Ad Hoc Commentary – China Russia reach historic gas deal, Europe should be fearful

“…A $400-billion deal for a 30-year supply of natural gas has been negotiated for nearly a decade, with Russia hesitant to concede a lower price for China than its European customers, the New York Times reports…”
“…The contract is for 38 billion cubic meters of gas each year, the Wall Street Journal reports, implying a price of about $350 per thousand cubic meter—at the low end of what Gazprom currently charges clients…”

“…But Putin’s visit to China is not only about energy supply. The Russian president and his Chinese counterpart Xi Jinping will also attend a significant security conference. Simultaneously, the two countries are set to begin a joint naval exercise near Shanghai for the third time since 2012.
Overall, the Sino-Russian military cooperation could be expanded during Putin’s visit, says Klein. “In future, Russia will probably supply defense equipment to China, something it was previously reluctant to do.”…”

What we are seeing today is a typical script from the Romance of Three Kingdoms. The contemporary kingdoms are America, Russia and China. America is the strongest of them all and thus the rational thing to do for the lesser two is to join forces. That explains improving bilateral relations between China and Russia in recent years as evidenced by their military and economic cooperation.

What we need to recognize here is that Putin essentially gave in to Chinese low prices. If this is a game of chess, why did grandmaster Putin sacrificed his pawn to Xi? Putin likely believes that a small sacrifice today is necessary to grow his empire westward. Russia is taking full advantage of America’s pivot to China. Europe should be very fearful because Russia can use her gas weapon with impunity when the Chinese start buying in 2018. Today, Russia can only use her gas weapon for short periods before she starve herself of precious foreign exchange. Europe only need to fear the Russian gas weapon during the fall and winter months today.

The intelligence community in America will likely feel the need to do regime change in Syria. They probably want a Syrian pipeline to bring Saudi oil and gas into Europe to neutralize Russian stranglehold on Europe’s energy markets. Grandmaster Putin is unlikely to let this happen – in this hypothetical game of geopolitical chess, Syria is perhaps the queen. Thus, yours truly believes that Syria will hold the key to peace in our time.

Good luck in the markets.