In September 2025, amid the Shanghai Cooperation Organization (SCO) Summit in Tianjin, a pivotal geopolitical shift took hold for Mongolia: after two decades as an SCO “observer state,” the country formally stepped away from this neutral role. The move followed the SCO’s restructuring of its partner framework, which merged “observer states” and “dialogue partners” into a unified “SCO partners” category. Mongolia pointedly declined to transition to the new status.
Instead, Ulaanbaatar announced a “strategic focus on trilateral cooperation with China and Russia,” a pivot that reflects not just diplomatic recalibration, but the deepening gravitational pull of its two giant neighbors. For a nation long defined by its “multipillar” foreign policy – crafted to balance great powers and avoid overreliance – this shift is a symptom of a reshaped Eurasian order, where China and Russia’s economic, energy, and security networks are tightening around Mongolia.
From Observer Caution to Trilateral Alignment: A Calculated Pivot
Mongolia’s SCO observer status, granted in 2004, was once a cornerstone of its geopolitical survival. It allowed Ulaanbaatar to participate in the bloc’s economic dialogues and cultural initiatives (like anti-desertification efforts) without committing to binding security or infrastructure deals. As recently as 2024, President Khurelsukh Ukhnaa described the observer role as a “buffer” in a parliamentary address, stressing it let Mongolia “engage without being entangled” in great-power rivalries.
By 2025, that caution had evaporated. According to Mongolian diplomatic sources, China and Russia applied quiet but persistent pressure on Ulaanbaatar to “upgrade” its engagement. For Moscow – still reeling from a 40 percent drop in European gas demand since the 2022 Ukraine conflict – Mongolia’s neutrality hindered its goal of securing eastern energy export routes. For Beijing, the observer status slowed progress on the China-Mongolia-Russia (CMR) Economic Corridor, a flagship Belt and Road Initiative (BRI) project linking Chinese manufacturing hubs to Russian resource basins via Mongolian territory.
Mongolia’s response was a clear break from tradition. In a September 1 statement, its Foreign Ministry framed the “exit” from observer status as a choice to prioritize “tangible trilateral outcomes” over “broad regional forums.” Days later, at the Beijing trilateral summit, Khurelsukh explicitly aligned Mongolia’s “Steppe Road” infrastructure plan with China’s BRI and Russia’s Eurasian Economic Union (EAEU) – a far cry from the tentative language of observer diplomacy. He also highlighted domestic priorities tied to regional cooperation: the “Billion Trees” environmental campaign and plans to host the 2026 U.N. Convention to Combat Desertification (COP17) in Ulaanbaatar.
The SCO’s reaction underscored the shift’s significance. Russian President Vladimir Putin praised Mongolia’s “deeper engagement” as a sign of the bloc’s growing Eurasian influence, while Chinese President Xi Jinping commended its role in “safeguarding regional peace” – a nod to Ulaanbaatar’s pledge to join SCO counterterrorism exercises and avoid foreign military bases.
For Mongolia, however, the move was an admission: neutrality is no longer viable in a region where China and Russia set the terms of engagement.
The Pipeline That Binds: Power of Siberia 2 and Mongolia’s Double-Edged Bargain
If Mongolia’s SCO pivot was a political signal, the “Power of Siberia 2” (PoS2) natural gas pipeline is the economic mechanism cementing its integration with China and Russia. On September 2, 2025, the three countries signed a legally binding memorandum in Beijing to build the 3,000-kilometer pipeline, which will transport 50 billion cubic meters of Russian gas annually to China via central Mongolia. For Ulaanbaatar, the project is a double-edged sword: a lifeline for an economy recovering from COVID-19 and a coal price slump, yet a chain locking it into decades of dependence.
The short-term benefits are tangible. Over 30 years, PoS2 will generate more than $10 billion in transit fees for Mongolia – roughly a few hundred million annually, equivalent to a few percentage points of its 2024 GDP – and create 10,000 construction jobs. It will also provide Mongolia with affordable Russian gas, reducing its 90 percent reliance on coal for electricity generation and supporting its climate goals.
For China, PoS2 is critical to energy security. Amid China-U.S. tensions and uncertain Middle Eastern LNG access, the pipeline will meet 15 percent of China’s projected 2035 natural gas demand. For Russia, it offsets lost European markets. Combined with the expanded “Power of Siberia 1” (now carrying 44 billion cubic meters of LNG annually), PoS2 will make China Moscow’s largest gas export market by 2030.
Yet the costs to Mongolia’s sovereignty are steep. China and Russia will fund 85 percent of the $40 billion project with Russia’s Gazprom and China’s CNPC holding majority control. Mongolia contributes only land and labor – no ownership stake, and no role in pricing or maintenance. This deepens an already lopsided economic relationship: China buys 65 percent of Mongolia’s exports (coal, copper), while Russia supplies 90 percent of its gasoline and 70 percent of its electricity. Critics in Ulaanbaatar warn PoS2 will turn “multipillar” diplomacy into a “two-pillar” reality.
The imbalance was evident weeks before the SCO Summit, when Gazprom signed a separate transit deal with Mongolia, precluding Ulaanbaatar from seeking alternative partners. Khurelsukh has defended the project as a “win-win,” noting Mongolia retains control over its pipeline section and will use fees to fund renewable energy. But experts remain skeptical. “If Gazprom and CNPC dispute prices, Mongolia gets caught in the middle. We have no Plan B,” said a Mongolian government official familiar with cross-border energy cooperation negotiations.
