Will higher oil prices and Russian military weakness shift Xi’s position on Putin?
Russia and OPEC announced a cut in oil production in another blow to China’s economy. Meanwhile, Xi may change course on Putin — but only after the Party Congress.
Russia and the Organization of Petroleum Exporting Countries (OPEC) announced a massive production cut of 2 million barrels of oil per day, or about 2% of total world production. The announcement sent shock waves through international energy markets and capitals around the world, with one expert calling production cuts at a time of global inflation “an affront to global economic policy at best.”
While Moscow wholeheartedly backed the slash in output, which will raise crude oil prices and its export earnings, the move will harm Beijing’s economic interests. In 2021, China imported roughly 10.3 million barrels per day, or about 3.76 billion barrels for the entire year. The hike in oil prices will therefore weigh heavily on the Chinese economy, with Barclays estimating that a global energy shock would subtract between 0.3 to 0.5 of a percentage point from China’s GDP. Moreover, surging crude and energy prices have already dealt a blow to China’s vulnerable and energy-intensive sectors — such as construction and real estate — since Russia’s invasion of Ukraine, as well as to local governments in China, which are facing a mounting cash crunch due, in large part, to Beijing’s COVID-zero policy.
Russia and OPEC’s production cut will make any shift away from COVID zero slightly more painful for China: With world energy prices already elevated, a lift in COVID-zero restrictions would send prices of some commodities, such as liquefied natural gas, up to potentially unprecedented levels. The production cut will only make matters worse.
Meanwhile, with an eye on Beijing and Delhi, Moscow warned that it won’t sell oil to any countries that adopt a “price cap.” Washington and Brussels have been weighing proposals that would leverage sanctions and insurance restrictions to cap Russian crude export prices at the cost of production, theoretically limiting Russian export earnings while maintaining crude market stability. Beijing has previously said it will oppose efforts to implement price caps.
Putin faces a potential military (and political) disaster in Kherson
The Russian and Ukrainian militaries are engaged in the Battle of Kherson. Putin has refused to let his commanders retreat from the city despite the oblast’s lack of military value and the danger that Russian military forces could be pinned against the Dnipro River. While many of Russia’s best units have been deployed to the area, Ukrainian forces have been able to advance deep into Kherson, which could place Russian resupply routes within artillery range.
While the situation is extremely fluid — and Moscow could stop Ukrainian gains or even reverse them — a rout of Russian forces in Kherson is not inconceivable. Another military disaster in Ukraine could produce political uncertainty in Moscow and create real jeopardy for Putin, potentially leading Beijing to intervene in Russian domestic politics.
Hints that Beijing is shifting its position on Moscow
According to Noah Barkin of the German Marshall Fund, cracks are beginning to show in Beijing’s support for Moscow: Citing European officials, Barkin says Chinese diplomats have stopped blaming NATO for the conflict in Ukraine, and stated that the use of nuclear weapons by Russia would be viewed as totally unacceptable in Beijing. Talk from Chinese diplomats posted abroad has often accounted for very little in the crisis, however, so it may be worth waiting for more authoritative declarations from Beijing.
Policy change occurring after the Party Congress?
If Xí Jìnpíng 习近平 gives Beijing’s policy toward Moscow any real teeth, he will likely wait until after the Party Congress concludes around October 23. Xi can expect fewer domestic political distractions after the Congress and will have a better sense of the conflict’s trajectory in three weeks.
If the Russian military stops the Ukrainian advance in Kherson in the next few weeks, a stalemate could likely last at least the winter. If, on the other hand, Russian forces collapse in Kherson, it could shock Russian elites and shift popular opinion, threaten Putin’s political viability, and potentially force Xi to clarify the extent of Beijing’s commitment to Putin. Though Beijing may prefer to delay any substantive changes to its Russia policy until after the Party Congress, events in Ukraine may force its hand.
