The escalating conflict between Israel and Iran may fast-track a long-awaited natural gas deal between Russia and China, a senior Russian adviser told Reuters.
Kirill Babaev, head of the China and Contemporary Asia Institute, which helps shape the Kremlin’s policy on Beijing, said ongoing hostilities in the Middle East had created fresh urgency for China to secure stable gas flows from northern sources like Russia. He said a final decision on the Power of Siberia-2 pipeline, which aims to transport 50 billion cubic metres of gas annually to China, could be reached before the end of the year.
“With the sharp rise in tensions in the Middle East, it is advantageous for China to increase supplies from the north,” Babaev said in an interview.
Fears of wider disruption in the Middle East have intensified as Israel and Iran exchanged missile strikes for a fifth straight day, rattling global markets and pushing energy prices higher. Investors are bracing for potential disruptions to oil and gas flows from the region, which supplies nearly a third of the world’s crude oil.
Russia is pivoting more of its energy exports eastward as it faces mounting Western sanctions following its 2022 invasion of Ukraine. President Vladimir Putin is expected to travel to China in September to commemorate the victory of World War II over Japan, a trip Babaev said would focus heavily on energy and economic cooperation.
“The issue of the gas deal will arise again because this deal is capable of guaranteeing China an uninterrupted supply of energy,” Babaev added.
Payment pressures ease, but Chinese investors remain cautious
Trade between Russia and China surged by 26% in 2023, but growth slowed to just 1.9% in 2024 and declined 7.5% in the first four months of 2025. Still, Babaev believes new agreements in energy and agriculture could reverse the trend.
Key to those deals is a workaround to Western financial restrictions. Russian and Chinese firms have struggled with cross-border payments due to fears of secondary sanctions against Chinese banks. But Babaev said those concerns have eased thanks to discreet new payment systems.
“We have a mutual understanding with our Chinese partners that money prefers silence,” he said. “The Chinese side is cooperating with us, and new mechanisms are working fine.”
Energy stocks climbed last week amid rising concerns about supply chain interruptions in the Middle East. Markets now anticipate a shift in global energy flows, with Russia poised to deepen its role as China’s alternative supplier.
Chinese delegation at St. Petersburg forum signals deeper ties
A high-level Chinese delegation is expected at this week’s St. Petersburg Economic Forum, Russia’s main business gathering. The group will meet with Putin and participate in an energy panel that could set the tone for upcoming deals.
While official figures underreport China’s presence in Russia, Babaev said many Chinese investors operate quietly through joint ventures, intermediaries, and rebranded entities to avoid Western scrutiny.
“Chinese investors are entering the Russian market very cautiously,” he said. “They try not to make their presence too visible.”
Despite this cautious approach, sectors such as agriculture, logistics, oil and gas processing, and food production are seeing increasing Chinese engagement.
Read more on Oil prices hold steady as markets weigh US-Iran talks, China demand outlook
