Mongolia’s Balancing Act: Between Two Giants and a Third Neighbour Strategy

For Mongolia, geography does not just act as a hindrance to its foreign policy. In fact, geography is where foreign policy begins, since the country lies between Russia and China and therefore has to engage both countries diplomatically. Yet closer engagement with either also carries the risk of dependence. Mongolia’s response has traditionally been to balance its two neighbours while cultivating a network of “Third Neighbours” beyond its immediate geography. Recent developments, however, suggest that this strategy is evolving.

Illustration by The Geostrata

The second joint military exercise between China, Russia and Mongolia in September 2026, alongside the active involvement of President Ukhnaagiin Khurelsukh in the Shanghai Cooperation Organisation (SCO) Summit, where he met both Xi Jinping and Vladimir Putin, suggests an approach that goes beyond keeping an equal distance from its unavoidable dependencies. Mongolia appears to be managing these relationships while preserving enough external partnerships and diplomatic space to prevent either from becoming exclusive. 

BALANCING POWER AND GEOGRAPHY MANAGEMENT

Geography is not an obstacle to Mongolia's foreign policy, but rather forms its basis. Being located between Russia and China means Mongolia cannot ignore either neighbour, while close dependence on both can create political vulnerabilities. Traditionally, Ulaanbaatar has responded by balancing its ties with the two powers while developing “Third Neighbours.”

Russia dominates Mongolia’s northern frontier, while China is an essential economic partner and serves as the primary destination for its export products. Consequently, relations with the US, Japan, South Korea, India, and Europe have offered Mongolia some strategic space without requiring it to take sides with either of its neighbours. 

But changing regional conditions are making this form of balancing increasingly complex.

It is unrealistic for Mongolia to cut back on its reliance on China, which accounts for approximately 84.3% of Mongolia’s exports and is both its largest trading partner and the principal destination for its mineral exports. Mongolia also cannot easily reduce its reliance on Russia as a source of energy and fuel, given that approximately 96.8% of its petroleum-product imports came from Russia in 2024.

This highlights the country’s continued dependence on Moscow for energy security. Thus, the pragmatic path is to manage these dependencies rather than attempt to eliminate them. The objective is no longer simply to maintain distance from Russia and China, but to ensure that neither relationship becomes exclusive.

THE BORDER DRILL HIGHLIGHTS THE LARGER TREND

The second China-Russia-Mongolia border defence exercise, held on September 2–3, 2026,  is one of the clearest examples of this approach. The exercise focuses on cooperation against possible threats on the borders, including planning, reconnaissance, and counteraction to operations like sabotage. In itself, the exercise does not mean that Mongolia is aligning militarily with Russia and China. Since the end of the Cold War, Mongolia has pursued a non-aligned foreign policy, avoiding formal military alliances while balancing its relations with Russia, China, and its Third Neighbours. 

Its importance lies in what the exercise says about the changing boundaries of Mongolian security cooperation. The exercise follows the first trilateral border exercise conducted in 2025. Repeating such security cooperation moves it beyond a one-off diplomatic signal and towards a practical mechanism for addressing specific security concerns with both neighbours.

Mongolia is thus proving that it is prepared to cooperate with both neighbours as far as it helps ensure its own security. It should not be confused with strategic alignment. This exercise is concerned with real-world border security issues and is not asking for Mongolia to join any military alliance or follow the strategic interests of either Russia or China, or cut off its relationship with others. Through cooperation with its two neighbours, Mongolia can thus address its immediate security issues while still having the liberty of maintaining an independent foreign policy.

It is also clear that Mongolia is increasingly making the difference between cooperation and alignment. It is cooperating on security issues with Russia and China without letting it affect its overall foreign policy. This will be important, especially if security threats throughout Eurasia increase. 

CHINA IS EMERGING AS AN ECONOMIC ANCHOR

While security cooperation is expanding with both neighbours, Mongolia’s economic ties with China are becoming increasingly central to its national interests. Mongolia's dependence on China is not limited to China being its largest trading partner. In fact, China is also the major buyer of Mongolia's exported coal and copper, contributing greatly to the economy of Mongolia. The relationship between the two countries thus becomes one of mutual indispensability and dependence. 

