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Mongolian Petroleum Authority chairman G Ulziiburen announced in mid-March that Mongolia had made an agreement with PetroChina - a subsidiary of China National Offshore Oil Corporation - to exchange crude oil drilled in Mongolia with end-products processed in Inner Mongolia Autonomous Region.

Delivery was to reach 10,000 tons of fuel this April, lessening the present import cost for Mongolia by US$100-$170 per ton. Chairman Ulziiburen promised the government would continue to seek cheaper sources of fuel in hopes such policies soon would reduce prices.

After expansion upgrades are made in May to the Zamyn-Uud railroad switch-loading yard on the Sino-Mongolian border, it is planned that monthly imports will increase to 20,000 tons by September.

The imported Inner Mongolian oil will be of a higher quality - equivalent to Euro-3 standard. Mongolia's current consumption of fuel imported from Russia is equivalent to the more polluting Euro-2 standard and sold under the brand name AI-92. This Inner Mongolian refined fuel is sold under the new Mongolian brand name MONGOL-93 and was released at gas stations in April.

Twenty percent of Mongolia's imports today are petroleum products. Mining Minister Davaajav Gankhuyag, a well known supporter of resource nationalism, was reported in March as commenting, "In order to get rid of petroleum supply from one route [Russia], we are negotiating with third parties that brings some positive results."

This is not, however, a new Mongolian oil strategy. Back in 2009, Dashzeveg Amarsaikhan, then-chairman of the Petroleum Authority, stated, "We shall have more leverage once we manage to diversify our sources and reduce captive dependence on one supply source. The government is clear about this and has been working to achieve that objective. Things will get better once we extract enough oil at home and also have a refinery here."

Mongols have claimed for years that the Russian supply has been interrupted for political reasons, such as in May 2011, and that these products are increasingly expensive and fail to meet soaring consumer and industrial demand. Although Mongolia is sensitive to Chinese activity in the mineral sector, it is willing to let China become a significantly larger supplier of oil products, at least in the short term, to break the back of its dependency on more expensive Russian petroleum products.

This temporary strategy may work in China's favor to ease the bilateral tension generated by Mongolia's increasing concern over the large volume of Chinese investment in its minerals. While certainly a more positive development from China's point of view, Mongols are clear that they see the future of their petroleum supply in creating their own refinery infrastructure.