Mongolia’s Search for a Third Way

The visit in early July of Russian Prosecutor General Igor Krasnov to Beijing would have gone largely unnoticed but for an unexpected announcement. Krasnov revealed that he and his Chinese colleagues had discussed the need to counteract the increasing Western influence on their “inner neighbor,” Mongolia. To this end, Krasnov said, he had already forwarded a proposal to his Mongolian counterpart to help strengthen ties with both China and Russia.

Krasnov’s remarks triggered alarm bells in Mongolia. For the past three decades, Mongolia has tried desperately to keep itself at arm’s length from its two neighbors, in part by exploiting their differences and in part by pursuing closer relations with the West. But now, as China and Russia grow ever closer, Mongolia’s space for maneuvering is rapidly shrinking.

This vast, resource-rich country of just over three million people in the heart of Eurasia still clings to a vision of the more open world that existed for about 30 years after the end of the Cold War. In those decades, Mongolia had a degree of freedom in choosing friends, trading with everyone, and benefiting from the prosperity produced by the rules-based international order. But it now faces many uncertainties in an era of great-power competition and hardening geopolitical divisions. In recent conversations with officials in the capital, Ulaanbaatar, we detected a creeping sense of resignation and fears that any rash move may invite intolerable pressure from Beijing or Moscow and further limits on the country’s ability to act independently.

Mongolia, however, does not have to meekly surrender to life as an appendage of China and Russia. Instead, it could become a model for how the United States approaches Central Asia in the unfolding geostrategic competition with China. The United States should do more to facilitate trade and investment links with Mongolia and signal a long-term commitment to the country through educational and training programs without attempting to portray its involvement as a deliberate strategic ploy to weaken autocracy and promote democracy. For its part, Mongolia must redouble its efforts to reassure foreign investors and to nurture a transparent and predictable economic environment, thus setting an example for other Central Asian countries that face similar dilemmas. In this way, Mongolia and other countries that feel caught between great powers might find that they are not so trapped after all.

BETWEEN TWO GIANTS

Mongolia survived the Cold War by aligning itself closely with the Soviet Union. The West was far away, and a much more dangerous enemy was close by: China. Mongolian leaders feared that China harbored irredentist ambitions. With Sino-Soviet relations in a tailspin since the late 1950s, the best option was to hold tight to the Soviets, who promised to protect Mongolia from Chinese encroachment and to support its economic development.

The end of the Cold War ushered in a sea change. In 1990, Mongolia underwent a democratic revolution. The communists were toppled, and the country has since developed a reasonably stable two-party system. It has also pursued an activist foreign policy, characterized not just by a willingness to engage with China and Russia but also a desire to build close relations with the “third neighbor”—a loose term used by Mongolian policymakers to describe the collective West and significant players among the countries of the global South. Mongolia seeks to defy geopolitical realities through a forceful and purposeful assertion of its claim to international relevance. It was the third neighbor policy, for instance, that underpinned the country’s decision to support U.S. efforts by sending 1,200 troops to Iraq between 2003 and 2008, close to 6,000 troops to Afghanistan between 2003 and 2021, and over 10,000 peacekeepers to South Sudan in recent years.

When it comes to Mongolia’s economy, however, China and Russia tower over all others. More than 90 percent of Mongolian exports (mainly mineral resources) find their way to China. Russia, for its part, supplies Mongolia with 95 percent of its fuel. Mongolia is also a key conduit of trade between China and Russia. Russia owns half the strategic railroad that crosses Mongolia from north to south. (The other half belongs to the Mongolian government.) In the past year, the railroad saw a surge of Russian traffic as the Kremlin sought to make up for its loss of access to Europe by importing an ever-larger quantity of Chinese goods. In the first half of 2023, 2.4 million tons of goods moved between China and Russia through Mongolia, a 58 percent increase from the same period a year ago.

POKING THE BEAR

And yet these strong commercial ties have not prevented diplomatic frictions. The Kremlin has leaned on Mongolia since Russia’s invasion of Ukraine, which came as a major shock to Mongolian policymakers. Mongolia is not a party to the Collective Security Treaty Organization, a Russian-led regional security alliance made up of six former Soviet republics. But the Kremlin has still tried to press Ulaanbaatar to back Russian President Vladimir Putin’s war. Although they have not lent Russia their support, Mongolian diplomats abstained during the votes for UN General Assembly resolutions that condemned the war in 2022.

