For Brussels, a Confluence of Crises in Ukraine
All eyes are on Ukraine this week as the threat of yet another Russian invasion looms. More than 100,000 Russian troops have gathered near the Ukrainian border, with more en route, and diplomatic efforts to resolve the crisis have been fruitless. The odds of violent conflict are high – and the implications for the European Union serious.
From the EU’s perspective, the dilemma is obvious: 40% of gas consumed in Europe comes from Russia, and the Union cannot risk a full-blown energy crisis in the middle of winter. But another global power – China – is also increasingly dependent on Russian energy. If Russia invades Ukraine again, chances are China will be more supportive than it was in 2014.
Sino-Russian ties are growing, and both countries are increasingly encroaching on Ukraine. The EU is facing a confluence of serious crises as a result, and it’s not only about energy; food security is also at risk.
The ties that bind
Sino-Russian ties have expanded enormously since Russia’s 2014 invasion of Ukraine. In the wake of western sanctions, Moscow and Beijing struck a long-awaited deal to build the Power of Siberia (PoS) pipeline connecting Russia to China.
The PoS project marked the beginning of a much closer relationship, and Sino-Russian trade has soared in recent years, rising from $42 billion in 2014 to $57 billion in 2020. In the same year, Russia supplied 15% of China’s total crude imports, and 9% of its natural gas imports. Russian exports to China are growing, and already account for 4% of its GDP.
Russia is becoming more economically dependent on China, while simultaneously acting as a secure overland source of energy for China, meaning both Moscow and Beijing have an interest in maintaining strong ties.
This does not bode well for Ukraine, which has also seen bilateral trade and economic ties with Beijing deepen significantly over the previous decade, particularly in the wake of Brussels’ inaction following the 2014 invasion, as well as continued European support for the Nord Stream 2 gas pipeline.
Both are anathema to Kyiv’s interests, reflecting the EU’s often uncertain and lukewarm commitment towards its neighbour, and both highlight how Ukraine is increasingly at the mercy of two hostile powers. The EU should be wary – Sino-Russian encroachment in Ukraine will have profound consequences for its supply chains.
In June last year, Ukraine surprised some observers when it signed on to the Belt and Road Initiative (BRI), a global geopolitical development agenda that has seen China invest billions in infrastructure along ancient maritime and overland trade routes.
BRI has drawn criticism for its debt trap diplomacy; loans for new infrastructure projects come with no strings attached, but the countries taking them on are not always able to repay, and defaults carry a high price.
As of 2020, China was Ukraine’s largest bilateral trade partner, accounting for 14.4% of total imports and 15.3% of exports. Bilateral trade hit a record $17.4 billion between January and November 2021, up 31.7% year-on-year. Chinese-backed contracts also hit a record high of $6.6 billion over the same period.
Food security implications
But China’s investment drive in Ukraine dates back much further than 2021, and deals signed a decade ago might pose more of a problem.
In 2012, Exim Bank signed off on a €1.3 billion loan to GPZKU, Ukraine’s state-run grain and food corporation. One year later, media reported that Xinjiang Production and Construction Corps had leased 9% of Ukraine’s arable land under a 50-year deal to grow crops and raise livestock in Dnipropetrovsk. At the time, Chinese investment in Ukrainian agriculture was estimated at $2.6 billion.
China’s investment strategy makes sense because it is the world’s largest food importer. Beijing has imported more than 100 million tonnes of grain each year since 2014, and bought record amounts of corn last year after being hit hard by heavy rains and African swine fever, both of which have put pressure on domestic supply
Under the terms of the 2012 deal with GPZKU, Kyiv had been supplying Beijing with roughly 3 million tonnes of corn annually. In 2015, this was equivalent to 90% of its total corn imports. But in the wake of the Sino-US trade war, Chinese corn imports from the US have ground to a halt. Instead, Ukraine is expected to export a record 5 million tonnes of corn to China this year.
There is a very real risk that Chinese encroachment in Ukraine will come at the expense of the EU because Ukraine is also the EU’s largest corn supplier. Something similar might already be playing out with energy – gas prices in Europe reached an all-time high late last year, as exports from Russia to Europe and Turkey fell short of forecasts by about 6 billion cubic metres in 2021. Exports to China via the PoS pipeline, which came online in 2019, were projected to have reached 10 billion cubic metres over the same period. European food supply chains could face the same risks.
Though some EU stakeholders have argued that food security is no longer an issue for Europe, the Commission’s own food security contingency plan, published in November last year, indicates otherwise. The Union’s Farm to Fork strategy will impose new ecological requirements on European farmers when implemented, which will impact food production, while supply chain logjams have been a regular headache for exporters, manufacturers, and indeed farmers, since the onset of the Covid-19 pandemic.
China and Russia are ideologically aligned, and both have an interest in maintaining a hold on Ukraine. The US has already ruled out unilateral military support in the event of an invasion, and the EU lacks its own army, as well as the political will to push harder for a more sovereign Ukraine. As things stand now, the EU is sleepwalking into a situation where both its energy and food supply chains are controlled by rivals and competitors.
Image: Ivan Bandura/Flickr