When Crisis Becomes Leverage

Russia hopes the turmoil in energy markets from the Middle East conflict will make China more flexible in negotiations on a contract for gas prices for the planned Power of Siberia 2 pipeline project, according to people close to the government. The timing is deliberate. Russian President Vladimir Putin is set to travel on Tuesday to Beijing for talks with President Xi Jinping in his first foreign visit of the year, with the war in Iran offering an opportunity for Russia to deepen energy links with China.

The proposed pipeline would carry 50 billion cubic meters of gas annually from Russia's Arctic Yamal fields to northeast China through Mongolia—enough to heat every home in Germany for a year. But the project has languished for years over one stubborn issue: price. China previously asked to pay close to Russia's domestic prices, which are heavily subsidized. Now, with Gulf supplies disrupted and Asian LNG prices up 83% since late February, Moscow thinks Beijing might finally blink.

Can a Crisis Unlock a Decade-Long Stalemate?

The Power of Siberia 2 project is a planned 2,600 kilometre natural gas pipeline designed to transport up to 50 billion cubic metres of gas annually from Russia's Yamal gas fields in the Arctic region to China through Mongolia. It would complement the existing Power of Siberia 1, which delivered approximately 38 billion cubic metres of gas last year.

The importance of Power of Siberia 2 has increased dramatically since Russia lost much of its European gas market following sanctions and political tensions after the Ukraine conflict. Before the war, Europe represented one of Russia's most profitable energy customers. China, meanwhile, became the world's largest LNG importer in 2024, according to analysis from the Center for Strategic and International Studies.

But Beijing has been in no rush. Chinese officials have made relatively limited public statements about Power of Siberia 2, and negotiations reportedly remain complicated by disagreements over pricing structures and contract terms.

Chinese officials expressed an interest in accelerating the talks, though there has been no firm progress so far, one Russian official said.

The Iran crisis changes the calculus. With the Strait of Hormuz effectively closed through late May and Asian spot LNG prices elevated, China faces supply uncertainty precisely when its economy needs reliable energy. Russia, desperate for non-European markets, sees leverage slipping away as the strait eventually reopens.

When Rivals Pool Their Reserves

Halfway across Asia, former adversaries are making their own calculations. South Korea and Japan agreed on Tuesday to expand cooperation on LNG and crude oil supply, including on stockpiling and petroleum product swap arrangements, their leaders said.

Prime Minister Sanae Takaichi is eyeing a deal with South Korean President Lee Jae Myung on a cooperative framework for procuring and stockpiling crude oil during her visit to his hometown of Andong on Tuesday and Wednesday. The move, which is expected to utilize the Japan-led POWERR Asia framework for energy cooperation with Southeast Asia, will include joint stockpiling, according to local media reports.

The urgency is palpable. Both Japan and South Korea are heavily dependent on oil and gas imports from the Persian Gulf and, as a result, have been affected badly by the Strait of Hormuz closure and are actively seeking supply replacement. The meeting between Sanae Takaichi and Lee Jae Myung would be the second since the start of the year, the Japanese news outlet noted, highlighting the urgency of the energy problem in what it described as a "rocky" bilateral relationship.

Takaichi said the agreement includes "mutual swap arrangements for crude oil, petroleum products and liquefied natural gas." Translation: if one country runs short, the other will share. For nations that spent much of the 20th century at odds, this represents a remarkable shift—driven entirely by supply fear.

Germany Exits the Rescue Business

In Europe, a different kind of energy reckoning is underway. Germany launched the privatization of energy provider Uniper SE, opening the door to what could become Europe's biggest utility deal this year. The government is considering several options for the state-rescued company, including an initial public offering or a sale, according to a notice published in the Financial Times.

Uniper, one of the biggest energy companies in Germany, was close to collapsing in 2022 when the energy crisis and the lack of Russian natural gas supply led to massive losses. Back then, the German government stepped in to nationalize the company to avoid its collapse amid soaring gas prices, with the total bill for Uniper's nationalization at about $53 billion.

Now Berlin wants out. Under EU regulations on state aid, the European Commission approved the nationalization of Uniper on the condition that Germany work out an exit strategy to reduce its stake to not more than 25% plus one share by the end of 2028 at the latest.

Potential bidders have until June 12 to submit a letter of intent, declaring their interest in a deal to JPMorgan Chase & Co. and UBS Group AG, which the government has picked as advisors to the transaction.

Norway's energy major Equinor, Brookfield Asset Management, EPH of Czech billionaire Daniel Kretinsky, and Abu Dhabi's Taqa have reportedly expressed interest in recent months to acquire the German utility giant. The sale would mark the end of Germany's emergency nationalization era—assuming buyers believe European gas markets have stabilized enough to justify the risk.

Venezuela's Long Shot

Across the Atlantic, another energy story is unfolding with far longer odds. Venezuela's oil minister said Tuesday that the country's new hydrocarbons framework will allow contract disputes to be resolved outside the country, offering international arbitration options, OilPrice.com reported.

It's a pitch aimed squarely at the majors who fled years ago. Investment on the scale envisaged by President Trump requires companies with the financial strength and capabilities that only the Majors and the largest independents can offer. And for the Majors and other companies to start to invest sums on that scale, several key conditions will have to be in place: Political stability, with clarity about the security situation and the government's position on foreign investment.

The problem is credibility. In 2007, President Hugo Chávez fundamentally altered Venezuela's oil industry landscape by forcing foreign firms into minority stakes in joint ventures with PDVSA, the national oil company, which took at least 60% ownership. ExxonMobil and ConocoPhillips exited and pursued arbitration. Those wounds haven't healed.

Chevron stands out as the best-positioned U.S. oil company to re-enter and expand in Venezuela in 2026, largely because it never fully left. It is currently the only American major operating in Venezuela, producing and exporting heavy crude under a special U.S. sanctions waiver. For the others, Venezuela remains a jurisdiction where the upside is enormous but the downside is expropriation.

What Changed This Week

Russia is using the Iran crisis as a negotiating tool with China, hoping elevated Asian gas prices will finally unlock Power of Siberia 2. Japan and South Korea formalized energy-sharing arrangements that would have been politically unthinkable a year ago. Germany launched the formal sale process for Uniper, signaling confidence that Europe's gas crisis has passed. And Venezuela continues pitching a comeback that most of the industry still views with deep skepticism.

What to Watch

Putin and Xi meet in Beijing on May 20—watch for any joint statement on Power of Siberia 2 or pricing frameworks. Germany's Uniper bidders must submit letters of intent by June 12, with Equinor and Brookfield seen as frontrunners. Natural gas futures are pricing in summer heat: Natural gas-fired power burn is on track for a record 40.3 Bcf/d this summer as lower prices accelerate coal-to-gas switching, and data center load lifts baseload demand, the Natural Gas Supply Association (NGSA) said in its 2026 Summer Outlook released Wednesday. And according to market data, Henry Hub natural gas traded at $3.25/MMBtu on Monday, down 2.4%, as traders weigh production cuts against summer cooling demand.