Even this ostensible neutrality is not enough for Moscow. Russian officials have accused Mongolia of intending to host U.S. biological warfare labs, much as they have insisted on the purported presence of such labs in Ukraine. Mongolia is pushing back, however. Foreign Minister Battsetseg Batmunkh strenuously denied that such laboratories exist or that there are any plans to set them up. And since the beginning of Russia’s war in Ukraine, Mongolian authorities have welcomed thousands of Russian self-exiles and draft dodgers, many of whom hail from nearby Buryatia, which has linguistic, cultural, and ethnic ties to Mongolia. Just in the fourth quarter of 2022—essentially, in the three months that followed Putin’s call for a partial mobilization of Russian citizens—153,162 Russians visited Mongolia, a greater number than entered Mongolia in any prior calendar year. In the first six months of 2023, over 140,000 Russians entered Mongolia. In August 2023, Putin signed a law to close the escape hatch by setting up a new system for conscripts: they will no longer be allowed to leave Russia if drafted.

Mongolian authorities have also allowed voluble expressions of opposition to Putin’s war within their country. About 80 small-scale anti-Russian demonstrations have taken place in front of the Russian embassy in Ulaanbaatar. Several Mongolian politicians have spoken sharply against the war. Damdinnyam Gongor, a Canadian-educated parliamentarian, raised an antiwar sign during a parliamentary session in March 2022. This act prompted Russian diplomats in Mongolia to demand a meeting with him, which he has refused. In the weeks that followed the Russian invasion, former President Elbegdorj Tsakhia and former Prime Minister Bayar Sanjaa (who hail from rival sides of the Mongolian political spectrum) condemned the Russian invasion and called on Putin to end the war. In September 2022, in a video message that went viral, Elbegdorj called on Russia’s ethnic Mongolians to resist the draft and flee to Mongolia instead.

Iskander Azizov, Moscow’s brusque ambassador in Ulaanbaatar in recent years, has made matters considerably worse. In June 2020, he lambasted Mongolia’s national broadcaster for refusing to air the annual Russian World War II victory parade, a decision that was, in Azizov’s view, evidence that Mongolia was succumbing to Western influence. More recently, in November 2022, Azizov prompted stern words from Enkh-Amgalan Luvsantseren, Mongolia’s education minister, when the former sought to intervene in the appointment of a principal at a local school. Enkh-Amgalan furiously denounced Azizov’s “rude attempt to meddle in Mongolia’s domestic affairs.” The minister reminded the ambassador: “I am not a minister of [the Russian province of] Buryatia. I am the minister of sovereign Mongolia.” In January 2023, Russia replaced Azizov, who was sent to Myanmar. The new Russian ambassador in Ulaanbaatar, Aleksei Evsikov, is more discreet and tactful. He is a China expert, a fact that speaks loudly to both Russia’s priorities and Russia’s concerns in Mongolia.

But even with these occasional flare-ups, the Mongolian government understandably does not want to provoke Russia for fear that upsetting Moscow could prompt devastating retaliation: Russia could shut off fuel supplies to Mongolia, which would bring the entire country to a grinding halt. As a senior government official told us, “What can we do? We cannot defend ourselves. Mongolia has no cards to play!”

IN THE SHADOW OF CHINA

In Mongolia’s relations with China, a remarkable change has occurred. After decades of fretting about Chinese encroachment, Mongolian officials seem a little less concerned. In recent years, fears of Chinese ambitions translated into a policy that aimed at preventing China from acquiring critical stakes in Mongolia’s natural resources, adhering to the standard Russian width between rails in the construction of railroads, and obstructing Chinese migration. In 2017, during his presidential election campaign, former Mongolian President Battulga Khaltmaa spiced up his campaign rhetoric with invocations of a Chinese menace—once elected, however, he pursued a notably more pragmatic course.

That menace does manifest occasionally in serious disputes. In the wake of the Dalai Lama’s visit to Mongolia in late 2016, Beijing swiftly imposed sweeping economic sanctions on its neighbor. Mongolia promptly capitulated and promised to never allow the Dalai Lama to visit again.

But although it gets easily triggered by certain narrowly defined issues (including Taiwan, Tibet, and its human rights record), Beijing refrains from putting too much pressure on Ulaanbaatar—for now. This benign neglect has benefited the Mongolians, especially as they face a more radical neighbor to the north that is intent on reasserting its waning influence. “The Chinese are very practical people,” Damdinnyam told us. “The Russians, by contrast, are arrogant—needlessly arrogant. Arrogant for the sake of being arrogant.”

A less charitable explanation for China’s relative neglect of Mongolia is that Beijing knows that Ulaanbaatar’s space for independent action is already terribly circumscribed. China need not expend a great deal of geopolitical capital on coercing a neighbor so bound to it by hard geographic and economic realities. Policymakers in Mongolia (as across Central Asia) have learned to live in the shadow of China.

TESTING GROUND

As a landlocked country almost entirely dependent on China and Russia, Mongolia may be in a particularly vulnerable spot. But that vulnerability is what makes it a crucial testing ground for Western policies. The same set of policies could be applied across Central Asia to counter both Chinese expansionism and Russian malice.

