Seven or eight years ago, I gave a speech in L.A. for a friend of mine, Chris Cordoba.

Afterwards, we went out to dinner with some of his friends. They asked economic questions, and eventually the conversation turned to concerns about hotspots around the world.

I had one big worry… the relationship between China and Russia.

The two nuclear powers share a long, sparsely inhabited border, with lots of energy underground. Russia is a nation marked by corruption, waning technological prowess, and an aging population of 142 million people that will soon fall in numbers. China’s economy is on the rise, with expanding technological prowess, a thirst for energy, and a population of 1.1 billion people that includes more than 50 million men with no numerical possibility of finding a mate.

The two countries have a history of acrimony and suspicion, which made me pessimistic. I was wrong. Instead of choosing to square off and punch each other, they decided to join forces. For the moment, they’ve chosen money over war, and they’re speaking in the language of energy.

This week, the Russians will begin operating their new Power of Siberia Pipeline that stretches 1,800 miles from the gas fields in Russia to a port of entry in China. The two countries struck a deal to build the $55 billion pipeline in 2014, just after the U.S. and Europe imposed sanctions on Russia. The two countries signed a $400 billion energy pact.

Sweetening the relationship, China is developing Russia’s 5G infrastructure, and Russia has increased the amount of foreign reserves held in Chinese Yuan.

Maybe humanity has developed beyond the desire for large countries to attack each other, or maybe developed nations are just getting old. Whatever the reason, it looks like the Russians and Chinese are developing a relationship that combines energy, economic growth, and people. The pair could be a counterweight to Western influence, if they can hold on.

Maybe. But I doubt it.

My wife often says that people will hold up their crazy card, or show their true colors, through their actions. Our job is to recognize those signals. The Chinese created the One Belt, One Road Initiative, and the China 2025 program. They take out page after page of advertising space in the Wall Street Journal to tout their economic development. Chinese officials have done everything but print a headline that reads, “We intend to be self-reliant and the number one economic power on the planet.”

It’s hard to see how that will sit well with a Russian leader who is ex-KGB and prides himself on controlling at least part of the geopolitical chessboard.

Vladimir Putin used natural gas as a weapon against Ukraine and Europe a few years ago, and the Chinese have a history of forced technology transfer and stand credibly accused of creating ways to spy on rivals through computer chips. It looks like a matter of when, rather than if, these new best friends will end up at odds and the fight will turn ugly.

In the meantime, the rest of the world will have to adjust. With the new pipeline, Russia will supply China with up to 10% of its natural gas needs, essentially supplanting expensive LNG imports from the U.S. With fracking efforts in the States creating so much natural gas that local spot prices have fallen below zero on several occasions in the Permian Basin, energy producing and transporting companies could be facing a brutal reality next spring. If new clients don’t appear or energy production doesn’t taper off, there won’t be anywhere for the gas to go when we switch back from drawing down inventory during the winter to building inventory during the spring and summer.

While the new hookup between Russia and China is much better than an armed conflict, it can still create winners and losers. Across the energy complex, producers and transport companies are hoping for a rocky relationship between the two countries, and really cold winter.

The content of our articles is based on what we’ve learned as financial journalists. We do not offer personalized investment advice: you should not base investment decisions solely on what you read here. It’s your money and your responsibility. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don’t trade in these markets with money you can’t afford to lose. Delray Publishing LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD falls below 1.1850 as US consumer sentiment beats

EUR/USD is trading under1.1850, off the previous levels as US consumer sentiment beat estimates with 78.9 points. The Fed refrained from adding more stimulus, supporting the dollar earlier in the week. Investors are eyeing fiscal stimulus talks.


GBP/USD falls as the EU reportedly objects Johnson's bill

GBP/USD is trading around 1.2950, off the highs. According to reports, the EU remains opposed to UK PM Johnson's controversial bill, which violates the Brexit accord. 


XAU/USD struggles to move back above 100-hour SMA

Gold regained some positive traction on the last trading day of the week and recovered a part of the previous day's losses to over one-week lows. The commodity held on to its intraday gains and traded above the $1950 level through the mid-European session.

Gold News

Ethereum hits Bitcoin's bid to lead the market

Bitcoin risks dominance after the strong rise of Ethereum. Technical indicators show some significant discrepancies keeping the stress on the board. Sentiment levels are improving and bordering on optimism.

Read more

After yesterday's JMMC meeting WTI settles near $40 per barrel

WTI has been through a rollercoaster this week. The liquid gold has been in a downtrend leading into the OPEC+ JMMC meeting and then reversed the whole move. At the meeting the group agreed to extend the compensation period for overproduction till the end of December. 

Oil News

Forex Majors