The Contagion Effect of the Fuel Crisis

One such country lies in a different time zone—Mongolia—and here in the Mongolian capital, Ulaanbaatar, in some places the lines at gas stations, just as in Russia, stretch for several kilometers. And the lucky person who, after exhausting waiting, fighting for a place in line, swearing, and scuffles, manages to reach the nozzle can pump only the amount allowed by a limit of 50,000 tugriks, or about 13 euros. On average, a Mongolian is forced to stand for about three hours to fill the tank. The cause of the large-scale fuel crisis arose four thousand kilometers west of Mongolia, in the European part of Russia, and it is connected with Ukraine striking Russian oil refineries.

Long and deep in the past, in the dark Middle Ages, the Mongols came to Rus’ for tribute and drove thousands of Rus’ people into captivity for penal labor in the степи. In the 20th century, the USSR inscribed Mongolia into the zone of its geopolitical interests, and Mongolia bought everything from its former Ulus of Jochi. Now, in the 21st century, Moscow has restricted fuel exports in general and has stopped supplying gasoline to Mongolia in particular. Until recently, these restrictions did not apply to Mongolia, once a satellite state of the former Soviet Union. However, this country, which received from 95 to 97% of all its fuel from Russia, imported 17% less fuel from Russia in June 2026, and in July—another 40% less. Other countries are trying to use this geopolitical situation to their advantage, because, for example, despite the “eternal friendship” between China and Russia, the former has pledged to deliver larger amounts of fuel to Mongolia. Thus, the first 1,000 tons of aviation fuel, or kerosene, crossed the Mongolian border in the last week of August. If China can reduce Mongolia’s dependence on Russia, then Beijing will thereby weaken Moscow’s influence over a former satellite state of the Soviet Union.

A similar dynamic is beginning to operate in other countries as well, for example in Central Asia, which is considered Russia’s traditional political ally. The same thing is observed here—China’s influence is growing, and it has been for a long time. Both great powers are officially considered strategic partners of Kazakhstan, Uzbekistan, and Tajikistan. For example, not a single meeting of President V.V. Putin with the leaders of the Central Asian states goes by without talk of long-term partnership and eternal friendship. Nevertheless, in the countries of this region China and Russia are more often seen as competitors or rivals. They are fighting for access to natural resources, for infrastructure facilities, and so on.

Attempts are being made to weaken Russia with the help of Western sanctions, as well as drone strikes on oil refineries. All of this, taken together, opens up new opportunities for China.

Third countries also benefit from this situation, such as South Korea, which has decided to take a more active part in this process. Thus, Seoul and Ulaanbaatar have direct air service. From the capital of South Korea to Ulaanbaatar one can get either via Japan or via the airport in Mongolia’s capital built by the same Japanese. In late 2025–early 2026, Mongolia, together with Indian investors, decided to build an oil refinery. However, the geographic isolation of Mongolia and South Korea plays into China’s hands.

Mongolia has no access to the sea; it is squeezed between Russia, China, and South Korea. North Korea blocks any overland supply channels from South Korea. Rail connections to the northern part of the Korean Peninsula are disrupted. Therefore, South Korean fuel supplies go by ship through Chinese ports and are then transshipped onto rail trains with tank cars for direct delivery to Mongolia, which, of course, raises the cost of the product. Fuel from South Korea goes across Chinese territory into Mongolia. China thus plays the role of a transport corridor, and it is paid for transit. Beijing has been using this lever of influence for quite a long time. China finances and carries out the operator activity of rail connections from the coal-mining area in Mongolia, and these resources and the corresponding infrastructure are tied to the “Belt and Road” project. China buys virtually all the coal mined in Mongolia and is its most important foreign trade partner.

As a consequence, all of this has affected Russia’s economy very strongly. This same situation has indirectly affected China’s supply chains in Mongolia. If Russia’s positions in Mongolia continue to weaken, China will replace it; it will be able to control its supplies and supply chains.

Nevertheless, for now Russia’s influence in Mongolia is felt everywhere: in the appearance of the capital one can see borrowings from Soviet architecture; the Mongolian language uses the Cyrillic alphabet; many Mongolians like to listen to and sing Russian songs, although English and Chinese are also becoming more important in everyday life. Russian UAZ vehicles continue to ply dusty, unpaved roads across Mongolia, especially in the hinterlands. Recently, China has become more present in the Mongolian capital. In Mongolia’s capital, the Chinese electric-vehicle manufacturer BYD is expanding its networks. The Chinese built a highway leading to the airport outside Ulaanbaatar. A retail center for Chinese cars is also located there. Chinese companies are actively entering the Mongolian market.

Ulaanbaatar was once built for only half a million residents. Today it is home to more than one and a half million people. Mongolia’s energy system is built on the Soviet model and is experiencing major problems related to electricity supplies, so power outages also occur. And the visible pipes of the thermal power plant, which continue to smoke, do not always provide the city with light. The development of alternative energy sources is required. Construction of regional power transmission lines is underway at full speed. China could export green energy to Mongolia. Nevertheless, to this day there is neither money nor investors, and the Mongolian state, despite its rapprochement with China, is trying to keep its large neighbor at a certain distance.

Russia could supply gas to Mongolia on the basis of the Power of Siberia project. China needs Russian gas, but it is in no hurry, since it adheres to a waiting strategy in order to obtain a more favorable price, more favorable terms, or until a convenient moment arrives when Russia has no other alternatives left. Doubts or hesitations on the part of, above all, China are visible in the implementation of one of the projects that Moscow has been insisting on for many years, namely the construction of the “Power of Siberia-2” gas pipeline.

From Russia’s point of view, this project is an attempt to supply gas to China that, prior to the SMO, was sent to Europe. China, from the point of view of geopolitics and geopolitical risks of uncertainty, outwardly could engage this as yet another channel of Chinese–Mongolian relations. Beijing can dictate the level of prices. This gas pipeline can create additional jobs. A new infrastructure will already arise along the route. Perhaps an option will appear under which Mongolia itself will be able to buy gas through this pipeline, or perhaps a spur line will be built specifically for Mongolia. Experts continue to discuss the problem of Mongolia’s strong dependence on Russia. With the appearance of China, the situation has worsened. From here a problem is forming that is even more serious, because the more Mongolia becomes tied to Russia or China, the less room there will be for maneuver and freedom of action. For Russia, these relations represent the psychological stance of “parent–child,” in which Mongolia is the junior partner. At the same time, Mongolia can work more actively as a transit country, and in this way Mongolia will be built into the logic and logistics of the great powers. In general, one can say that Beijing is trying to get ahead of the curve and is waiting, slowing down the implementation of the Power of Siberia-2 project. At the same time, China in the energy sphere of other countries in the region, including Turkmenistan, is trying to use indirect levers of pressure on Russia, as a result of which the strategic partnership so often spoken about in the press apparently begins to run up against its natural limits.

Author: Doctor of Economics, Associate Professor, Professor of the Department of World Economy and World Finance, Faculty of International Economic Relations, Financial University under the Government of the Russian Federation Mikhail Vyacheslavovich Zharikov.