U.S. officials should not confuse political gestures with the genuine economic statecraft that is so desperately needed. Mongolia has always been desperate for attention, especially from senior U.S. politicians. (The only U.S. president to have ever visited Mongolia was George W. Bush in 2005—and that trip was largely an effort to rally support for the U.S. wars in the Middle East.) It is important, however, not to overemphasize the importance of attention, especially if all Mongolia has to gain from the visits of top-ranking U.S. officials are rote statements regarding the two countries’ shared commitment to democratic values.

For instance, U.S. Undersecretary of State Victoria Nuland’s visit to Ulaanbaatar in April produced little of substance beyond praise for Mongolia’s democratic credentials. During a recent White House meeting with Mongolian Prime Minister Oyun-Erdene Luvsannamsrai, U.S. Vice President Kamala Harris not only talked about Mongolia’s “reliable democracy” but even found time to situate Mongolia within the broader context of U.S. “defense and deterrence commitments and our security presence in the region.”

There is no real need for such language. It is a bad time for the United States to attempt to impose its ideological view of the world—one divided between democracies and autocracies, placing the U.S. rivalry with China at the heart of geopolitics—on others. Like many countries in Central Asia, Mongolia does not want to be put in a position of having to choose between China and Russia, on the one hand, and the West, on the other. In Mongolia’s case, making such a choice would be extremely painful if not altogether impossible. Mongolia is too dependent on its two authoritarian neighbors to risk antagonizing them.

THE THIRD NEIGHBOR

The United States needs a different strategy, one not of grand proclamations but of small steps aimed at giving smaller countries such as Mongolia options. The United States cannot expect Mongolia to decouple from China and Russia, but Washington’s active engagement with the country (including through economic involvement but also educational and training programs) would increase Mongolia’s leverage in dealing with its two difficult neighbors. The aim here should be to help Mongolia survive as a robust democracy that can maintain a precarious neutrality in an increasingly polarized world.

Trade and investment will be an important part of any such strategy. Mongolia has a lot to offer the United States. Of particular interest to U.S. officials and companies may be Mongolia’s rich deposits of rare earths and lithium, resources that have become ever more important as the United States attempts to better insulate its supply chains from China.

Progress has been slow on this front. In June, Mongolia, South Korea, and the United States held their first trilateral “critical minerals dialogue.” What results from this dialogue remains to be seen. Rare earths were also discussed during Oyun-Erdene’s visit to Washington; according to one U.S. official, the Americans are looking for “creative ways” to help Mongolia. A source familiar with these matters said that this entails technical assistance in geological prospecting. But further impediments to U.S. investment in Mongolia remain, including the difficulty of processing minerals in Mongolia and, critically, the lack of clarity about how to export these strategic materials from a landlocked country without entering into either China or Russia.

Mongolia has another hurdle to overcome: its own reputation. Mongolia must do more to build a predictable legal framework that would make long-term commitments more attractive for foreign investors. But the country is known for occasionally throwing out investors, as it did in 2009 with the revocation of a uranium mining license held by Khan Resources, a Canadian company. That decision, which many suspect was intended to placate the Russians, who wanted exclusive access to Mongolian uranium, led to years of international litigation between the Canadian firm and the Mongolian state, a battle that Mongolia ultimately lost. Earlier this year, a Mongolian court canceled the permits of another uranium prospecting company that was supported by investment from the Czech Republic. The Czechs are currently threatening legal repercussions.

Such cases serve as reminders of both how easy it is to paint foreign investors as crafty foreigners out to steal Mongolia’s riches and how challenging it then becomes to invite them back because the country cannot do without them. Mongolia can and should redouble its efforts to attract foreign multinationals and thus strengthen the economic underpinnings of the third neighbor policy. Mongolia’s energy infrastructure, in particular, is in dire need of help. An Indian firm is building an oil refinery at Sainshand in the Gobi Desert. Although this refinery will not completely eliminate Mongolia’s dependence on imported Russian fuel, it will make a sizable step in that direction. The arrival of more foreign investment in Mongolia’s energy sector will help weaken Russia’s influence in the country. There is also vast potential for investments in wind and solar power: not only would such investments address the country’s vulnerability to energy blackmail by the Russians, but they could also help Mongolia increase its capability to export electricity to China.

That may seem like a bad thing to U.S. officials, but they must dispense with zero-sum thinking when it comes to understanding Mongolia’s geopolitical position. The United States could make a virtue of necessity and recognize that limited cooperation with China here makes sense. Mongolia desperately needs assistance in mitigating climate change, which remains one of the few areas in which the United States and China may be capable of reaching agreement.

The same logic could apply more broadly to Central Asia, which calls for serious Western attention, not in the form of political or ideological grandstanding or military involvement (here, the mess in Afghanistan has shown Americans what not to do) but in the form of hard-nosed economic engagement that would give regional players more breathing space as they face continued Russian bullying and China’s relentless drive for regional hegemony.