Infrastructure, Security, and the Binding Web
Energy is just one thread in the China-Russia-Mongolia cooperation network. On the same day the PoS2 agreement was signed, the three countries extended the CMR Economic Corridor until 2031 and added 33 new infrastructure projects, including three cross-border railways. The Shiveekhuren-Ceke and Khangi-Mandula lines will link Mongolia’s coal-rich South Gobi region to China’s steel hubs. A modernized Central Railway Corridor, will connect Mongolia to Russia’s Trans-Siberian Railway. And then there’s the already operational Gashuunsukhait-Ganqimaodu line, streamlining coal exports to China.
Together, these projects will cut Mongolia’s reliance on road transport for mineral exports by 50 percent – but bind its economy all the more tightly to China’s manufacturing sector and Russia’s resource-driven growth.
Security cooperation is also deepening. At the Tianjin Summit, Mongolia pledged to join the SCO’s “Comprehensive Center for Countering Security Threats” and participate in 2026 joint anti-terror drills. While Mongolian officials frame this as a response to extremism, the SCO’s definition of the threat aligns with China and Russia’s agenda. Moscow focuses on countering “hybrid threats” (Western disinformation), while Beijing prioritizes fighting “separatism” in Xinjiang. For Mongolia – with 4,710 km of border with China and 3,485 km with Russia – such cooperation is a prerequisite for market access.
History as a Tool: Soft Power and the “Shared Struggle” Narrative
To legitimize this alignment, China and Russia have leveraged the 80th anniversary of World War II (China’s War of Resistance Against Japan, Russia’s Great Patriotic War). The symbolism was deliberate: On September 2, Khurelsukh traveled to Zhangbei County, Zhangjiakou city of Hebei, China, to lay a wreath at the Soviet-Mongolian Martyrs’ Cemetery, honoring soldiers who liberated northern China in 1945. The ceremony, broadcast live in all three countries, was framed by Chinese state media as a tribute to the “unbreakable bond” between the nations.
“Our grandfathers fought side by side against fascism; today we defend their legacy,” Khurelsukh declared. This narrative undermines Western criticism of the China-Russia partnership as an “authoritarian bloc” and lets Mongolia see itself as a “guardian of shared values” rather than a pawn.
Soft power extends beyond symbolism. China has expanded the number of Confucius Institutes in Mongolia from five (2015) to 15 (2025), focusing on trade-specific language training. Russia has doubled scholarships for Mongolian students to study engineering and energy – fields critical to PoS2. By 2025, over 10,000 Mongolian students were enrolled in Chinese and Russian universities, compared to over 2,000 in the U.S. and Europe.
The Fading “Third Neighbor” Policy
Mongolia’s pivot has raised doubts about its “third neighbor” policy, which for decades has seen Ulaanbaatar balance China and Russia with U.S., EU, and Japanese partnerships. The U.S. Department of State, U.S. Agency for International Development (USAID), and Millennium Compact Challenge have conducted multiple grants and programs to support Mongolia’s development of clean water and energy sources, and the EU pledged 79.67 million euros in financing aimed at enhancing Mongolia’s energy infrastructure. But these sums pale next to the $40 billion committed to PoS2 and the CMR Corridor. Western investment has also declined since 2022, as companies shift focus to the Ukraine war and the Middle East.
Mongolian officials reject the “pawn” label, emphasizing their transit leverage. “Without Mongolia, PoS2 and railways are logistically impossible or too costly,” one such official said. Ulaanbaatar has extracted concessions: China and Russia will fund PoS2-related environmental protections and build schools in rural Mongolia. Hosting COP17 in 2026 also lets Mongolia assert global environmental leadership.
Yet pressure to align with China and Russia will grow, from adopting Beijing’s “cyber sovereignty” model to avoiding Western sanctions on Moscow. Mongolia’s “multipillar” identity, once a strength, is increasingly rhetorical.
Conclusion: A Microcosm of Eurasian Geopolitics
Mongolia’s exit from SCO observer status in favor of expanded trilateral cooperation is more than a regional story; it mirrors Eurasia’s broader shift. As the United States focuses on Indo-Pacific alliances and Europe navigates energy transition, China and Russia are building a parallel order centered on the SCO, EAEU, and projects like PoS2. For smaller states like Mongolia, the choice is no longer “alignment vs. neutrality,” but “engagement vs. marginalization.”
In the short term, Mongolia gains stability: transit fees, infrastructure investment, and SCO market access. In the long term, it risks losing the autonomy that defined its foreign policy for decades. As Khurelsukh acknowledged in Tianjin, “Mongolia’s future is tied to the stability and prosperity of our neighbors.” The question is whether that tie becomes a lifeline – or a constraint.
For the West, Mongolia’s shift is a warning: post-Cold War unipolarity in Eurasia is over. Smaller states are increasingly choosing partners based on tangible benefits, not ideology. For China and Russia, it validates their vision of a Eurasian order built on “sovereignty, non-interference, and pragmatic cooperation.” For Mongolia, the tightrope walk between autonomy and dependence has never been more precarious. As PoS2 breaks ground and cross-border railways expand, its fate is increasingly shaped not in Ulaanbaatar, but in Beijing and Moscow.
By Sumiya Chuluunbaatar

Published Date:2025-09-08