President Rodrigo Duterte recently travelled to Russia where he met with senior Russian officials. Following the visit, Finance Secretary Carlos G. Dominguez III announced that Moscow was very interested in agreeing on an energy partnership in a huge blow to China’s dominance in the region. Mr Dominguez said: “You have to remember that we don’t have a big relationship with Russia, and I think that the trip of the President opened the avenues for increased contact with Russians.”
When asked what ventures Russia was interested in, the Finance Secretary said: “All kinds of power—distribution, technology, power generation; also, renewable energy.”
Following the trip, a spokesman for Mr Duterte confirmed that he met with the directors and chief executive of Rosneft, Igor Sechin.
At the meeting, he invited Mr Sechin to form a joint partnership with the Philippines to drill for oil in its waters in the South China Sea.
The president is said to have reassured his Russian hosts that their investments would be safe from Chinese interference and also from corruption.
The Philippines’ ambassador to Russia, Carlos Sorreta, had indicated before last week’s meeting that Russian energy companies were very keen to invest in oil and gas developments in the region.
The South China Sea offers huge opportunities for Russia’s oil and gas sector, and this invitation would be hard for it to resist.
Experts believe that the region has up to 11 billion barrels worth of oil under the South China Sea along with 190 trillion cubic feet of natural gas.
However, resource-hungry Beijing has aggressively sought to assert its sovereignty over these hydrocarbon deposits.
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The People’s Republic says that the entire waterway up to the coasts of the Philippines, Malaysia and Taiwan belongs to it, a claim rejected by an international court of arbitration in 2016.
China would, therefore, most likely see any attempt by foreign companies to drill for oil as an unwarranted act of aggression and interference.
Putin has worked extremely hard over the past few years to develop strong political and economic ties with President Xi.
He sees an alliance with China as the perfect way to counterbalance and oppose US and Nato influence on the global stage.
As Cailin Birch, global economist at the Economist Intelligence Unit, told CNBC that “there’s a growing consensus that a partnership between Russia and China is quite a powerful force, led by China rather than Russia, but that between the two of them they could represent quite a powerful bloc.
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“Russia would be the junior partner based on the size of markets and its prospect for growth, so obviously in that sense, Russia would be pulled into China’s sway slightly.”
Beijing is also a major market for Russian armaments, having spent roughly $15billion (£12billion) on Russian weapons in 2017.
These included purchases of SU-35 combat aircraft, as well as S-400 surface-to-air missile systems.
Russia already has made investments in oil and gas projects in the South China Sea.
South China Sea
Rosneft has entered into a joint venture deal with Vietnam, building an oil rig in Vietnamese waters of the South China Sea.
China reacted aggressively to this move, sending coast guard ships to try and block the rig’s construction during the summer.
According to Hanoi, the joint venture has already lost some $295million (£241million) due to Chinese interference.
Beijing demanded that Vietnam abandon its oil exploration projects with foreign companies.
Undeterred by these warnings, Rosneft has continued to explore for oil.
Some analysts believe that Vietnam intentionally partnered with Rosneft as a way of putting pressure on China.
All of this creates a tricky dilemma for Mr Putin, who must now decide just how far he can go in advancing and protecting the interests of Russia’s oil and gas companies in the region, before damaging Sino-Russian relations, possibly irretrievably.