By Pipe and Rail: Russia in Search of Shorter Routes to Asian Markets

Memo #301

Putin Prioritizes Geo-Economics over Geo-Politics

By Mendee Jargalsaikhan – mendee [at] alumni.ubc.ca

Russia’s largest state-owned oil giants, Transneft and Rosneft, as well as Russian railroad authorities are again eyeing Mongolian routes as the shortest, most efficient, and safest way to Asian markets. Russia’s previous transport options to these markets—through the Russian Far East (RFE), North Korea, and Central Asia—are all costly, lengthy, and risk-prone, especially those through North Korea and Central Asia.

As evidenced by the recent Mongolian visit of the Rosneft president, and in discussions between Transneft and Mongolian officials in Ulaanbaatar, the Russian side is becoming more determined to build oil and gas pipelines through Mongolia in addition to the RFE. This is a sudden change in Russia’s oil and gas policy toward Asia. Previously, Russia, as well as China, had opted to bypass Mongolia and build their pipelines through the RFE and even North Korea. While some politicians in Ulaanbaatar at the time viewed this snub as a case of powerful neighbours punishing Mongolia for its close alignment with the United States regarding Iraq, in reality, both China’s and Russia’s decisions were more informed by concerns over the positive effects of construction and operation of their pipelines on their local economies and the costs of transit taxes and tariffs. However, now Russia is prioritizing the economic benefits of shorter transit routes to Asian refineries and distributors.

The railways, once a victim of Russian-Mongolia-Chinese rivalries and suspicion, are also seeing a thaw. In 2008, Russia, as a co-owner of the trans-Mongolian railroad, pressured the Mongolian government into refusing US aid for its railroad development and instigated a six-year debate in Mongolia over whether to employ Russian or Chinese gauges for any extensions to its railways. But late last year Russia’s geopolitical concerns yielded to its growing economic need for transit. In the wake of the last Russia-China-Mongolia trilateral meeting in December 2013, China and Russia agreed to increase the usage of the trans-Mongolian railroads, to lay additional lines, and to improve railroad logistics.

The Mongolian Prime Minister’s visit to Moscow this month, and the expected visits by Russian and Chinese leaders this year, certainly indicate rising Chinese and Russian interests in their smaller neighbor. Both Russia and Mongolia are overcoming their mutual geopolitical concerns as an imminent need for Asian cash turns Russian eyes towards Mongolia—its easiest, nearest gateway to the East.

About the Author:

Mendee Jargalsaikhan is a PhD student in the Department of Political Science at the University of British Columbia, and an Institute of Asian Research Fellow for 2013-2014. You can visit his personal blog on Mongolia at http://blogs.ubc.ca/mongolia/.

Igor Sechin, President of the Russian oil conglomerate Rosneft, meets with Mongolian Prime-Minister Altankhuyag in Ulaanbaatar in March 2014.

 Links:

• Alan Wachman, “Suffering What It Must? Mongolia and the Power of the ‘Weak’,” Orbis, 54 (4), 2010

• “Mongolia: Growth, Democracy, and Two Wary Neighbors,” an interview with Alan Wachman, May 2012

• “Russia Needs Pipelines to Mongolia, China, Korea to Capture Far East Energy Market,” Oil & Gas Eurasia, April 2014

• “Mongolia will have three huge transit railroad corridors,” The UB Post, January 2014

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