Russia and China’s gas alliance is a bluff. Will Washington call it?

If their recent memorandum on Power of Siberia 2 materializes, Russia and China will one day be connected via a vast gas pipeline running from the Arctic and across Mongolia.

Details of the deal remain murky. Pricing negotiations will be fraught. Beijing is a ruthless buyer, Moscow is a desperate seller, and a signed memorandum is not a steel pipeline. Yet it signals a new stage of the war over energy dominance, market share, and leverage in global trade.

Since its invasion of Ukraine, Russia has lost substantial ground in Europe’s oil and gas market, once its most profitable. Russia’s pipeline gas flows to the European Union plummeted from 140 billion cubic meters in 2021 to less than 27 bcm in 2024, and are projected to average only around 16 bcm in 2025, mostly via the TurkStream pipeline. Europe has pivoted to liquid natural gas, chiefly from the U.S., and has implemented other demand mitigation strategies.

In 2024, the U.S. accounted for 18% of global gas trade movements—including pipeline and LNG—compared to 13% for Russia, 11% for Qatar, 11% for Norway, and 9% for Australia. Since Washington lifted its year-long pause on LNG export approvals in January, U.S. exporters have greenlit three new projects. Additional projects are already under construction. U.S. LNG export capacity is now set to nearly double by the end of the decade.

From Moscow’s perspective, the risk is that China—traditionally its largest single buyer of commodities—might get involved in these new U.S. LNG projects with long-term contracts, further bolstering America’s export momentum.

Notably, the pipeline expansion announcements unveiled by Russia and China would add up to 60 bcm per year of potential new capacity across a new Power of Siberia-2 line, expansion of the existing Power of Siberia-1, and capacity increase of the Far East line. This mirrors what the U.S. LNG projects have already secured through FIDs this year, roughly 47 bcm per year.

The timing of the deal is deliberate.

Russia and China needed to show a united front against the U.S. right now. Both countries face difficult negotiations with Washington: China over tariffs and Russia over the possible terms of ending its war in Ukraine.

For Beijing, the pipeline announcements may also give it leverage in its negotiations with other oil and gas exporters. China has deliberately projected both an expansion of domestic gas production and tempered gas demand growth, signaling to suppliers that it has options. For now, China remains the world’s largest gas importer. But it will need to secure its supply at an affordable price if it wants to win the AI race against the U.S.—not to mention its other industrial competitions.

Enter the pipeline bluff. By entertaining massive Russian supplies, China gains negotiating leverage in parallel talks with U.S., Qatari, and other LNG suppliers. The optics of a potential 100 bcm per year pipeline cushion China’s bargaining position—even if, in practice, Beijing prefers diversification and optionality.

Moreover, China has already started experimenting with reselling cargoes, and the materialization of such a pipeline would accelerate its positioning as a potential LNG swing supplier, especially if China ends up contracting volumes beyond its domestic demand. Instead of being a pure demand center, China could increasingly influence global spot balances and therefore pricing, competing directly with trading houses and exporting countries.For Russia, talk of its gas “returning" to Europe—an idea recently floated in some policy and market circles—was perceived as part of an effort to test whether Russia could be lured closer to the West and distanced from China once the war in Ukraine subsides. By signaling an eastward pivot, Moscow may be seeking to foreclose that option and demonstrate loyalty to Beijing. This isn’t a totally new development: China and Russia have increased their trade of illegal oil and gas over the past two years, including three cargoes from the sanctioned Arctic LNG-2 project, at the expense of Western interests.

Russia can’t match the U.S. and Qatari’s de facto spheres of influence in the global LNG market. But it can try to lock in demand through pipelines, ensuring steady rent extraction.

Time will tell whether this pipeline project is just another scare tactic straight out Russia’s Cold War playbook. Soviet propaganda often manufactured the appearance of imminent breakthroughs to gain psychological advantage over its competitors. Months before Yuri Gagarin’s historic 1961 space flight, for example, the government began circulating rumors of a cosmonaut launch.

The new pipeline announcements serve a similar function. It is strategic bluffing to unsettle rivals, freeze investment decisions elsewhere, and project a sheen of inevitability.

The question is whether Western policymakers and investors will read these signals as bluffs or as real constraints on market opportunities.

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