Russia Might Soon Redirect Its Gas Pipeline Plans From China To Iran & India

The continued pricing dispute over the Power of Siberia II gas pipeline might lead to Russia prioritizing its new gas MoUs with Iran and Azerbaijan to pioneer a southern-directed pipeline for facilitating Russian-Iranian gas swaps with India.

The South China Morning Post reported earlier this week that “Future murky for Russia-China pipeline as Mongolia omits project from long-term plan” after the new coalition government didn’t include the Power of Siberia II (PoS-2) gas pipeline in their action program for the next four years. Russian Foreign Ministry spokeswoman Maria Zakharova was optimistic when asked about it during a press conference, however, noting that negotiations are still ongoing and expressing hope that a deal will soon be reached.

Chinese Prime Minister Li Qiang just visited Moscow this week where he met with Putin to discuss “large-scale joint projects” between their nations according to the Russian leader. This could be interpreted as a signal that their pricing dispute was probably touched upon during these talks. About that, it was analyzed here in early June that the crux of the problem is that China wants the lowest price possible while Russia naturally wants the highest one, and they’ve thus far been unable to compromise.

Later that month, Russia and Iran signed a gas pipeline Memorandum of Understanding (MoU), but this analysis here questioned whether it was more about optics than substance. The Caspian Sea littoral states would have to all agree on an undersea pipeline, though this has been the bone of contention for years as regards the proposed one between Turkmenistan and Azerbaijan. Moreover, Azerbaijani-Iranian ties remain plagued by distrust so it seemed unlikely that one would be built across Azerbaijan either.

The optics angle therefore appeared to be the most accurate one for analyzing this MoU since it seemed in light of the Sino-Russo pricing dispute over the PoS-2 that Russia might have wanted to show China that it has other customers in Iran and further afield in India via a potential swap agreement. This might have then been leveraged by Russia to encourage China to reach a compromise with it instead of continuing to demand basement-bargain prices that Moscow considers to be unacceptable.

The calculations described in the preceding two paragraphs might have just changed though after Putin’s trip to Azerbaijan, where Eurasian integration was at the top of the agenda, including its energy component after Gazprom and Azerbaijani state energy company SOCAR signed a strategic MoU. It specifically mentions cooperation along the North-South Transport Corridor (NSTC), which links Russia with India via Iran through the three branch corridors of Azerbaijan, the Caspian Sea, and Central Asia.

This came less than a week after Mongolia’s new coalition government approved their country’s action plan for the next four years on 16 August. For those who might not be aware, the PoS-2 is supposed to transit through Mongolia, and its primary goal is to replace the Yamal gas field’s lost European customers with China. The fact that Mongolia omitted this megaproject from their action plan implies that it won’t see construction for some time, which is a fair assessment considering the abovementioned insight.

That could change if China finally agrees to reach a compromise with Russia on their pricing dispute, perhaps after being influenced by Russia’s MoUs with Iran and Azerbaijan into realizing that alternatives (indirectly including India via a gas swap) exist, but it wouldn’t be the end of the world if it doesn’t. In the event that their dispute still persists despite these latest moves, Russia might then put its full diplomatic energy into brokering an Azerbaijani-Iranian rapprochement for facilitating its southern plans.

India would be crucial to the success of these efforts since it would have to commit to purchasing Russian-swapped Iranian gas in spite of the US’ sanctions against the Islamic Republic’s energy industry that led to India abandoning its prior import of that country’s resources. If it musters the political will, then the other three parties – Russia, Azerbaijan, and Iran – would then know that they’d profit accordingly, thus improving the chances of a Russian-brokered Azerbaijani-Iranian rapprochement.

The arguments in favor of India changing its stance towards the US’ sanctions against Iran’s energy industry are that Indo-US ties have become very troubled over the past year due an alleged assassination plot and America’s role in overthrowing the Bangladeshi government earlier this month. Moreover, India considers itself to be a rising Great Power and the Voice of the Global South in the interim tri-multipolar world order, so continuing to voluntarily comply with such restrictions greatly damages its prestige.

There’s also the heated Sino-Indo rivalry to consider. India has done its utmost since the special operation and resultant Western sanctions to preemptively avert its Russian strategic partner’s potentially disproportionate dependence on China. To that end, it might therefore believe that it’s worth risking more of the US’ wrath by ignoring its sanctions for the sake of receiving more discounted energy via a Russian-Iranian swap and thus also reducing Russia’s export (and revenue) dependence on China.

The best-case scenario would be that both the PoS-2 and whatever this southern pipeline will be called end up being built in parallel, but since the first might not be built for some time, then it’s best for Russia to concentrate on the second. If a deal is reached with the associated states for building it, then Russia could more compellingly leverage that to encourage China to compromise on their pricing dispute, thus potentially leading to PoS-2 beginning construction by the end of the decade (though hopefully earlier).