Steve Forbes explains for readers of the latest Forbes magazine why there’s no good reason to get terribly excited about a new natural gas deal between the Russian and Chinese governments.
After a decade of negotiations Russia and China announced a 30-year, $400 billion natural gas deal. Vladimir Putin is portraying the agreement as another brilliant coup: Russia gets a large, long-term customer and demonstrates that, despite its aggression against Ukraine, it’s not only not isolated diplomatically but also has a new and powerful strategic ally, which has the second-largest economy in the world.
Save all the breathless hype. Putin is naturally spinning the pact as an “epochal event,” but in truth it’s really no big deal. Divide that $400 billion by 30 years and you get an annual average of $13 billion. The size of the global economy today is almost $80 trillion. Seen in that context the contract rates barely a footnote. AT&T’s proposed acquisition of DirecTV merits more attention.
Strategic alliance? The deal with China underscores Russia’s core weakness. Despite its immense resources and highly educated population, which includes a considerable number of capable scientists and mathematicians, Russia has a shockingly small economy that is amazingly dependent on the export of oil, gas and a few other natural resources.
This state of affairs is testimony to bad governance. In our high-tech era Russia should be a powerhouse instead of a cipher. The country can cause considerable mischief, but if the EU and the U.S. ever get their economic, military and diplomatic acts together, they’ll easily be able to checkmate Moscow. Russia’s neighbors are all too aware that alignment with Putin means stagnation and oppression.