By Gleb Bryanski

MOSCOW (Reuters) -Rising tensions in the Middle East will accelerate natural gas negotiations between Russia and China, with a decision likely this year, the head of a think-tank that advises the Russian government on China told Reuters.

Russia has been seeking a deal to build the Power of Siberia-2 pipeline to deliver 50 billion cubic metres of gas a year to China, but the two sides have not been able to agree on terms.

"With the sharp rise in tensions in the Middle East, it is advantageous for China to increase supplies from the north," said Kirill Babaev, head of the China and Contemporary Asia Institute in Moscow.

Israel and Iran attacked each other for a fifth straight day on Tuesday, raising the risk of further unrest and the potential disruption of oil and gas supplies from the Middle East.

"The issue of the gas deal will arise again because this deal is capable of guaranteeing China an uninterrupted supply of energy. Under current conditions, by the end of the year, we will see a decision on the Power of Siberia-2," Babaev added.

Russian President Vladimir Putin is set to travel to China in early September to participate in celebrations marking the anniversary of the victory over Japan in World War II.

The trip follows Chinese President Xi Jinping's visit to Moscow in May.

Babaev, whose think tank is involved in preparing Putin's agenda, said that the visit will be filled with political and economic discussions.

Economic cooperation with China has helped Russia in the face of Western sanctions imposed after its 2022 invasion of Ukraine.

MUTUAL UNDERSTANDING

Trade between Russia and China jumped by 26% in 2023 though by just 1.9% in 2024.

It fell by 7.5% in the first four months of 2025 but Babaev said that new energy and agriculture export deals could revive growth this year.

He said problems with cross-border payments, caused by the threat of secondary Western sanctions against Chinese banks, which strained relations between Russia and China in 2024, have eased.

"We have a mutual understanding with our Chinese partners that money prefers silence. The less publicity surrounds these matters, the more successfully these payments proceed. The Chinese side is cooperating with us, and new mechanisms are working fine," Babaev said.

A delegation of Chinese officials and executives will attend the St. Petersburg Economic Forum, Russia's main economic conference, this week and participate in a panel discussion with Putin.

Babaev said that Chinese investors are active in the agriculture, oil and gas processing, food, logistics, and pulp and paper sectors, but they often operate through intermediaries, and their presence is not always reflected in statistics.

"Chinese investors are entering the Russian market very cautiously and try not to make their presence too visible by establishing joint ventures with Russian companies and operating under new brands," he said.

(Reporting by Gleb Bryanski)