The Russian Variable in Post-Brexit UK Foreign Relations with China, the US and EU

The Russian Variable in Post-Brexit UK Foreign Relations with China, the US and EU
Photo Credit: Reuters/達志影像

What you need to know

The post-Brexit context reveals an opportunity for the UK to benefit from the existing Sino-Russian relations in Eurasia and the changing interests of the US in Europe.

One of the most important questions for U.K.-China relations in the context of Brexit has been one of the U.K.’s relative value to China for its realigning strategy towards the E.U. and the U.S. Having been China’s most consistent supporter in the E.U. in recent years, the U.K. had hoped to convert this political capital with Beijing into an early free trade deal or bilateral investment treaty, which would provide leverage in the U.K.’s own negotiations with Brussels. On the surface, there appear to be good reasons for Beijing to play along, given the increasing political uncertainties in the European bloc as well as the recently resurgent special relationship between the U.K. and the U.S. However, its expressed commitments have been more modest, mainly limited to going ahead with financial sector cooperation and liberalisation such as the London-Shanghai Stock Connect, London banks to underwrite panda bonds, and London as an RMB clearing hub, etc. In truth, China’s Brexit "card" is more powerful than the U.K.’s China card, thus China is sitting pretty for the golden window of opportunity for maximizing their leverage come the triggering of Article 50 later this month. The E.U. is the loser in this unfolding game, and for voting against granting China “market economy” status the E.U. has prompted Beijing to launch a WTO case against it (and the U.S.) for failing to honor the pledge made in 2001 upon China’s accession.

Chinese leaders are also thinking outside of the region. They are faced with a once-in-a-generation opportunity as the shifting geopolitical tectonic plates beneath the crisis of the Western global order, starting with the 2008 financial crisis of the West have developed further with Brexit and Trump’s election in 2016. Chinese President Xi Jinping captured the moment with his assertive defense of economic liberalism and Chinese leadership at Davos in January, and domestic public discourse is vibrant with proposals for China’s greater global role against the inward orientation of the E.U. and U.S.

The strategic value of the Russia Card in U.K.-China relations has been neglected or misunderstood in the above context. Either Russia is deemed to be a European and American problem, or a reluctant economic and political ally of China, whose faithfulness might be tested with Trump’s overtures – which seems increasingly unlikely from prevailing sentiments in Washington DC. What we would like to explore here is the prospect for the formation of a strategic quadrangle of U.S., U.K., Russia and China in the next few years. In other words, the finding of a common ground to re-engage Russia in Europe to the benefit of all four parties’ key economic and strategic priories. In 1995, the Council on Foreign Relations published The Strategic Quadrangle: Russia, China, Japan, and the United States in East Asia, focusing on the collective challenge of “coaxing China into a constructive, cooperative regional and global role.” In 2017, Russia has become the subject of partnership.

Our argument will proceed in three parts: First, we will examine the U.K.’s incentives for warming up to Russia and consider China’s incentives for adding Russia to its post-Brexit European strategy. In light of major constraints on Russian foreign policy in Central Asia and the Far East, we argue that Moscow is likely to take serious opportunities to work with the U.K. in opening up long-term, greenfield economic opportunities in maritime trade and energy cooperation. The United States would then respond to a convergence of British, Russian and Chinese interests that would strengthen the case domestically for a limited relaxing of sanctions on Russia. In this strategic quadrangle, the U.K. possesses firm level advantages crucial for large-scale energy, infrastructure, and financing projects as well as a greater geopolitical flexibility than the E.U. in brokering "win-win" economic relations for China, the U.S. and Russia.

UK’s interest in engaging Russia

A key U.K. interest in engaging with an E.U.-sanctioned Russia is to maintain stability and predictability across the Russian/Eurasian landmass. The importance of this is underscored by President Putin’s ongoing economic pivot to Asia, and Prime Minister May’s doubling down on Chinese capital and market for Britain’s economic future. Whilst originally Putin had planned to develop the EEU as both an “internal” market integrator in the post-Soviet space and a consolidator of its geostrategic roles as the gateway and gatekeeper for E.U.-Asian interactions in the Eurasian landmass, since 2015 it has become increasingly obvious that Russia has neither the resources nor the degree of conceptual operationalization that China has in their Belt and Road Initiative (BRI). In the short term Russia has allowed the PRC to take the lead in the merged EEU-BRI venture. Thus U.K. trade with Asia/China is to some extent contingent, infrastructure-wise, on stable Sino-Russian economic relations across Eurasia, and a working relationship with Russia itself. On Jan. 18, the first direct freight train from China arrived in London after it passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, before crossing the English Channel into the U.K. Kazakhstan, Belarus and Russia are founding members of the EEU.

Consequently, questions the U.K. may now ask as a non-aligned state in Europe include: whether the U.K. will continue to support sanctions against Russia well into the future; if it shares Russia’s view of the economic benefits of a pivot to Asia; and whether the development of the principal connectivity instrument of Eurasian integration, China’s Belt and Road Initiative (BRI), is something the U.K. wishes to be a part of. British commercial and national interests are already in play with the U.K.’s early support for the Asian Infrastructure Investment Bank, and with the vast demand for financial services, advanced technology including ICT for energy and infrastructure projects, and environmental management specialization in Chinese projects in Central Asia and the Russian Far East, the U.K. is well positioned to benefit from economic relations with Russia and China.

