As Putin-Xi meet, Iran war energy disruption puts long-stalled Russian gas pipeline back on agenda

• The 2,600-kilometer pipeline would carry 50 billion cubic meters of gas annually from Russia's Yamal fields to China, but China wants pricing near Russia's domestic rate of $80 per thousand cubic meters while Moscow seeks terms closer to Power of Siberia 1, estimated at over double that amount.
• The U.S.-Iran war has effectively closed the Strait of Hormuz, disrupting half of China's oil imports, creating fresh incentives for Beijing to consider overland pipelines that bypass maritime chokepoints.
• Analysts warn the deal would create dangerous mutual dependency, with Russia exposed to a single customer after losing 44% of European gas exports, while China would trade Hormuz vulnerability for dependence on Russian-controlled energy.

Summary

Key Development: Russian President Putin met with Chinese leader Xi Jinping in Beijing, with the long-stalled Power of Siberia 2 natural gas pipeline as a central agenda item amid energy supply disruptions from the U.S.-Iran war.

Pipeline Specifications

• 2,600-kilometer route from Russia's Yamal fields to China via Mongolia
• Planned capacity: 50 billion cubic meters of gas annually
• Legally binding memorandum signed in September 2025, but pricing, financing, and timeline remain unresolved

Key Sticking Points

• China seeking pricing matching Russia's domestic rate of approximately $3/mmBtu
• Moscow wants terms closer to Power of Siberia 1, potentially doubling that figure
• Price disagreements have stalled negotiations

Market Context

• Chinese oil imports from Russia jumped 35% year-over-year in Q1
• Power of Siberia 1 delivered 38 bcm of gas to China in 2025
• U.S.-Iran war has effectively closed the Strait of Hormuz, disrupting half of China's oil imports
• Russia's gas exports to Europe plunged 44% in 2024 to lowest levels since Soviet collapse

Strategic Implications

Despite energy disruptions creating fresh incentives for an overland pipeline bypassing maritime chokepoints, analysts remain skeptical about changed negotiating positions. China holds 1.23 billion barrels in crude inventory (92 days of refining needs) and increased domestic gas output 2.7% in the first four months.

Analysts warn the deal would deepen Sino-Russian co-dependency, making their relationship "harder to unpick" globally while exposing Moscow to single-customer risk.