Completing the Power of Siberia 2 (POS2) gas pipeline linking China to Russia’s Yamal gas fields may reduce the amount of gas available to the domestic market, Russian Energy Minister Sergey Tsivilev said during the Eastern Economic Forum in Vladivostok on September 5.

According to Tsivilev, the “legally binding memorandum” signed by Russian President Vladimir Putin and Chinese President Xi Jinping during the recent SCO summit in Tianjin covers only the route of the pipeline and the intended supply volumes, but not the price China will pay for the gas or who will fund the construction which is expected to run into the billions of dollars.

“The financing of the project, however, will be discussed only next year,” he said. China has so far remained silent on the project. The lack of detail triggered a fall in Gazprom’s shares on the Moscow exchange after the deal was announced.

By contrast, a concrete agreement has been signed to increase deliveries through the existing Power of Siberia-1 pipeline, with exports to China set to rise from 38 to 44bn cubic metres a year. The news surprised analysts, as the combined production capacity of the two fields feeding Power of Siberia-1 currently stands at just 42bn cubic metres annually. Of this output, 38bn are already exported, with the remainder supplying consumers in the Russian Far East, Irkutsk region and Yakutia.

Economists had assumed Gazprom would be forced to source additional gas from other domestic producers such as Rosneft, Surgutneftegas and Irkutsk Oil Company. Yet during the forum Putin acknowledged that the Far East faced a shortage of gas and ordered “the start of a transition to coal as a new energy source.” In practice, the increase in exports to China will come at the expense of Russian households and industries, experts say.

Behind the new announcements lies a wider shift in Russia’s energy trade. “Russia has lost the ability to dictate oil trade terms in the Asian market,” said Anton Gerashchenko, advisor to Ukraine’s Minister of Internal Affairs and founder of the Institute of the Future in a social media post. “Key parameters – volumes, discounts, and payment currency – are now determined by buyers, primarily India and China, who exploit Moscow’s near-total lack of alternative markets.”

Sanctions have further weakened Moscow’s hand. “US and EU sanctions against the Russian oil sector, including tanker fleet restrictions and secondary sanctions on Indian and Chinese entities, objectively complicate logistics and raise freight costs. However, this is a problem only for the seller – buyers are not willing to account for these circumstances or offer support,” Gerashchenko noted.

Both India and China are pushing for deeper discounts, citing sanctions risks and higher costs. US President Donald Trump recently slapped India with an additional 25% tariff to punish it for continuing to buy discounted Russian crude, but New Delhi has defied the White House and says it will not halt the purchase.

Payment arrangements in yuan and rupees are also eroding Moscow’s flexibility. “Payments in yuan and, especially, in rupees effectively tie Russian companies to the Indian and Chinese markets, limiting their ability to use the proceeds. This creates long-term financial dependence and reduces the flexibility of Russia’s foreign economic policy,” says Gerashchenko.

Despite official rhetoric about strategic alignment, analysts see little reciprocity in the relationship. Despite their official rhetoric about ‘partnerships,’ India and China are acting purely pragmatically, treating Russia as a temporary source of cheap raw materials. Their approach does not imply mutual concessions beyond direct benefits for the buyer, according to Gerashchenko.