3 winners and 3 losers from a melting Arctic
Winner: Oil, gas, and shipping companies
The Arctic is estimated to be home to 13% of the world's undiscovered oil and 30% of its undiscovered natural gas. This creates opportunities for oil and gas companies that — despite operational difficulties related to extreme weather, impassable ice, and 24-hour darkness — are poised to gain from increased access to the Arctic's hydrocarbon wealth.
ExxonMobil and the Russian oil firm Rosneft, for example, signed a $500 billion deal in 2012 to develop Russia's Kara Sea, though Western sanctions have since put that joint venture on hold. Shipping companies are also poised to gain through the opening of new Arctic trade routes. The most consequential of these will be along Russia's northern coastline.
This "northern sea route" (NSR) is one-third shorter than the current route used to link Europe and East Asia through the Suez Canal (henceforth referred to as the "southern sea route" or SSR), though the route will take some time to become competitive due to the lack of emergency ports along Russia's northern coast and unpredictable Russian transit fees that translate into high insurance premiums.
In any case, shipping companies will soon stand to benefit from the increased trade and reduced operating costs new Arctic shipping routes will bring.
Winner: Russia
Perhaps no one stands to benefit as much as Russia.
The NSR will first give Russia opportunities to derive revenue from international trade and diversify its economy away from oil and gas. Understanding the need to grow its economy beyond resource extraction, the Kremlin has pledged $11 billion to develop the NSR with emergency ports and other critical infrastructure over the next six years alone.
But this is not to say Russia will not also benefit from increased access to the Arctic's natural resource wealth. Indeed, one report found that of the nearly 60 largest oil and gas reserves in the Arctic, 43 were within Russian territorial boundaries. (For reference, just six were within American ones.)
And a melting Arctic will open up a new theater of geopolitical tension in which Russia has a huge advantage. In addition to being home to half of the Arctic's 4 million people, Russia has 41 industrial-grade ice-breakers with eight more on the way. The United States has two.
Winner: China
China will also benefit. The NSR will first allow China to diversify its trade routes away from the SSR, whose passage through the Strait of Malacca renders Chinese security vulnerable to piracy, terrorism, and a US naval blockade that could block the import of oil and gas.
And China will also benefit from the Arctic's oil and gas wealth through intermediaries; as Western sanctions have shut off Western sources of financing, Russia has increasingly turned to the China National Petroleum Corporation and other Chinese state-owned enterprises to fund new oil and gas projects.
How much China stands to gain can be reflected in the zeal with which it has pursued membership in the Arctic Council (and thus potential to be an architect of the new Arctic).
In 2013, for example, China entered into a free trade agreement with Iceland — something that has translated into Iceland's increased willingness to back China's bid for full membership in the Council.
Loser: Egypt
Trade may not be a zero-sum game, but trade routes are.
Increased traffic along the Northern Sea Route comes at the expense of commercial traffic through the Suez Canal, which is projected to decrease around 66% from its current baseline as soon as 2030.
This is problematic because Egypt earns around $5 billion from operation of the Suez Canal each year — a source of income that provides a measure of stability in an otherwise volatile region.
The Suez Canal also gives the world a vested interest in Egypt's stability — something that would also diminish with decreased traffic.
Loser: The European Union
Starting in the 1500s, the mighty maritime power of Venice began to decline as Portuguese, Spanish, French, English, and Dutch colonization of the New World shifted the global balance of power toward the Atlantic.
Today a similar dynamic is beginning to play out, though one that will instead shift the global balance of power northward to the Arctic. For example, one study demonstrated that the NSR will increase trade between East Asia and Northern Europe by as much as 7%.
However, this will come at the expense of trade between North and South Europe, which will not experience the same rise in real income that Northern Europe will as a result of increased trade.
The NSR, then, can exacerbate pre-existing north-south disparities within the EU, adding stress to the already tenuous union.
Loser: The United States
The above analysis makes clear that a melting Arctic is not in the American national security interest.
Our allies (like Egypt and the European Union) will suffer while our adversaries (Russia and China) will gain. Some US energy and shipping companies may profit, but the current reality of Western sanctions on Russia means that most of these profits will accrue to Chinese firms — not American ones.
In any case, no economic benefit cannot offset the high geopolitical cost and environmental mayhem wrought by a melting Arctic, which promises to empower Russia and China just as America enters into a new era of long-term strategic competition with them.
The United States should thus develop a formal strategy on how to approach the Arctic over the next century.
Building more ice-breakers is a good place to start. Even better would be for the United States to make a greater effort against climate change; there is still time to close off this new theater of competition before it opens.
Some may like it hot, but the United States is not among them.
Brent Peabody is the Joseph S. Nye, Jr. Intern for the Military, Veterans, and Society Program at the Center for a New American Security.
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