Russia gambles on Arctic shipping

Russia plans to invest over US$11 billion in the North Sea Route in a move that could have significant economic and strategic ramifications.

Background

The Arctic Circle is a polar region located at the northernmost part of Earth. It consists of the Arctic Ocean, adjacent seas, and parts of Alaska (United States), Northern Canada (Canada), Finland, Greenland (Kingdom of Denmark), Iceland, Norway, Russia and Sweden. The Arctic Circle is the most northerly of the five major circles of latitude as shown on maps of Earth.

The Arctic Circle consists of thick, unnavigable sheets of ice, which until recently, were too thick for ships to pass through. The North Sea Route (NSR) which follows the arctic coast of Russia and typically uses the Suez Canal, reduces shipping times from East Asia and Western Europe by 10-15 days. The Northwest Passage (NWP) crossing Canada’s Arctic, is estimated to be viable for maritime activity by 2020. The NWP reduces the maritime journey between East Asia and Western Europe from 24,000km to 13,600km. The Transpolar Sea Route (TSR), uses the centre of the Arctic linking the Strait of Bering and Murmansk on the Atlantic Ocean. It is currently unclear how viable its use would be. The Arctic Bridge intends to link either Murmansk, Russia or Norway’s Narvik to Canada’s Churchill for grain trade.

Analysis

Russia recently hosted a two day International Arctic Forum in St. Petersburg, with over 350 Russian and foreign participants. However, American and Canadian representatives conspicuously failed to attend. The chief executive of Russia’s nuclear energy corporation said: “A federal project to develop an Arctic sea passage has been approved with potential financing expected to top 745 billion rubles (US$11.3 billion) by 2024.” He also added that the state intends to budget roughly US$4 billion for the project while the rest is expected to be provided by energy companies Rosatom, Novatek and Rosneft among others. He also elucidated that they would invest in creating, developing and deploying critical infrastructure for the project adding, “the state should definitely become the leading investor into such enterprises, as it is the only owner of the entire infrastructure.”

The statement comes at a time when Arctic shipping is becoming increasingly viable. The seasonal fluctuations of the area covered by sea ice are directly proportional to the window available for commercial shipping. As climate change unfolds, trends of receding ice around the North Pole during summer months is likely to make Arctic shipping routes commercially feasible. As compared to other Arctic shipping lanes, the NSR features sea ice that recedes more quickly than the NWP, making the route attractive to Russian decision makers. The NSR is part of the larger Northeast Passage, although the NSR, as defined in Russian law, does not include the Barents Sea and a direct connection to the Atlantic Ocean.

It is easy to see why Russia would actively seek to develop a trade route on its part of the Arctic. Curiously, favourable conditions brought about by the effects of climate change offer Russia a chance to bypass the instability of the Middle East, while simultaneously providing it with an economic advantage over its strategic foes. Russia’s development of the NSR within its own territory, allows it to use its land advantage to connect East Asia with Western Europe as seen in the attached map.

Russia also scored a normative victory by pointing to America’s unilateral pullout of the Paris Agreement as the union of all countries versus the United States. Russia’s intention to ratify the Paris Agreement, in addition to the employment of the Arctic Forum to highlight collaboration, paints Russia as strong on issues of climate and economic cooperation.

Counterpoint

There are a number of questions that Russia needs to answer before Arctic shipping routes become practical, besides the obvious issue of climatic conditions. These include limited economic activity in the region, the Arctic’s position as a geographic, meteorological and navigational frontier, and China’s Belt and Road Initiative (BRI), which institutes rail corridors between East Asia and Europe. China’s BRI poses a significant economic and practical alternative to the Russian initiative.

Assessment

Our assessment is that Russia intends to actively develop its Arctic shipping routes in an effort to circumvent conventional routes between the lucrative markets of East Asia and Europe. We believe that Russia possesses the technological capability to see the project through, while the recent Arctic forum it hosted displays its motivation to see it through. We believe that Russia will be aided in this endeavour, should the effects of climate change continue to exacerbate. We also believe that Russia will find it increasingly difficult to find economic suitors for the project outside of its territory and will find use in the project only in the export of its own produce. We also believe that the treacherous nature of the Arctic and the delicate environmental balance that exists in the region will be greatly threatened should Russia choose to use the route to ship damaging goods such as crude oil. Should a spill occur, the environmental and economic impact will be unfathomable. We believe that the region must be kept largely free of economic activity, including the search for valuable minerals and hydrocarbons.

 

Image Courtesy: https://upload.wikimedia.org/wikipedia/commons/d/de/Nuclearicebreakeryamal.jpg, Wofratz [CC BY-SA 2.5 (https://creativecommons.org/licenses/by-sa/2.5)]

Map Courtesy:https://upload.wikimedia.org/wikipedia/commons/a/aa/Northern_Sea_Route_vs_Southern_Sea_Route.svg, Collin Knopp-Schwyn and Turkish Flame [CC BY 4.0 (https://creativecommons.org/licenses/by/4.0)]