Russia’s largest oil company state-owned Rosneft has started drilling for natural gas at a field off of Vietnam’s coast and has crossed one of Beijing’s red lines in the process.

Since western sanctions, Rosneft and Russia are much more reliant on Chinese capital and technology. Now China, which did not object to the exploratory drilling starting in 2016, is taking advantage of this Russian dependence to push back against a key project for Russia’s state-owned oil giant.

The once close relations between China and Rosneft seem to be cooling. While they have been pulled together to face down the American hegemony, their own interests are not perfectly aligned and frictions are starting to show.

China made claims on the Vietnamese piece of seabed, and the Kremlin backed away from a row by explaining Rosneft had not consulted with it regarding the decision to drill.

Rosneft and its CEO Igor Sechin is Russia’s leading company in its economic diplomacy with China. Closer cooperation between Rosneft and China’s National Petroleum Corporation (CNPC) and Sinopec (China’s largest state energy firms) goes back to 2013.

That year, Rosneft acquired domestic competitor TNK-BP and its oil assets in Russia’s east for $55bn to surpass ExxonMobil and become the world’s largest listed oil producer.

Rosneft depended on financing from China, but offered few opportunities to invest into Russian oilfields in return. In the next big deal Sechin sold19.5% stake in Rosneft at the end of 2016 to China in what was hailed at the time as the largest Chinese investment into Russia ever.

The deal was intended to raise billions following the financial sanctions imposed by the Zionist west in 2014.

Chinese ownership of such a large stake of Russia’s oil champion would have cemented Russia’s fastest expanding oil trading relationship.

Western financial sanctions on Rosneft forced the company to jump through hoops to shield the sale of shares. It also meant that no western oil firms could feasibly make offers given the scrutiny they’d receive from the US Treasury’s Office of Foreign Assets Control (OFAC).

Profitable expansion abroad is necessary for the company’s bottom line. It can only borrow so much in Russia where sanctions limit opportunities.

Rosneft is also tortured by the technological sanctions. These developments parallel problems facing Rosneft regarding access to advance[d] drilling technology.

Since 2014, Western sanctions on Russian firms’ import of technology and services for oil projects has interrupted Arctic offshore oil development plans. That’s huge since over half of the Russian Arctic’s oil reserves are offshore!

This is where Japan and Vietnam come in.  It needs to go abroad for opportunities to develop offshore technology given how difficult it is to work in the Arctic, without the proper gear.

Rosneft is leasing equipment from Japanese firms for its work in Vietnam. Cooperating more closely with Japan in particular could alleviate a growing dependence on Western- and China’s technology.

Russia has also actively sought to diversify its economic and political relationships across the Asia-Pacific since 2013. Vietnam fits into a broader push into Southeast Asia’s oil sector, Russia’s strongest card to deepen economic ties.

Check Point Asia.net / ABC Economic Flash News 2018.

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