Putin-Xi talks revive stalled Russian gas pipeline as Iran war rattles energy markets

Russian President Vladimir Putin met with Chinese leader Xi Jinping in Beijing on Wednesday, with a focal point being the long-delayed Power of Siberia 2 natural gas pipeline, particularly in light of the ongoing war in Iran, which is disrupting energy supplies globally.

According to Kremlin foreign policy aide Yuri Ushakov, the subject of the pipeline will be thoroughly examined by the leaders during their discussions.

Pipeline Details

The proposed 2,600-kilometer pipeline aims to transport 50 billion cubic meters of gas annually from Russia's Yamal fields to China through Mongolia. A legally binding memorandum to progress the construction was signed by Moscow and Beijing in September 2025; however, issues regarding pricing, financing, and a definitive delivery timeline are still to be resolved.

Reports suggest that China is seeking pricing terms for the new pipeline in line with Russia's domestic rate of approximately $120-130 per 1,000 cubic meters. In contrast, Moscow is advocating for terms that would echo those of the Power of Siberia 1 pipeline, which analysts project could exceed that figure significantly.

China's Energy Needs

The conflict between the U.S. and Iran, which intensified in late February, has effectively restricted access to the Strait of Hormuz, impacting half of China's oil imports and nearly one-third of its LNG supplies.

This energy disruption provides new incentives for Beijing to explore an overland pipeline that could entirely circumvent maritime chokepoints. Nevertheless, analysts remain doubtful that this would significantly change China's negotiating strategy.

China currently holds about 1.23 billion barrels in onshore crude inventory, adequate to meet roughly 92 days of refining needs, according to Muyu Xu, a senior oil analyst at Kpler. Additionally, domestic gas production rose by 2.7% in the first four months of the year, supplemented by Central Asian pipelines, excluding the Russian system.

Existing Pipeline and Trade

The proposed additional pipeline would enhance the existing Power of Siberia 1 system, which currently supplies around 38 billion cubic meters of gas to China each year, with both nations agreeing to further expand its capacity.

China has emerged as a major consumer of Russian energy, with imports of Russian oil increasing by 35% year-over-year in the first quarter, as indicated by official customs data.

Strategic Implications

Following Russia's invasion of Ukraine in 2022, gas exports to Europe have plummeted, with state-owned energy giant Gazprom reportedly witnessing a 44% decline in shipments last year, marking the lowest levels in decades.

The Power of Siberia 2 project, due to its scale, could leave Moscow vulnerable to dependency on a single customer. In turn, Beijing might find itself trading its vulnerability tied to the Strait of Hormuz for an energy reliance on Russian oversight, according to Michael Feller, chief strategist at Geopolitical Strategy.

"A deal would not only signify trust but also a strategic choice indicating that this co-dependence is viewed as safer than other alternatives," Feller noted. "For the broader international community, such a partnership would complicate the disentanglement of Sino-Russian relations."