Staking claims on thin ice: the new Silk Road

Shipping routes are opening up in the Arctic due to climate change. This is a development fraught with environmental and geopolitical risk

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The Northwest Passage, which connects the North Atlantic and Pacific oceans, is increasingly ice-free (NASA EARTH OBSERVATORY)

The way climate change is melting the Arctic’s sea ice—about 30 per cent has been lost since the 1980s—has become media shorthand for the environmental worries facing governments as they try to curb global warming. But in some corners of some ministries in countries with a claim on the frozen North, there’s a more eager focus on the economic opportunities being brought by the vanishing ice.

These opportunities are not just to be found in the vast deposits of natural resources beneath the ice. On the surface, waters are increasingly navigable, potentially allowing for more reliable, shorter Europe-Asia transports across northern waters for much more of the year. This potential throws into focus the three northern shipping routes between Atlantic and Pacific Oceans—the Northwest Passage via Canada, the Northeast Passage via Norway and Russia, including Russia’s Northern Sea Route (NSR), and the Transpolar Sea Route (TSR) across the North Pole. The TSR is barely navigable now but runs through international high seas so could be the safest of the three in future.

The expansion of economic activity in the Arctic is fraught with both environmental and geopolitical risk. The region’s unexplored biodiversity could be under threat from increased human activity. So too could the way of life of indigenous communities. Moreover, Arctic borders are poorly defined, which has left governments scrambling for influence over new economic frontiers.

For the moment, global shipping remains focused on southern routes through the Suez and Panama Canals. Yet Arctic shipping routes are shorter and will take ever less time as the ice continues to melt. If routes become reliably navigable, it would make economic sense for companies to reroute, with dramatic consequences. “The potential as a preferential shipping route between Europe and Asia could change global trade flows. The colossal hydrocarbon reserves that lie beneath it could upend energy markets. And its growing militarisation has caught the attention of world power,” the Financial Times suggested last year.

There has already been an increase in traffic along the Northeast and Northwest Arctic routes, with increasing numbers of ships making use of the waters now open in summer. In 2017 the first ship sailed the Russian Northern Sea Route without help from icebreakers. In 2018, Danish shipping firm Maersk Line sent a newly developed “ice-class” ship along the route.

The country doing most to promote Arctic travel in its waters is Russia. For the Northern Sea Route along Russia’s northern coast to be commercially viable, however, it would need to become much more predictable, both to lower insurance costs and allow for reliable shipping schedules. That would take large-scale investment. At the moment, communication systems in the Arctic regularly fail and satellite signals can be faulty. The weather forecasting along Arctic routes is poor compared to other competing shipping routes. This is particularly important since the weather is so extreme and variable.

There is some disagreement on the extent to which these problems will be overcome. A slew of recent economists’ studies predict that Arctic routes will be commercially viable soon. A report by the Copenhagen Business School claims that, assuming the Arctic continues to melt, it will compete with the Suez and Panama Canals by 2040. Some economists go further. A 2017 article in The Economic Journal, “Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route,” suggests that that route could be navigable year-round by 2030, leading to two-thirds of Suez traffic and 5.5 per cent of all trade being rerouted to the Arctic.

Even if Arctic shipping routes only become an add-on, rather than taking over as a major artery of future trade, some level of increased economic activity in the region can be expected.

Russia, for one, appears convinced by predictions that the Arctic will rival the Suez and Panama Canals. At an Arctic conference last year, President Putin announced that one-tenth of all Russian economic investments are now in the Arctic. Russia is building new fleets of icebreakers to assist ships. Putin says that the Russian Arctic fleet will have at least 13 heavy-duty icebreakers by 2035, nine of which will be nuclear powered. Even if there is still some ice, the government plans to use these ships to break it and create safe passages. There are plans to build new ports and expand old ones at both ends of the route.  At the start of this year, the Kremlin announced $300 billion of incentives for new oil and gas projects in the region. In March it published a document outlining its 15-year plan to increase use of the Northern Sea Route, increasing the Arctic regional population and protect its territorial sovereignty, which it sees as compromised by increasing foreign interest.

Long before today’s Russian interest, the Arctic was a national security priority for Stalin’s Soviet Union. “Red Arctic” airstrips and military bases were built. Arctic exploration was encouraged, with the first icebreaker reaching the North Pole in 1977 on the anniversary of the October Revolution. After 1991, many of these bases closed, but 50 have now been refurbished. Many military analysts believe that Russia is trying to develop the Arctic to project power over its “avenues of approach” to the United States, thus tilting the geopolitical scales in its favour.

The reason this is so concerning is that the borders in the Arctic are not clearly defined. Countries are normally given exclusive economic control over waters 200 nautical miles from their borders. Since the Arctic is so vast, that leaves a lot of territory unclaimed. Countries can claim this territory on the basis of their continental shelf extending from their borders into the unclaimed areas. Canada, Denmark (through Greenland) and Russia all have overlapping claims. Russia asserts its right to control waters extending to the North Pole. Such disputes are dealt with through the United Nations. Russia’s initial claim was rejected for lack of evidence, but it submitted a new one in 2015. As Moscow builds power in the region, who can say if it would accept an unfavourable UN ruling?

Others are also proactively claiming a stake in a future Arctic economy. China has declared itself an “important stakeholder in Arctic affairs” since it is a “Near Arctic State”.  Like Russia, China plans on extending its military capabilities and extracting natural resources. Beijing is encouraging the development of the Northern Sea Route, with the first Chinese ship making the crossing in 2012.  In 2013 the country gained “observer status” on the UN’s Arctic Council. President Xi Jingping also wants to extend China’s Belt and Road Initiative to include a Polar Silk Road in partnership with Moscow, reflecting China’s pledge to work “jointly with Arctic states”. While Russia sees the Arctic as part of its national identity, Beijing sees it as one of many areas where it can increase its global influence.

What about their geopolitical rivals? The other Arctic nations—Nato members Norway, Denmark/Greenland, Canada and the United States—have been relatively slow to act. Washington ordered its first icebreaker in two decades last year, leaving it well behind Russia in terms of icebreaking capabilities and military presence.

But now Nato states are also on the move. In 2018 Nato conducted a 50,000-troop military exercise, its largest since the Cold War, on Norway’s northern coast. Recently the US withdrew from the Intermediate-Range Nuclear Forces (INF) Treaty and reportedly, in a move reminiscent of the 19th-century purchase of Alaska from Russia, offered to buy Greenland from Denmark.

With the United States and its Nato allies waking up to the geopolitical importance of the Arctic, the region seems set to become a hotspot for great-power competition. Climate watchers fear that this could blur political focus of environmental protection and the preservation of indigenous communities. But if the geopolitical tension gets out of hand, it will create enough economic risk to deter companies from investing in the region and short-circuit the very economic growth that all the nations vying for dominance seek. And that, in turn, might be the best hope left for the polar bear.