Russian President Vladimir Putin held in-depth negotiations with his Mongolian counterpart, President Ukhnaagiin Khurelsukh in the former Kazakh capital of Alamaty during the Shanghai Cooperation Organization (SCO) summit on July 3.

Mongolia has emerged as an increasingly important counterparty for Russia as it attempts to switch its business and trade from west to east following the imposition of extreme sanctions by the West as a result of the invasion of Ukraine over two years ago.

The landlocked and remote country of Mongolia remains wary of Russia but has been taking advantage of the growing attention of both China and Russia to raise investment to develop its economy.

“I would like to express my gratitude and congratulate you on your re-election as President of the Russian Federation. This reaffirms the comprehensive support that the people of Russia have given you, as well as their support for your country’s development policy,” Ukhnaagiin told Putin. “Our economic situation has also improved significantly over the past year. In brief, we achieved a real economic growth rate of 7.2%, with inflation reaching 6% after the coronavirus pandemic.”

Putin focused on the potential for expanded cooperation in the energy sector with Mongolia, including increased hydrocarbon supplies, during his meeting Ukhnaagiin.

"Energy has been and remains one of the main areas of our cooperation. Work has been set up, but we can discuss expansion – I mean both hydrocarbons and electricity," Putin said.

The presidents also discussed the issue of construction of the Power of Siberia-2 gas pipeline through Mongolia, Russian Deputy Prime Minister Alexander Novak told reporters.

"With the Mongolian side the issues of construction of the Power of Siberia-2 gas pipeline through the territory of the Mongolian republic were discussed, as well as the participation in the development of the gas supply scheme, expansion of cooperation in the area of the Ulaanbaatar railway and investment projects," he said.

"Those include reconstruction and the participation of Russian companies in Ulaanbaatar TPP-3 and expansion of supplies of petroleum products to the Mongolian republic," Novak said, adding that Moscow is currently the key supplier of petroleum products to Mongolia as it ensures 95% of the country’s purchases.

In the first six months of 2024, Deputy Prime Minister Alexei Overchuk and Minister of Natural Resources and Environment Alexander Kozlov met with their counterparts to discuss various issues concerning bilateral relations.

Ukhnaagiin admitted that Mongolia is facing a “severe shortage of energy.”

“Our economy is growing, and the demand for electricity is growing as well. We joined forces with our Chinese colleagues to build the Erdeneburen hydropower plant, and this project is progressing rapidly. During our meeting in Beijing, I mentioned that it would be good if a similar project was launched jointly with Russia, namely, the Egiin Gol hydropower plant. Of course, we are aware of the environmental aspects, which we are ready to address jointly with Russia,” Ukhnaagiin said.

Putin also offered support to Mongolia as it is one of the countries that is worst affected by the accelerating Climate Crisis. Last winter Mongolia was hit by another dzud, an extremely cold winter that killed more than 16mn head of cattle that literally froze to death on their feet.

"If necessary, especially if Mongolia faces problems due to climate change, we try to provide it with free assistance – grain and various energy products," he added.

On the international front, Putin noted the strong cooperation between Russia and Mongolia on various platforms and the nearing conclusion of an agreement with the Eurasian Economic Union (EEU), which he believes will open new avenues for collaboration.

“Overall, the relations between our countries have developed throughout the decades on a very positive and firm foundation of cooperation and friendship,” Putin said. “It should be noted that last year, we recorded a slight decrease in mutual trade; however, there has been substantial growth this year, and we have gained a good momentum during the first six months of 2024.”

A new Ulaanbaatar Railway transported 5mn tonnes of cargo between Mongolia and Russia, which was a record-breaking result. Mongolia is also increasing transit shipments from Europe to Eurasia and the transportation of cargo from Europe to China.

The Ulaanbaatar Railway is one of Mongolia’s three main economic trade corridors and the government wants to build a parallel railway line and convert the existing railway network to electricity, the president said. There are also plans to build a railway line connecting the Russian Far East to the People’s Republic of China via Eastern Mongolia. The proposed western line would connect the Republic of Tyva with Chinese partners via Western Mongolia.

A mirror image of the EU, the EEU is a key foreign policy focus for the Kremlin as laid out in its last foreign policy concept  that is designed to boost trade and create a common Eurasian market. Eurasia is also a focus for Beijing as it attempts to link its market with that of Europe with overland routes that are part of its Belt and Road Initiative (BRI).

"Work on agreements between Mongolia and the EEU is nearing completion, and I believe that this will be another good step, which will not only strengthen the formal legal framework of our relations but also create real new opportunities for expanding our interaction," he said.

Putin expressed his satisfaction with the opportunity to discuss the broad range of bilateral relations with Ukhnaagiin, including coordination in international forums. "We are actively working within the UN and other organisations," the Russian leader noted.

A trade agreement between Mongolia and the EEU is currently in development. Temporary agreements have already provided tariff preferences for 375 types of products, including confectionery and dairy products, oil products and petrochemicals, and vehicles under the Russia-Mongolia-China economic corridor programme.