Executive summary

This report examines the development of key dimensions of Russia-China energy relations since 24 February 2022, and explores potential future trajectories and their implications for Europe. Following Russia’s invasion of Ukraine, the Russia-China energy relationship is at a critical juncture. Its future trajectory is fundamental to the success or failure of Europe’s attempts to undermine the Russian economy through energy sanctions, as well as to the wider Europe-Russia-China trilateral balance.

The report’s findings reveal that China has initially adopted a cautious approach, only moderately increasing its oil and gas trade with Russia. China has refrained from signing new long-term supply contracts and has not invested in the Russian upstream sector since the beginning of the war, even as Western companies have withdrawn. In terms of sanctions compliance, China has continued to buy Russian oil above the Western price cap, but only through third parties or domestic independent companies. It has not used its main stateowned tanker fleet since the price cap implementation date. Nor has it provided alternative shipping insurance. This cautious stance is probably the result of three factors: the threat of Western sanctions, China’s energy diversification strategy and its ability to adopt a waitand-see approach.

China is consequently balancing between supporting its most important strategic partner in its challenge of the Western-led world order and looking after its own more self-centred interests, which include maintaining economic ties with its Western trade partners. This balancing act might be unsustainable, however, which foreshadows difficult future policy choices for Europe.

China’s wider relationship with the West is probably the most important factor shaping future Russia-China energy relations. If current relations can be maintained, China might continue its balancing act. If relations deteriorate, a stronger Russia-China axis is likely to form through increased energy trade and cooperation, further undermining sanctions on Russian energy.

If Europe is to successfully implement its Russia policy, it should encourage China to maintain its initially cautious stance. This might be achieved by a combination of incentives and deterrents, aimed at preserving economic ties and collaboration while at the same time upholding a credible threat of secondary sanctions.

As deterrents, Europe could prepare for a potential deterioration in relations by securing critical supply chains, and by preparing potential secondary sanctions, for example, aimed at entities evading the oil price cap. In terms of incentives, Europe could continue to structure its Russia sanctions in a way that rewards China’s compliance while also seeking opportunities for collaboration, for example on low-carbon energy technology.

In addition, Europe must establish its red lines regarding unacceptable levels of sanctions evasion and Russia-China energy collaboration, while also determining proportional responses with regard to the acceptable costs and risks associated with escalation with China.

Finally, Europe must also address its own domestic energy concerns and long-term position vis-à-vis China in terms of energy security, affordability and competitiveness.

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