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Foreign Policy

China and India Benefit from Western Sanctions Aimed at Russia

Jul 04, 2023

Worker at the pipeline.png

A worker at the starting point of the Nord Stream 2 pipeline in northwest Russia 
(Photo: from Council on Foreign Relations)

The EU-imposed sanctions on Russian oil imports and the voluntary exit of Western producers from Russia created opportunities for alternative supply chains to emerge. As a result, Chinese manufacturers seized the chance to capitalize on the European market and fill the void left behind. India has also played a significant role as an intermediary in trade, becoming the third-largest global exporter of oil derivatives.

China, Europe, and Russia's trilateral relationship was exacerbated by the ongoing crisis in Ukraine, a result of which has Beijing and Moscow on a similar page regarding unilateral sanctions, U.S. hegemony, and geopolitics. The Council of the E.U. recently passed a resolution restricting Russian oil derivatives imports, with some politicians criticizing it for setting potentially dangerous precedents and undermining free-market principles. However, Russian oil producers remained unaffected due to stable oil prices and the identification of new markets, showcasing the Western sanctions regime's precarious nature. 

India has taken advantage of the situation by more than doubling its imports of Russian oil since 2016, as the International Energy Agency reported. India uses this oil to meet around 25 percent of its domestic demand and exports derivatives primarily to the U.S., South Korea, Singapore, Australia, and several European countries. Despite E.U. sanctions, Russian oil indirectly finds its way to European markets. Meanwhile, China maintains its intimate trading relationship with Europe, regardless of Washington's efforts to influence Europe's relationships with Moscow and Beijing.

The departure of Western car manufacturers, such as BMW, Hyundai, and KIA, from the Russian market has opened the door for Chinese producers to increase their market share in Europe. The Chinese government has ambitious goals to rival Japan as the world’s most prominent car exporter. Furthermore, Chinese car manufacturers are confident that relations between Russia and the E.U. will normalize in the foreseeable future, enabling Chinese cars produced in Russia to access European markets. This development demonstrates China's strategic thinking and patience as it seizes opportunities left by Western companies.

The E.U. has invested around 800 billion euros in energy security projects, with countries like Germany contributing significantly. However, the economic forecast of how this investment will affect energy stability in the E.U. remains uncertain, and the impact on the euro currency is yet to be seen. In contrast, India and China gained access to Russian oil at competitive prices. China has been able to use its access to Russian resources to build closer ties with countries in Central Asia and the Middle East, which are crucial for its Belt and Road Initiative.

China has managed the risk of Western sanctions by creating interdependencies via exports and trade. By exporting a large volume of goods to Western countries, China has become a critical link in global supply chains, making it more difficult for Western countries to impose sanctions without causing significant disruption to their economies. Moreover, China has reduced its vulnerability to Western pressure by diversifying its trade relationships and investing in critical infrastructure worldwide. For example, China's investments in Africa and Latin America have given it access to essential resources and markets, which has helped insulate it from the impact of Western sanctions.

Ultimately, the West’s shunning of Russia has facilitated China's expansion in Europe, bringing significant benefits to Chinese manufacturers and oil companies. This development has been driven by China's assertive energy strategy, investments in critical infrastructure, and its ability to create interdependencies via exports and trade. However, China's growing influence in Europe raises concerns about the geopolitical implications, including the risk of undue influence and access to sensitive information. The E.U.'s efforts to limit China's power in Europe and coordinate its approach to China with the U.S. and other allies will be crucial in managing these risks and opportunities. Ultimately, the future of energy security and geopolitics in Europe will depend on how these challenges are addressed in the years ahead. As the E.U. navigates this complex landscape, fostering cooperation and dialogue with China and Russia may prove essential for ensuring a balanced and secure future for Europe in the global market.

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