Russia’s key instrument of Eurasian connectivity appears to be the Northern Sea Route (NSR) – a potential Arctic maritime gateway connecting Asia with Europe. While NSR is not officially on the plan and map of the Belt and Road Initiative, it is only a matter of time before it is specified as a new route that would reroute Chinese container shipping to Europe and oil tankers for imported crude for the Chinese market through maritime space that is mostly free from possible U.S. naval interventions. Information from leading Arctic think-tanks in China strongly suggests linking the NSR route to the BRI framework. The commercial and technological profiles of U.K. companies would position them to contribute to the infrastructure build-out of the Northern Sea Route. The U.K. also boasts the soft power in its unparalleled expertise related to the law of the sea and marine finance, and with the International Maritime Organization resident in London. The FCO could hardly underestimate the commercial value and geopolitical significance of the Sino-Russian cooperation in the NSR and Russian Far East.

It may be the case that the U.K. develops a dual trade policy consisting of firstly bilateral ties with European Russia, centred around developing initially "win-win" economic frameworks, trade agreements, social cohesiveness (civil society-type projects), and specific industry opportunities (e.g. Arctic fishing and fish processing), that can serve as both confidence-building mechanisms and restorers of mutual trust.

The next logical and visionary steps would be to consider the impact of rapidly increasing connectivity and the politically-facilitated trade and investment climate in the Eurasian space that would add significant value to U.K.’s engagement with Russia in Northern Europe. Recognising the prospect of Russia’s Far East (RFE) as being in the process of economic integration with Northeast Asian regional development, which in turn is oriented toward the potentials of the North Sea Route, the U.K. should find a self-recommending rationale to expand its financial position and investment in AIIB to support North East Asian market development.

This could take the form of selective U.K. investment in the RFE region, a broader role in promoting British firms in Belt and Road Initiative projects, and possibly applying British competitive advantages in energy projects and NSR infrastructure. For example, BP holds a 19.75% share in Rosneft – Russia’s most dynamic and politically well-connected energy company and China’s national oil corporation CNPC’s partner in the US$270 billion long-term oil supply contract signed in 2013 – which has its newest “Bird class” shipping fleet built in South Korea. Its global presence maps onto the BRI with a large oil production site in the Caspian Sea, control of pipelines in the Caucasus, the E.U.’s second largest refinery in Rotterdam, and offshore oil development projects in Angola and the South China Sea, etc. – i.e. spanning the strategic nerve endings of the BRI. Over time, the U.K.’s investment in the medium to long term development of North East Asia and its connectivity with Europe via BRI projects would provide profound commercial and political capital benefits for U.K.-China relations as China’s core objectives with Belt and Road Initiative connectivity are to reach the European market and attain enhanced security of energy supplies.

China’s interest in supporting Russian presence in Europe

While it has kept quiet on E.U. and U.S. sanctions on Russia, China has both fundamental and dynamic reasons for supporting a returning Russian presence in Europe. Fundamentally, China’s major connectivity initiatives in Eurasia are predicated on constructive relationships with Russia and her allies. China’s leadership of regional cooperative and financial organisations including the Shanghai Cooperative Organization, BRICS, AIIB, and New Development Bank require Russian partnership under the rubric of the global rebalancing of power against the West. Chinese President Xi began his diplomatic legacy by choosing Moscow as his first stop in his initial overseas tour in March 2013. He visited Russia a second time when he attended the G-20 Summit in St Petersburg in September 2013, from which the countries reached a framework agreement for CNPC-Gazprom to build the pipeline to supply Russian gas to China starting in 2018. In the same month Xi rolled out the “Silk Road Economic Belt” in his Central Asia tour, and two months later, Premier Li Keqiang started upgrading Chinese economic relations with the E.U. with negotiations on bilateral investment regimes with Germany and France and initiate railway projects with Romania, Hungary and Serbia. Using its earlier deal with the Bank of England as the template, the People’s Bank of China agreed to a bilateral swap with the ECB, and Beijing subsequently injected confidence with an investment in the Juncker fund. The Xi government’s attention to Russia and Europe is consistent with the geostrategic framework of the Belt and Road Initiative, and was aimed to open up political and economic space for China to offset the perceived US effort to contain China with linked agreements on TPP and TIPP – although that particular threat does not seem to be forthcoming under President Trump’s policies.

However, Trump’s presidency has introduced significant uncertainties and risks in China’s relationship with Russia and Central Asia. The former head of Exxon, Rex Tillerson as the Secretary of State should be highly motivated to open up U.S.-Russian negotiations for post-sanction relations. Despite current political opposition, if the U.S. sanctions were lifted, China would need a plan to shore up the potential loss in its comradeship with Moscow as the latter seizes regained access to American capital, expertise and market dominance in the crucial energy sector. Kremlinologists have often pointed out that Putin is not comfortable with Russia’s perceived power asymmetry with China, and deems Western advances in the Caspian Sea and Chinese influence in Central Asia as significant strategic losses for Russia. As mentioned before, due to resource constraints Russia has allowed the EEU to merge with the Chinese Belt and Road Initiative in 2015. The immediate political effect was to allow Central Asian countries to lean on Beijing for much-needed funding and other projects. An American overture would lead to a cascade of strategic realignment which Beijing must anticipate.

Who better to bring into the equation than the U.K. for China? Having been slighted by the Chinese leaders and media in the past decade in favor of continental European ties, Britain bounced back in a major way with Xi’s feted visit in October 2015. It’s not difficult to see that in Beijing’s calculus, the U.K.’s improved relationship with Russia could provide a source of regional stability and a transitive link to Chinese economic interests in Europe and Asia.

In conclusion, the post-Brexit context reveals an opportunity for the U.K. to benefit from the existing Sino-Russian relations in Eurasia and the changing interests of the U.S. in Europe. Post-Brexit diplomacy should involve academic, corporate and societal interests in delineating a set of foreign policy objectives that is grounded in an enhanced domestic capacity to understand Russian and Chinese strategic and economic interests, in order to mediate the great power relations in the Eurasian geopolitical landscape.

This article was originally published in CPI Analysis. The News Lens has been authorized to republish this article.

TNL Editor: Edward White


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