China and Russia Form "Friends of Steel" Alliance During Putin-Xi Kremlin Summit

China-Russia 'Steel Friends' Summit Reshapes Global Financial Order

Xi Pledges Unwavering Support to Putin as Moscow Defies Western Pressure

MOSCOW — Under the gilded ceilings of the Kremlin's most opulent hall, Chinese President Xi Jinping and Russian President Vladimir Putin walked toward each other on a red carpet from opposite sides of the room, greeting one another as "dear friends" before signing a landmark agreement that deepens what they now call their "friends of steel" alliance.

The May 8 summit, held amid the pageantry preceding Russia's 80th Victory Day celebrations, marked a significant escalation in the two powers' strategic partnership, with Xi vowing China's steadfast support against what he characterized as "unilateralism and hegemonic bullying" — a thinly veiled reference to Western nations and particularly the United States.

"The relationship between China and Russia is characterized by greater composure and confidence, as well as stability and resilience," Xi declared during the ceremony, elevating the partnership beyond the "no limits" framework established in 2022.

For investors and geopolitical analysts, the meeting represents far more than diplomatic theater. It cements three major investable trends: a tightened Sino-Russian energy partnership providing support for global oil and liquefied natural gas prices; an accelerated movement toward yuan-based financial settlement that incrementally challenges dollar supremacy; and a hardening divide between the expanding BRICS-plus economic bloc and the U.S.-EU security and technology sphere.

The summit's timing — against the backdrop of Russia's war in Ukraine now entering its fourth year and President Trump's intensifying pressure on both Moscow and Kyiv to reach a peace agreement — sends an unmistakable message of defiance and partnership in the face of international isolation attempts.

Strategic Partnership Deepens Amid Western Sanctions

Putin, standing beside Xi in the Kremlin, emphasized that both countries are developing ties "for the benefit of the peoples of both countries, and not against anyone" — diplomatic language that thinly masks what economic analysts describe as the formation of an anti-sanctions coalition.

"What we're witnessing is the formalization of an economic alliance that's been building for years," said a senior European intelligence analyst. "China has effectively become Russia's economic lifeline against Western sanctions."

This lifeline has grown increasingly vital since 2022. China has emerged as Russia's largest trading partner and principal importer of Russian oil and gas, creating a critical revenue stream for Moscow as it navigates Western financial restrictions. Russia's economy, initially predicted to collapse under sanctions pressure, has instead stabilized significantly through this eastern partnership.

Financial data reveals the magnitude of this shift: yuan usage in Russia's international trade has surged to approximately 30 percent, with yuan-ruble settlement now dominating bilateral trade invoices at roughly 70 percent in the first quarter of 2025. Both leaders explicitly committed to further increasing the proportion of their national currencies in bilateral transactions.

The partnership extends beyond mere currency swaps. During the summit, discussions focused on deeper integration of payment systems, acceleration of Chinese investment in Russian infrastructure projects, and expanded technological cooperation in sectors ranging from telecommunications to satellite navigation.

Energy Alliance Reshapes Global Markets

The energy component of the partnership represents perhaps its most consequential aspect for global markets. China already absorbs between 45 and 50 percent of seaborne Russian crude exports, with long-term offtake agreements creating what energy traders describe as a "soft floor" under global oil prices.

"The China-Russia energy axis essentially places a structural support level around $80 per barrel for Brent crude," explained a commodity strategist at a major Asian investment bank. "Even with OPEC+ accelerating output hikes, this bilateral relationship prevents any significant price collapse."

Natural gas flows between the two nations are similarly transformative. Pipeline volumes to China are projected to reach 38 billion cubic meters annually by 2030, redirecting supplies that previously flowed westward. This eastward pivot has forced Europe to increase its reliance on more expensive U.S. liquefied natural gas, widening the Atlantic-Pacific price arbitrage and maintaining elevated spot rates for Asian cargo.

The summit coincided with China's central bank lifting gold import quotas — a move analysts interpret as Beijing's classic playbook for hedging sanction risks while simultaneously managing an appreciating yuan as gold prices hover near $3,500 per ounce.

Geopolitical Tensions Escalate as Ukraine War Continues

The meeting occurs at a particularly sensitive diplomatic juncture. Just weeks earlier, two Chinese citizens fighting alongside Russian forces were captured in Ukraine, raising uncomfortable questions about China's involvement in the conflict despite its official stance of neutrality.

