Russian Deputy Prime Minister Igor Sechin and Chinese Vice Premier Wang Qishan announced Oct. 27 that the two countries are moving ahead on energy cooperation with an oil-pipeline link from the Siberian town of Skovorodino to the Chinese city of Daqing. The Russian state-owned oil distribution company Transneft has released blueprints of the link, which will be provided by an extension of Russia's Eastern Siberia-Pacific Ocean (ESPO) pipeline, currently under construction. Progress has been tortoise-like on ESPO, but this announcement shows that Beijing and Moscow still realize how much they have to gain from doing business on this front. The ESPO pipeline is a massive undertaking. Traversing vast stretches of inhospitable Siberian steppe and mountains, the pipeline has advanced haltingly for the past decade, delayed by various political and financial impediments. In recent years, however, Russia has consolidated its energy sector and has developed ambitious plans for extending its energy empire into the Far East, gaining access to energy-craving markets in Japan, South Korea and China. The Kremlin now has the political momentum it needs to push the project along. Sechin has authority over the oil industry and the express approval of Prime Minister Vladimir Putin, and Sechin is well aware of the advantages Russia can glean from diverging from its traditional export markets in Europe and forming valuable economic and political ties with Asian states that are themselves short on resources. Transneft, the pipeline monopoly building ESPO, is in decent financial shape and has been assigned to focus solely on this project. The Asian states initially shrugged off the Kremlin's attempts to incite a bidding war among them over investing in the project, signaling that they would be happy to buy the oil if Russia built the pipelines. But now China in particular is showing greater interest in contributing to the project, building its own leg of the pipeline and offering Russia $20 billion to $25 billion in export-backed loans. Beijing was at first skeptical about the project’s size and overall expense, which it did not want to pay for, and because of the often testy relations between the two Cold War communist rivals. But with Moscow actually putting money into the construction of the pipeline, China is reconsidering whether it is not worth tolerating Russian politics to gain 2.2 billion barrels of petroleum over the next 20 years. Hooking up to ESPO would allow Beijing to pursue its policy of diversifying energy import sources, reducing its dependence on any single supply line (such as that from the Middle East) and thus buffering against potential shocks — intentional or otherwise. It would also allow Beijing to revitalize some old refineries in Manchuria that have grown rusty since their heyday in the time of Mao Zedong as well as satisfy its more general energy needs. Russian calculations similarly favor a deal with the Chinese. For the second phase of the ESPO pipeline, the Kremlin essentially has two options — it can extend the pipeline to China or all the way to Nakhodka on the coast of the Sea of Japan. The Chinese option is the simplest, as it requires an extension of only 500 miles or so. The alternative, to the Sea of Japan, is twice as far and would require the construction of a terminal so the oil could be loaded on tankers and shipped to Japan, South Korea or even, someday, to the West Coast of the United States. For now, then, it makes sense for Russia to press forward with the Chinese spur first, entering the Eastern markets one step at a time. This stage in no way prevents further extensions in the future. But many obstacles remain. Russia still has to finish building its side of the pipeline, and aside from the inherent difficulties of the landscape, Russia is reeling from the dramatic reversals of fortune ushered in by the global financial crisis and economic downturn. Returns on energy and mineral exports are diminishing as commodity prices fall due to the global recession. Russia's ability to meet its end of the deal will require developing some oilfields and discovering new reserves in the Siberian wastes, all of which will require huge infusions of capital (to the tune of $50 billion so far), and capital expenditures are becoming more difficult as financial problems multiply. The Kremlin is backing the ESPO project with its cash, and until recently this assurance was enough to obviate the need for foreign investment. But with the deepening of the financial crisis, Moscow has a whole new set of problems to juggle — hence its turn to Beijing, which has surplus liquidity and is interested in using it to expand its energy options. Another obstacle arises from the aforementioned strains in the Sino-Russian relationship. Beijing remains extremely wary of Moscow in general because of border disputes, suspicions about Russia's business dealings with North and South Korea and other issues. On the energy front, the Chinese suspect that the Kremlin is trying to play Tokyo and Beijing against each other. China is not eager to let Russia use Northeast Asia as its playground, so negotiations on infrastructure development in the region will continue to be very delicate affairs. Nevertheless, the Chinese and Russians both have much to gain from the extension of the ESPO pipeline, and the Transneft blueprints are an important baby step toward linking Russian oil with Eastern markets.