Arctic Opportunities

By: Dennis Draeger

The Arctic has been warming twice as fast as the global average, and a new low was set for Arctic sea ice last year. Although the environmental concerns in the region are mounting, economic opportunities have also ramped up.

What’s changing?

In 2007, the Northwest Passage through the sea ice of the Canadian Archipelago first opened up as a shipping lane, and the following year, the Northern Sea Route above Russia also opened to larger vessels. These expanding shipping lanes have offered a shorter route between Europe and Asia, and larger economies such as China are clamoring to stake their rights to these lanes. Shipping routes between Shanghai and Hamburg could be shortened by 6,400 km in comparison to the current paths through the Strait of Malacca and the Suez Canal. Nations will have more choices for strategically shipping their exports through alternate routes with a potential monetary savings of 50% by crossing the Arctic Ocean.

Such opportunities presented by a region previously closed to most human activity—apart from aboriginal populations which have lived there for centuries—are difficult to refuse, but the bigger opportunity in the Arctic is in its wealth of precious metals, rare earths, and fossil fuels. The Arctic is estimated to hold 13% of the world’s undiscovered oil (mostly offshore) and 30% of undiscovered natural gas. Companies have been exploring offshore in the Arctic for several years, but interest is increasing for oil and gas exploration which is very risky for the Arctic environment. Currently much of these reserves are economically impractical, but as the region warms and develops and the cost of fossil fuels rises, they may become more economically viable for drilling.

With the attraction of these economic benefits, nations are scrambling for a competitive edge in the region. Several countries as well as the EU and NATO have made statements about the importance of the Arctic’s environmental integrity, but each has different views on how to achieve this while exploiting the region’s resources. The eight Arctic nations which also make up the Arctic Council—USA, Canada, Denmark (with Greenland and the Faroe Islands), Iceland, Sweden, Norway, Finland, and Russia—have agreed to settle territorial disputes in the Arctic Ocean according to the law of the sea, but militaries have mobilized in the area and international agreements concerning the region are becoming paramount to security issues. Ownership of much of the Arctic Ocean is still in debate, and non-Arctic states such as China, Japan, and the European Union are asserting their own interests in the area and adding complexity to the political climate.

Why is this important?

Since the end of the Cold War, the Arctic nations have maintained peaceful relations, and the Arctic Council has facilitated a great deal of cooperation among them including rescue missions and upholding the concerns of aboriginal peoples. However, with militaries in place, political tensions could mount if Arctic resources were seen as indispensable and diplomatic relations were mishandled. If that happened, would the Arctic or non-Arctic states allow their Arctic concerns to influence the geopolitics of other parts of the world such as in Asia where naval powers are already flexing over the ownership of small islands?

Environmentally, the Arctic is a fragile ecosystem that is systemically important to the entire world. Climate models predict the Arctic Ocean could become ice free in the summer by 2050 or even as early as 2020. A warmer Arctic affects the jet stream which can increase the likelihood of long duration extreme weather like floods, droughts, and heat waves in the US, Europe, and other mid latitude regions. A rising tide due to ice melt coupled with an increasing frequency of extreme storms is forcing New York and many cities along America’s East Coast to think about climate change in the very near term. Migration is also a growing concern with at least 42 million people just in Asia Pacific displaced since 2010 by climate change induced natural disasters including rising tides, and the island nation of Kiribati is moving their entire population due to sea level rise. So the question arises, could human activity in the Arctic—through pollution, oil spills, icebreaking, overfishing, etc.—exacerbate any of the global effects of climate change or environmental degradation?

The Arctic is a bellwether for climate change and is fast becoming the same for geopolitics. Just as researchers are pointing out a nexus between water, energy, and food; another nexus can now be seen in the Arctic between climate change, energy security, economic opportunity, and political stability. The future of the Arctic will prove the complex interaction between these two nexuses. If human activity in the region is ever revealed to intensify global issues whether environmentally or politically, nations might be forced to question whether any real benefit can be gained from exploiting the Arctic, but if the interested parties continue to respect each other and the environment, the Arctic’s resources will benefit the global economy.

By Dennis Draeger