Meanwhile, Washington has been engaged in what diplomatic sources describe as "discreet efforts to reset relations with Moscow" while simultaneously facing a tariff dispute with Beijing. American officials are poised to initiate trade discussions with Chinese representatives in Switzerland as tensions between the world's largest economies continue to simmer.

The summit's symbolic timing — with Xi attending as the honored guest for Russia's Victory Day parade commemorating the 80th anniversary of Nazi Germany's defeat — carries unmistakable significance. Both leaders highlighted their mutual opposition to what Putin described as "neo-Nazism," language Moscow has consistently used to frame its military campaign in Ukraine.

"Having President Xi present at such a symbolically important moment for Russia sends a powerful message about China's alignment," noted a former U.S. State Department official who specialized in Eurasian affairs. "It demonstrates that despite international criticism, Russia is not isolated on the world stage."

Market Implications and Investment Landscape

For financial markets, the summit's outcomes create distinct winners and losers across multiple asset classes. Among the likely beneficiaries: LNG shipping companies, Australian and U.S. gas producers, NATO-linked defense manufacturers, and gold miners.

Defense sector analysts note that despite significant price appreciation since 2022, many European defense contractors still trade at price-to-earnings ratios below 17, suggesting potential upside remains as military spending increases across NATO countries.

Conversely, European chemical and steel producers face mounting headwinds from persistent energy cost disadvantages, while multinational corporations with significant exposure to both Chinese and American markets confront heightened regulatory and compliance risks as geopolitical tensions escalate.

Fixed-income markets also reflect the changing landscape. Russian government bonds, while uninvestable for Western institutions due to sanctions, have reportedly begun appearing on Chinese balance sheets, offering double-digit yields in what some describe as a "stealth carry trade" predicated on sanctions remaining static.

European high-yield utility companies face potential spread widening as Brussels prepares its 17th sanctions package, which may eventually target the "shadow fleet" of LNG carriers facilitating Russian energy exports.

De-Dollarization: Evolution, Not Revolution

Perhaps most consequential for long-term financial order is the summit's explicit focus on reducing dollar dependence. Yet currency specialists caution against overstating the immediate impact.

"What we're seeing is de-dollarization as evolution, not revolution," explained the chief currency strategist at a global investment firm. "Despite the political rhetoric, practical barriers including liquidity constraints, capital controls, and sanctions on Russian financial institutions limit how quickly this transition can occur."

Nevertheless, the trend carries significant implications. Analysts anticipate modest support for the yuan in Asian currency baskets, while the euro may become a "shock absorber" should tensions escalate further. The dollar's global status appears relatively protected for now, unless Washington chooses to impose secondary sanctions on major Chinese financial institutions — a scenario carrying approximately a 30 percent probability, according to geopolitical risk consultants.

Looking Forward: Scenarios and Positioning

As investors digest the summit's implications, several potential scenarios merit consideration. A Trump-brokered Ukraine ceasefire in the second half of 2025 would likely prompt a rotation from defense sectors into European cyclicals. Alternatively, limited secondary sanctions against mid-sized Chinese banks could trigger gold appreciation and yuan depreciation.

More dramatic possibilities include the BRICS nations launching a pilot central bank digital currency corridor in 2026, or the European Union extending its carbon border tax to Russian-origin goods trans-shipped through China — each carrying distinct investment implications.

Over a 12-18 month horizon, portfolio managers are increasingly positioning for these geopolitical shifts by overweighting LNG tanker lessors, Australian gas royalty trusts, global gold royalty companies, and NATO-aligned defense contractors. Many maintain a slight positive tilt toward Chinese investment-grade corporate bonds and Indian refineries capturing discounted Russian crude.

Underweight positions typically include European heavy industry dependent on high-grade Russian inputs and frontier sovereign debt exposed to dollar liquidity constraints — unless yuan swap lines expand significantly.

As one sovereign wealth fund manager summarized: "The Xi-Putin summit doesn't revolutionize the global order overnight, but it accelerates existing trends toward multipolarity in trade, finance, and security. Smart investors are positioning not for tomorrow's headlines, but for the structural shifts already underway."

In the coming months, market participants will closely monitor several key metrics: the evolving share of yuan in Russian foreign exchange transactions, draft language in the EU's 17th sanctions package concerning secondary sanctions, OPEC+ compliance with accelerated production quotas, and Chinese central bank gold reserve accumulation.

For now, the "friends of steel" have made their strategic alignment clear. The financial and geopolitical reverberations will unfold for years to come.