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Is the Russian Economy Finally Tilting East?

September 2, 2016 • GLOBAL ECONOMY, International Relations, Europe

By Vladimir Popov

It may well be that in the next decades, with the benefit of hindsight, it will be only too obvious how Russia had sidestepped its Asian opportunities until 2014. Russia is lucky to border China – an emerging world economic leader – but it has not benefitted from this proximity as its primary policy goals have been Western-oriented, at least until the Ukraine conflict.

 

“The Russian eagle has two heads. One is looking westward, the other is looking eastward.” -Former Russian President Boris Yeltsin

In 2012, Russia exported 550,000 barrels of oil per day (bpd) to tiny Netherlands, but less than 500,000 bpd to China. According to the “gravity model” of trade, the volume of trade is proportional to the size of two countries’ GDPs and inversely related to the distance from each other, so Russian exports to China should greatly exceed exports to the Netherlands. China’s GDP is at least an order of magnitude larger than that of the Netherlands, while the distance from the main Russian oil fields in western Siberia is approximately the same to both states. Not only oil trade, but all Russian trade and investment flows are very much skewed westward.

The Ukraine conflict and the Western economic sanctions that followed have provided a major push for the geographic reorientation of Russia’s foreign economic trade and investment. A Eurocentric pattern of foreign trade and investment is gradually being replaced by a more balanced one, in which Asia and especially China will play a more prominent role. It is likely that Europe and Asia will be evenly represented in Russia’s future economic relations. But if Russia’s confrontation with Europe continues, China (and all Asia) may well replace Europe as Russia’s center of economic gravity.

 

Russia’s Energy Trade Imbalance

In 2014, over 50% of Russia’s overall oil exports went to Europe and the post-Soviet states, while only 24% went to East Asia (China, South Korea, Japan). Up until 2009, Russian natural gas was not at all exported to East Asia. Even now, all Russian non-liquefied gas goes to Europe, the post-Soviet states, and Turkey.

 
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