Mongolia-Russia Relations Likely To Strengthen As Gas Pipeline Gains Momentum

Key View

• At Fitch Solutions, we believe that diplomatic relations between Mongolia and Russia will continue strengthening, propelled further by the latter’s continued isolation from the West.
• Mongolia could benefit economically, particularly if Russia decides to expedite the construction of the ‘Power of Siberia 2’ natural gas pipeline.
• However, Mongolia’s economic reliance on Russia could also become more entrenched as a result.

While much of the international community has long since isolated Russia over the Ukraine war, Mongolia is likely to remain one of the few exceptions. During the vote at the United Nations General Assembly in March, Mongolia was one of the ten countries which abstained from condemning Russia’s invasion of Ukraine. The decision underscores Mongolia’s geopolitical realities. As a landlocked country surrounded by Mainland China to the south and Russia to the north, it will remain extremely difficult for Mongolia to distance itself politically from either country.

Russia’s isolation from the West is also likely to push it to forge stronger ties with neutral countries including Mongolia. Indeed, Russian Foreign Minister Sergei Lavrov in July met with Mongolian officials seeking diplomatic support. The threat of Western sanctions on Russian energy also raises the urgency for Moscow to seek alternative sources of demand, which may eventually prove economically beneficial for Mongolia.

In particular, the construction of the ‘Power of Siberia 2’ natural gas pipeline appears to be gaining renewed interest in Mongolia. The pipeline is supposed to further enable the supply of natural gas from Russia’s Western Siberia to North-Eastern China, with the network running across Mongolian territory. Extensive details of the infrastructure project have not been finalised yet, but the latest indications suggest that development could begin before long. In a media interview in July, Mongolia’s Prime Minister Oyun-Erdene Luvsannamsrai said that ‘the feasibility study of this project has finished and we believe construction will begin in 2024’.