China and Russia Discuss Energy Deal

Looks like Russia is about to suffer some more strategic fallout from the Georgia War, to the tune of $20-30 billion in direct and immediate loans to its oil industry from China. That, in return for guaranteed exports of two billion barrels a year for 20 years. Obviously, Beijing is having some trouble digesting Russia’s recognition of the separatist provinces. Seriously (or if not seriously, then with slightly less irony), it’s quite a bargain compared to what we’ve spent in Iraq securing our oil imports for the next twenty years.

Moscow and Beijing are also talking about dispensing with the dollar for bilateral trade, but I imagine we’ll be hearing a lot of that in the days ahead. We’ll see how often it actually pans out.

Thomas Barnett echoes what I mentioned here, namely that China’s economy is still dependent on foreign demand, and that to really become a driver of the global economy it needs to boost domestic consumption. As Barnett says, it’s not supply, but demand that’s a kingmaker in the globalized economy. Agreed. But even if demand is the kingmaker, cash is still king, and never more so than in a liquidity crisis.

Which means China’s going to be a very popular date in the months to come. It will be interesting to see just who Beijing agrees to dance with.

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