cubic meters is only possible with the construction of the Power of Siberia II pipeline.
However, this new gas pipeline is still only a project that the two countries have been negotiating for the past two years. China does not really need Russian gas to ensure its supply and therefore it has imposed harsh conditions.
According to press reports, Russia will have to finance the entire project and agree to sign a long-term contract at a very attractive price.
Russian President Vladimir Putin’s recent visit to China failed to reach an agreement on the project. In any case, the new pipeline would not be operational until 2030 at the earliest.
Russia's other gas pipeline networks to Central Asia and Türkiye do not offer similar growth potential, so Moscow's gas exports by pipeline will stabilize at 50-60% of what they were before the outbreak of the conflict in Ukraine.
That makes liquefied natural gas (LNG), which accounts for only 20% of Russia's gas exports, "in high demand".
Kremlin LNG sales are holding steady and the EU continues to be the main buyer (with 50% of volumes) as there is no embargo on Russian LNG sales.
This is certainly the “missing link” in Western sanctions.
The new "Iron Curtain"
It is difficult to have a global view of how the positions left by European and American companies in Russia have been taken over, says author Hubert Testard. But two of the most frequently cited examples highlight the position of Chinese companies.
The analysis company MarkLine has just compiled statistics on the Russian car market in 2023. Accordingly, this market has more than halved since 2021, from 1.57 million new cars sold to 747,000 cars. Nationalized after the departure of automaker Renault, the Lada brand (part of the AvtoVaz group) currently holds 37% of the domestic car market.
However, Chinese brands (Haval, Chery, Geely and Omoda) account for a total of 42% of the Russian market compared to 14% in 2022. In contrast, Japanese, Korean or European brands have only marginal shares or no fluctuations.
The Russian smartphone market was dominated by four Chinese brands (Realme, Honor, Xiaomi and Tecno) who captured 75% of the market by volume by 2023. Samsung currently holds only 12% of the market and Apple 8%. However, in terms of value, Apple and Samsung still account for about 50% of the market.
Overall, the Russian economy is now dependent on the Asian market, which took over Europe’s previous position in just two years. Even if the Russia-Ukraine conflict ends, this situation is unlikely to change.
Author Hubert Testard commented: "A new 'iron curtain' has fallen, separating all of Europe from Russia."
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