Russia’s Arctic Dreams

The Arctic has a particular appeal for Russian national consciousness – and is duly prioritized by Russia’s ambitious and unambiguously authoritarian leadership. President Vladimir Putin is personally committed to advancing Russia’s interests in the High North and has recently confirmed his unwavering engagement at the “Arctic – Territory of Dialogue” conference in Arkhangelsk. Richness in natural resources, particularly natural gas and oil, is a key part of this appeal and a major focus of this priority. But Russia’s Arctic dreams will eventually collide with a harsh reality: Arctic reserve estimates and the assessments of their accessibility are seriously exaggerated.

All sorts of figures are circulating in Russian debates on the development of the vast Arctic zone, but the only solid estimate remains the 2008 appraisal by the U.S. Geological Survey, which has been long overtaken by new discoveries, particularly of unconventional sources such as shale. Russian experts admit that offshore fields, like the one discovered in September 2014 by Rosneft and ExxonMobil in the Kara Sea, would only be profitable with oil prices in the range of $70-$100 per barrel, which may not happen anytime soon. Russian authorities, nevertheless, insist on plans for developing the hard-to-get resources through “state-business partnerships,” seeking to make the nearly-launched Yamal liquefied natural gas (LNG) project a model for other endeavors.

This onshore project is led by privately-owned Novatek, but it was Russia’s state budget that covered most of the infrastructure costs, including the Sabetta terminal and the order for ice-class LNG tankers constructed in South Korea. Even that was not enough to secure the cost-efficiency of the project, which was in fact saved by a $12 billion loan from China in April 2016. By joining the troubled project, China sought to demonstrate its interests in the Arctic and take a small step forward in a bigger plan for diversifying its gas supplies. For China, there was also a political bonus. Rescuing Novatek’s owner, Gennady Timchenko, who is known to be close to the Kremlin, may have also been a personal favor for Putin.

As Yamal-LNG becomes operational, tanker traffic along the Northern Sea Route (Sevmorput in Russian) is set to increase, and Russian authorities hope to revive it as a transport corridor. Global warming has only limited influence on these expectations because the Sevmorput was perfectly functional in the 1970’s and 1980’s, and Moscow is now investing heavily in the modernization of its fleet of nuclear icebreakers. The expected profits from commercial transit traffic along the Northern Sea Route may not materialize anytime soon because navigation remains unpredictable. Ice coverage may suddenly increase by as much as 50 percent, as it did in 2013. Most of the infrastructure projects along its 5,600 km length are executed by the Defense Ministry, and this creates complications for commercial and research ships.

The progressive militarization of the Russian High North, in fact, constitutes the main problem for the economic development of its vast regions from the Murmansk oblast to Kamchatka. International partners, including the Chinese, are reluctant to work too closely with the Russian Navy (as the collapse of the offshore Shtokman project in the Barents Sea demonstrated) and certainly do not see any need for protecting the potential joint project with air defense assets, which Russia is presently deploying.

The Russian defense budget is experiencing progressively more painful cuts, and in the bureaucratic tug-of-war for their distribution, the Arctic lobby is one of the designated losers. As high-maintenance military projects in the High North are curtailed, no alternative avenues for development are opening up because of the harsh investment climate, in which no amount of political connections can guarantee meaningful returns. This under-funding is set to signify a new degradation of under-developed but over-militarized infrastructure.

The fundamental problem with Russia’s developmental vision for the Arctic is that political will dominates economic rationale, and while the former is wavering and capricious, the latter is disappearing. Western sanctions make off-shore exploration and project development all but impossible due to the lack of modern technology, and Chinese money is not a sufficient replacement. Ultimately, bureaucratic mismanagement and corruption are distorting Russia’s plans for exploitation of natural resources onshore. There is a mismatch and even clash of guidelines for building up military and nuclear capabilities, promoting international cooperation, and exporting hydrocarbons. The result is a Russian Arctic policy that is incoherent and unsustainable.

Dr. Pavel Baev is a Nonresident Senior Fellow with the Center on the United States and Europe at Brookings.

This essay is part of our Big Questions series.