Economically Connecting the Arctic

Welcome to the world’s newest blue water ocean: the Arctic Ocean. You are forgiven if you think the Arctic is a mostly frozen and forbidding place covered in darkness for most of the year. It still is. But this ocean is rapidly changing: since 1979 Arctic sea ice maximum extent has dropped by an average of 2.8 percent per decade; in the summertime, the ice cap declined at 13.5 percent per decade; and the Greenland Ice Sheet lost an estimated 9,103 gigatons or over 9 trillion tons of ice since 1900 and between 25 to 35 gigatons annually. On land, the near-surface permafrost in the Northern Hemisphere is projected to decline by 20 percent relative to today’s area by 2040, and it could be reduced by as much as two-thirds by 2080 under a scenario of high greenhouse-gas emissions. We may be at the dawn of a new Arctic Age.

If so, this dawn has been characterized by hype, hysteria, and hyperbole. Newspaper headlines have declared the Arctic to be the next energy frontier. At $100 per a barrel of oil, companies were interested and enthusiastic about Arctic energy exploration; but with energy prices below $50 per barrel, interest has cooled. The predicted international race for resources is currently a saunter. Sluggish commodity prices and global economic demand have chilled the most ambitious Arctic economic development plans. For example, the Chinese mining firm, General Nice, had announced plans to develop a $2 billion iron ore mine in Greenland, but low commodity prices have placed this investment on hold. And Russian president Vladimir Putin’s 2011 declaration that the Northern Sea Route (NSR) will become a rival shipping route to the Suez Canal is another example of hype distorting the reality of Arctic development. In 2016, approximately 18,000 vessels traversed the Suez Canal; only 19 vessels navigated the NSR.

This Arctic Age is also distinctive in that it is no longer exclusively driven by Arctic nations such as the five coastal states—Russia, Norway, Canada, Denmark (Greenland), and the United States—but by nations that consider themselves to be “near-Arctic” states, such as China. In 1996, the five coastal states, plus Iceland, Sweden, and Finland, which have territory above the Arctic Circle, founded the Arctic Council as the premier intergovernmental body to oversee environmental protection and sustainable development activity in the Arctic. In 2008, the five coastal states reaffirmed, through the Ilulissat Declaration, that the international law of the sea and their sovereign rights as coastal states were sufficient to govern the Arctic. Yet by 2013, addressing Arctic issues was no longer restricted to this exclusive regional club, as the Arctic Council welcomed a number of new permanent observing nations and organizations, dominated by countries from the Indo-Pacific region, including China, Japan, South Korea, Singapore, and India.

For the past 20 years, the Arctic has been the purview of scientific research and environmental stewardship, but as reduced ice presence and rising ocean temperatures become the norm, this Arctic Age may be increasingly characterized by slow but advancing commercial opportunities. No longer exclusively national in character and with increased realism of its developmental prospects, there is growing evidence of the early formations of an Arctic Belt and Road economic construct that mirrors the southern Eurasia land and maritime route counterpart but with a unique addition of a circle.

An Arctic Belt

The contours of an Arctic infrastructure belt take some imagination, but there is a network of ports and rail projects that extend primarily across the Russian Arctic. There are at least 17 ports along the Northern Sea Route that serve as major shipping hubs during the summer months and export outlets for Russian oil to various global markets. President Putin has expressed his desire to better connect these ports not just as hubs for shipment operations of liquefied natural gas (LNG) but also as universal ports where different types of goods can be rerouted from the Trans-Siberian Railway or Baikal-Amur Mainline. The focal point of an Arctic Belt is the Port of Sabetta on the Yamal Peninsula. Traffic through the port has increased as the nearby Yamal LNG plant continues to be constructed. A total of 120 ships with goods docked in 2016, more than twice the number in 2015. They delivered a total of 505,000 tons of goods valued at $5.2 billion. Designs to increase connectivity between the port and major transport routes are underway. In 2016, the governor of the Russian Yamal-Nenets region signed a deal with Russian Railways to construct the 707-kilometer-long Northern Latitudinal Passage that will connect Russia’s Ural and West Siberian region with the Northern Sea Route. The project is expected to start in 2018. Although this infrastructure stopped at the Cold War Soviet borders, there are new efforts to develop a rail link between Finland and Norway that would connect Roveniemi, Finland, to Kirkenes, Norway. Former Finnish prime minister Paavo Lipponen described this project in 2015 as the last “missing link” in the EU South-North traffic network.

An Arctic Maritime Road

The Arctic Maritime Road is a bit easier to imagine. Increasingly ice-free waters also offer opportunities to increase destinational and transshipping across the Arctic region, primarily the shipment of energy (liquefied natural gas and oil) and mineral resources (uranium, gold, iron ore, zinc, and rare earth metals). Once considered dangerous and noncommercial, there are three possible Arctic maritime “roads”: the Northern Sea Route (NSR), the Northwest Passage (NWP), and the transpolar route (TPR). These routes could be potential economical alternatives to some of the world’s most popular maritime passages in the future, but with important caveats that shipping will likely remain limited to summer months and is largely for resupply of Arctic communities. Harsh weather conditions, a lack of infrastructure, and limited satellite coverage will continue to restrict future Arctic shipping.

The Arctic Circle

The Arctic Circle is both a latitudinal designation and its own distinctive regional feature, specifically focusing on the Central Arctic Ocean, which consists of the international waters beyond the five coastal states’ exclusive economic zones around the North Pole, the so-called Donut Hole. The circle contains a road component (the transpolar route) and a governance component (under the auspices of the UN Convention on the Law of the Sea), which focuses on fisheries and extending sovereign claims. Governance in the Central Arctic has focused on the potential for marine species to expand northward as key elements of the food chain migrate to warming waters, which is likely to result in countries seeking to exploit these new fisheries to satisfy a rise in demand for protein. Wary of these developments, the five Arctic coastal states negotiated and signed a moratorium on fishing in the Central Arctic Ocean in 2016 until better scientific knowledge is available and a regulatory system is in place to ensure sustainability. Four other nations, including Iceland, Japan, Korea, and China, as well as the European Union are taking part in negotiations to expand this agreement.

For the past several years, Chinese authorities have been the most vocal regarding the rights of all countries to explore the region. However, as Arctic coastal states Russia and Denmark, and potentially also Canada, submit scientific claims to extend their outer continental shelves to the North Pole, there could be restrictions placed on international access to certain areas of the Donut Hole. It is unclear whether this circle will remain open or will increasingly become closed.

Russia has historically viewed the economic development of the Arctic as a national imperative. This imperative has been revitalized and resourced under President Putin’s ambitious leadership despite national economic challenges. And, although a relative newcomer to the Arctic region, China has also emerged as a very active and engaged economic, diplomatic, and scientific actor in the Arctic. It is possible that Russia and China—as demonstrated by their joint investment in the Yamal Peninsula—could drive development to connect Asia and Europe through a northern Arctic Belt, Road, and Circle. If their efforts are successful, we will know that the Arctic Age is upon us.

Heather A. Conley is senior vice president for Europe, Eurasia, and the Arctic and director of the Europe Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Matthew Melino is a research associate with the CSIS Europe Program.

This article is part of our Big Questions Series. It was originally printed by CSIS on June 1, 2017, and is reprinted here.