Investing in energy projects in the Arctic; Russia strengthens its close ties with China; and Russia plays a strategic game to undermine the US dollar.

From a geopolitical standpoint, China is not only a world power for Russia, but also holds one of the five permanent seats on the United Nations Security Council. A single veto power in the Council is enough to block any resolution passed by the body.

In recent years, Russia has provided a stable supply of oil and gas to China at prices reportedly lower than those offered by the Organization of Petroleum Exporting Countries and its partners (OPEC+). A large portion of this supply travels via pipelines, including the "Power of Siberia" gas transit route. The pipeline is expected to transport 30 billion cubic meters (Bcm) this year and 38 Bcm by 2025.

Another component is liquefied natural gas (LNG), projected at around 10 Bcm, which is expected to be delivered later this year. Unlike gas supplied via pipelines, LNG does not require years of costly infrastructure construction and is not necessarily bound by long-term contracts. Instead, if needed, it can be purchased on the spot market and transported anywhere quickly.

It can be asserted that any major military escalation in the world will only increase the importance of LNG in the global energy sector.

The strategic relationship between Russia and China makes ensuring Beijing's continued supply of oil and gas crucial for Moscow. Despite facing numerous Western sanctions, the NSR allows Russia to supply energy to China relatively easily.

The only problem is that, due to its location in the icy Arctic, ships cannot sail during the months of March to May, and also face difficulties at other times of the year. Therefore, Russia has been undertaking a major initiative to ensure that the NSR remains operational year-round.

In an interview with OilPrice , a senior oil analyst in Moscow stated: "With the NSR, 33 million tonnes of cargo were transported in 2021, 34 million tonnes in 2022, and over 36 million tonnes last year. The state-owned energy corporation Rosatom, which manages a fleet of nuclear-powered icebreakers, and Novatek, Russia's second-largest gas producer and a pioneer in Arctic LNG development projects, say they could support an increase to 100 million tonnes by 2026 and 200 million tonnes by 2030.”

Russia certainly has Arctic resources to fuel export expansion, with an estimated 35.7 trillion cubic meters (Tcm) of natural gas and over 2.3 billion tons of oil. Much of this is located in the Yamal and Gydan peninsulas, south of the Kara Sea.

According to comments by Russian President Vladimir Putin, the next 10 to 15 years will see a significant expansion in the exploitation of these resources in the Arctic, and the NSR will develop as a major shipping route, especially to China.

Russian President Vladimir Putin launched the first production line of the Arctic LNG 2 project in Murmansk, Russia, in July 2023. (Source: AFP)

As early as the end of 2021, it was revealed that a large gas field in the Kara Sea had been discovered by the Russian oil giant, Rosneft. This field, named after the Soviet military hero, Marshal Georgy Zhukov, has estimated natural gas reserves of 800 Bcm and is located in the Vikulovskaya structure, part of the East Prinovozemelsky-1 licensing area, where Rosneft has the right to explore and produce from November 11, 2020, to November 10, 2040. Rosneft is also developing the Vostok Oil project in the far north of Russia, encompassing the Vankor cluster, the Zapadno-Irkinsky block, the Payakhskaya group of fields, and the East Taimyr cluster.

Overall, estimates of proven liquid hydrocarbon reserves are at least 6 billion tonnes (51 billion barrels), all located near the NSR. Rosneft CEO Igor Sechin told President Putin that, with exploration underway at the Vostok Oil project and design work for the 770-kilometer pipeline and port completed, the plan will create a "new oil and gas province" on the Taymyr Peninsula of Russian Siberia.

"Declaring war" on the US dollar.

Moscow's efforts to exploit gas and oil in the Arctic are also a key part of Russia and China's plan to overthrow the US dollar-based hegemony in the energy market, especially given the involvement of one of the world's largest oil and gas producers and one of its biggest buyers.

From very early in the history of Arctic LNG projects, Novatek CEO Leonid Mikhleson indicated that they were considering using the Chinese yuan in future sales transactions. This aligned with his comments about the prospect of further US sanctions – following Russia's annexation of Crimea in 2014 – that they would only accelerate Russia's shift away from dollar-denominated oil and gas deals.

He said: "This issue has been discussed for some time with Russia's biggest trading partners such as India and China, and even Arab countries are starting to think about it... If they really make things difficult for Russian banks, then all we have to do is replace the USD."

As early as 2014, such a strategy was tested when the state-run Gazprom Neft traded crude oil shipments in yuan and rubles with China and Europe, aiming to reduce Moscow's reliance on dollar-denominated transactions, in response to initial Western sanctions on Russia's energy sector.

The core of these comments was echoed by former Executive Vice President of the Bank of China, Zhang Yanling, in a speech in April 2022, that the latest sanctions against Russia would then “discredit the U.S. and weaken the long-term ‘hegemony’ of the dollar.” She also suggested that China should soon help the world “eliminate the hegemony of the greenback.”