This creates vulnerability, but also creates opportunities, as Mongolia has resources that China requires, while China has the market that Mongolia cannot readily get from elsewhere. The problem for Ulaanbaatar is ensuring that economic dependence becomes a mutual arrangement rather than a one-sided one. 

This is where trilateral cooperation with Russia can become relevant. Through the engagement of Russia in sectors including trade, investment, infrastructure, energy, and connectivity, Mongolia may be able to steer clear of economic dependency on China. Conversely, the deepening of trilateral relations might result in higher dependence of Mongolia on Russia and China. Hence, the significance of such cooperation will be determined by the extent to which Ulaanbaatar becomes more empowered and connected, not merely more dependent.

Connectivity could strengthen Mongolia’s strategic importance. A country located between two major powers does not automatically have much bargaining power. But becoming part of the infrastructure connecting them could give it greater room to negotiate.

BOTH DOORS REMAIN OPEN

President Khurelsukh’s diplomacy at the SCO Summit reflects this broader approach. His interaction with both Xi Jinping and Putin demonstrates Mongolia’s willingness to maintain high-level engagement with both powers rather than using one relationship merely to counterbalance the other.

The SCO offers another platform for this. Mongolia has maintained a cautious approach towards the organisation because it does not want to be subsumed into structures dominated by regional powers. Yet participation allows Ulaanbaatar to engage Russia, China, and other Asian countries without necessarily turning them into formal allies.

Mongolia has had a relatively cautious attitude towards this organisation because it does not want to be subsumed under any organisations that have dominant regional powers as members. However, participation in such an organisation enables Ulaanbaatar to engage with Russia, China, and other countries of Asia without turning them into allies. This provides flexibility in Mongolia’s diplomacy. Instead of asking whether Mongolia is aligning itself with Russia or China, the more pertinent question is whether it is increasing the number of platforms through which it can navigate both relationships.

THIRD NEIGHBOUR POLICY AS A FORM OF INSURANCE

The growing engagement with Russia and China does not make the Third Neighbour Policy irrelevant. Instead, it makes the policy more important as a safeguard against overdependence. The reason for the “Third Neighbour policy” was the necessity to avoid strategic isolation of Mongolia from its neighbours.

Japan can offer investment and developmental aid. South Korea can give economic and technological support. America continues to be an important ally in political and security matters. India is yet another option available in terms of diplomacy and economics. Europe can offer more political and commercial ties.

These relationships are not supposed to substitute for Russia or China. Their value lies in ensuring that Mongolia’s external relationships do not become exclusive. The Third Neighbour Policy, therefore, should not be viewed as an anti-China or anti-Russia strategy, but as a way to preserve Mongolia’s strategic options.

STRATEGIC AUTONOMY IS WHAT REALLY COUNTS

Mongolia’s changing strategy should not be considered a departure from balancing, but an evolution of it. Here, Mongolia accepts the unchangeable nature of its geography and the fact that its economic reliance on China and strategic dependence on Russia cannot just disappear overnight. Rather, Ulaanbaatar tries to turn them into manageable partnerships. 

The Trilateral border exercises illustrate greater security cooperation. Economic and infrastructure links are creating deeper interdependence.  Khurelsukh’s engagements with Xi and Putin demonstrate continued political outreach to both powers. But the “Third Neighbour” policy is the key balancing factor. The problem is not in cooperation with either Russia or China. The problem is losing the choice about when, where, and how to cooperate.

The central challenge is therefore not cooperation with Russia or China, but preserving the freedom to decide when, where, and how to cooperate. For Ulaanbaatar, strategic autonomy may no longer mean keeping its two neighbours at an equal distance. It may instead mean becoming sufficiently connected and useful to both that it retains room for manoeuvre between them.

Mongolia’s foreign policy is consequently moving from simply balancing two powers towards managing interdependence with them. Its success will ultimately depend on whether deeper relationships can improve Mongolia’s economic and security position without reducing its freedom of choice. For a country situated between two powerful neighbours, that freedom may be its most important strategic asset.

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BY HEMA PRIYA

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