Oct. 12 (Bloomberg) -- Prime Minister Vladimir Putin arrives in China today bidding to strengthen a relationship forged by Russian oil exports to Asia’s largest energy consumer.

Russia, which this year sealed Chinese oil contracts valued at $100 billion, is now negotiating an agreement that would make China OAO Gazprom’s biggest customer for natural gas. Its communist neighbor currently buys no Russian gas.

The two countries, which were on the brink of war 40 years ago despite a shared ideology, are deepening ties based on mutual economic gain. Bilateral trade totaled a record $56 billion in 2008, a six-fold increase in six years, according to Russia’s Federal Customs Service.

“Political ties are very good, probably the best since China’s communist revolution in 1949,” said Fyodor Lukyanov, the editor of Moscow-based Russia in Global Affairs magazine. “There’s never been such closeness in position on major international issues, and there are no more territorial disputes.”

China and Russia, the world’s third- and ninth-largest economies respectively, hold two of the five permanent seats on the United Nations Security Council as well as membership in the nascent BRIC group that also includes India and Brazil. The former foes, which share a border more than 4,000 kilometers (2,500 miles) long, broke a three-decade diplomatic deadlock in 1989 when then Soviet leader Mikhail Gorbachev visited Beijing.

Putin, 57, is set to meet with Chinese President Hu Jintao and Prime Minister Wen Jiabao in two days of talks that start tomorrow. He’ll also attend a meeting of the Shanghai Cooperation Organization, a regional group that also includes four former Soviet republics in Central Asia.

Oil Deal

Russia agreed in February to supply China with oil for 20 years in return for a $25 billion credit to state oil company OAO Rosneft and the government’s oil pipeline monopoly OAO Transneft. The total value of oil accords signed with Chinese companies this year amounts to about $100 billion, the Russian government said in a statement released before Putin’s trip.

Transneft plans to finish the first segment of its East Siberia-Pacific Ocean pipeline this year, enabling Russia to begin sending the fuel directly to China. Oil and other mineral products account for 56 percent of trade, with Russia currently making fuel deliveries by rail and through a pipeline that passes through Kazakhstan.

Gazprom, which aims to become a global energy company beyond its traditional markets in Europe, plans to build two gas pipelines to China that might one day deliver as much as 80 billion cubic meters annually, or more than half its current European exports. Gazprom and China National Petroleum Corp. last month initialed an accord in advance of Putin’s visit.

‘Ideal Outcome’

“The ideal outcome would be a similar deal to that agreed between China and Russia for oil,” Chris Weafer, chief strategist at UralSib Financial Corp., said in a note to clients. “We could see a timeline not only for the pipelines but also for the development of the Kovykta gas deposit.”

Gazprom has not yet completed a deal to buy oil producer TNK-BP’s stake in Kovykta, an east Siberian field that holds enough gas to supply Asia for five years.

China, in its drive for new energy sources to fuel the world’s fastest-growing major economy, is also reaching out to landlocked Central Asian producers that until recently were dependent on Russia’s pipeline systems to bring their oil and gas to market. CNPC plans to finish building a gas pipeline to Turkmenistan, Central Asia’s largest gas producer, this year.

“Russia sees this as a foray into its traditional zone of interests,” Lukyanov said. “Russia tries to compensate its economic weakness with political initiatives. But China is hard to attract if it doesn’t see their necessity.”

Shanghai Group

The Shanghai Cooperation Organization, whose prime ministers meet in Beijing on Oct. 14, is at risk of becoming irrelevant unless it takes on a greater economic role, said Alexander Lukin, director of the East Asian Studies Center at the Moscow State Institute of International Relations.

“SCO doesn’t have the image of an organization that can make any economic difference,” Lukin said. China may lose interest in the group as a forum for doing business and give priority to developing bilateral relations, he said.

At the organization’s last meeting in June, Hu said China would supply member countries with $10 billion in credits to help weather the financial crisis. Besides Russia and China, the group comprises Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan.

North Korea

Putin comes to China a week after Wen, on a visit to Pyongyang, won a conditional agreement for North Korea to return to six-party negotiations, which include Russia, aimed at eliminating North Korea’s nuclear weapons program. Russia and China have been the reclusive regime’s closest partners during the past six decades.

While Russia and China face a “delicate balance” where their interests overlap in Central Asia, the two former Cold War rivals have more that binds than divides them, said Zhu Feng, a Beijing University professor who specializes on international security issues.

“The two countries are cautiously but passionately pushing ahead for greater cooperation,” Zhu said. “Oil shipments are a very strong economic bond.”

To contact the reporter on this story: Lucian Kim in Beijing at lkim3@bloomberg.net

Last Updated: October 12, 2009 00:46 EDT