Protesters attend a rally in support of Ukraine following Russia’s invasion of the country, near the Government Palace in Sukhbaatar Square in Ulaanbaatar, Mongolia March 1, 2022. REUTERS/B . Rrendorj

SHANGHAI, March 3 (Reuters) – Russia’s invasion of Ukraine and the imposition of tough sanctions on Moscow have put landlocked Mongolia in a difficult economic and diplomatic situation, and experts warn that its delicate balance between ‘East and West could be upset.

A small group of protesters gathered in Ulaanbaatar’s Sukhbaatar Square on Tuesday to call for an end to hostilities in Ukraine, only to be confronted by residents worried about antagonizing Russia.

The standoff reflected the rifts in a country that transitioned to democracy in 1990 after decades of Soviet hegemony, and now worries about China’s growing regional dominance.

Surrounded by Russia to the north and China to the south, Mongolia has cultivated allies such as Japan, South Korea and the United States in a “third neighbour” diplomatic strategy aimed at bolstering its political independence, but its economy continued to rely on its two giant neighbours.

Mongolia’s central bank warned earlier this week that most of its foreign trade is facilitated by Russian banks and that it sources almost all of its oil from its northern neighbour, now facing international isolation.

Bank Governor Lkhavgasuren Byadran warned that there were risks that payments could not be made, and that deliveries of food and consumer goods from Europe were also being disrupted.

“We are too dependent on Russia and it will affect us in many ways, not just for oil,” said Sumati Luvsandendev, a Mongolian political analyst and opinion pollster, noting that Mongolia was stocking up on large quantities of grain. from Russian suppliers.

“Our banks depend on transfers through Russian banks, so SWIFT will also affect our import-export operations,” he said.

Mongolia also remains one of the few remaining member countries of the Russian-led International Bank for Economic Cooperation and International Investment Bank, after five European countries withdrew on Wednesday. Read more

IN SANDWICHES

By making Russia more dependent on China as a market for its raw materials, the crisis in Ukraine could undermine years of Mongolian efforts to escape the shadow of its neighbors.

“For a country like ours, sandwiched between two giants, a landlocked but hugely open economy relies on seamless border trade,” said Otgochuluu Chuluuntseren, an economist and former government official. “The situation was tense anyway. Now this war has made the Mongolian economy even more troubled.”

Following Germany’s decision to cancel the Nord Stream II gas pipeline, Mongolia is also likely to become more strategically important for Russia’s energy-dependent and increasingly east-oriented economy. .

Mongolia signed an agreement this week to build the Mongolian section of a transnational gas transmission project to supply 50 billion cubic meters of Russian gas to China, known as Power of Siberia 2.

Mongolia has generally tried to stay away from geopolitical disputes. He did not comment on Russia’s decision to send troops to Kazakhstan to help quell protests last year, or the US withdrawal from Afghanistan – even though its own troops have been deployed there.

It has so far remained silent on the invasion of Ukraine, and it was one of 34 countries to abstain on a UN resolution demanding the withdrawal of Russian troops on Wednesday.

“Current leaders … are not inclined to rustle the feathers of Putin or Xi,” said Julian Dierkes, an expert on Mongolian politics at the University of British Columbia.

But he could come under pressure to take sides in an increasingly polarized geopolitical conflict, especially if Moscow – ostracized by Europe and the West – swings east.

“I used to think that Russia didn’t really pay enough attention to Mongolia to be upset, but under the current circumstances that might not be the case,” Dierkes said.

The more it is forced to take sides on issues like Ukraine, the less room Mongolia will have in its strategy to counterbalance Russian and Chinese economic and political influence by cultivating “third neighbours” like the United States. and Japan.

“As for our third neighbors, we hope they understand our unique situation,” Otgochuluu said. “Mongolia is attached to the universal values ​​of freedom and democracy. But its economy is not self-sufficient.

Reporting by David Stanway in Shanghai; Additional reporting by Anand Tumurtogoo in Ulaanbaatar; Editing by Simon Cameron-Moore

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