The Coming Battle for Arctic Resources
 
In May 2019, U.S. Secretary of State Mike Pompeo set forth his ¡°Northern Doctrine¡± in a speech to the Arctic Council, attended by all the countries with Arctic borders: Canada, Denmark (including Greenland), Finland, Iceland, Norway, Russia, Sweden, and the United States.  In blunt terms, he put Russia and China on notice with regard to militarizing the region and chastened Canada, describing its claim of sovereignty over the Northwest Passage as ¡°illegitimate.¡±

Underlying this newfound interest is the fact that scientists predict that in 25 years the ocean will be largely ice-free in the summer months.  This will open-up resource development and navigation along three routes linking Asia and Europe:

One is the Northeast Passage or the Northern Sea Route that transits mostly Russian territorial and internal waters and offshore Norway through the Barents Sea;

The second is the Northwest Passage, which transits the Canadian Arctic Archipelago and the coast of Alaska;

The third is the Transpolar Route across the North Pole, beyond the territorial waters of any Arctic state.
 
The Transpolar route won¡¯t be navigable anytime soon, while Russia¡¯s Northeast Passage is already ice-free much of the summer and hugs a somewhat populated coastline.  Commercial traffic from China is already transiting that route, and investments worth billions of dollars are already being made into navigational, search and rescue, and icebreaking capabilities.  This route shaves 20 days off the Asia-Europe journey for cargo ships by bypassing the Suez and Panama Canals.

For the United States, the primary non-military concern is that the Russians will create a transpolar logistical monopoly for shipping goods between Asia and Europe, as well as delivering liquefied natural gas and other commodities to both.  This could allow Moscow to exclude or gouge competitors.

The military concern is that Russia is boosting its military presence along the Arctic sea route, while China lurks nearby.  The enormous potential of Arctic natural resources coupled with the demographic pressures that will confront both nations is a recipe for rich imperial adventurism.  This has piqued the concern of both the Pentagon and the State Department.

According to research by two scholars at Webster Vienna Private University, the Arctic ¡°encompasses about six percent of the Earth¡¯s surface and an estimated 22 percent of the world¡¯s undiscovered fossil fuel resources.¡±  It is estimated that around ¡°90 billion barrels of oil and 1.7 quadrillion cubic feet of natural gas are located under the region¡¯s disputed international waters.  What¡¯s more, the receding ice could soon provide access to minerals, fish and other resources.

The rising geopolitical significance of the Arctic is creating new tension between even the closest of allies.  At the Arctic Council meeting, Pompeo took a swipe at Canada¡¯s claim of control of the Northwest Passage on the basis of ¡°a long-contested feud¡± with the United States.  Since the 1950s, the two allies have agreed to disagree for political reasons as to whether the route runs through internal Canadian waters or solely through international waters.  As a spokesman for Canada¡¯s Department of Foreign Affairs put it, ¡°Canada and the U.S. have differing views regarding the status of the Northwest Passage under international law.¡±

While militarizing the Arctic and exploiting its natural resources is important to all of the Arctic Council members, as well as China, it is Russia, that has an outsized Arctic presence, in both coastline and population.  And it¡¯s Russia, with relatively few other assets, which is currently showing the most determination to benefit from its geographical location.

As the dominant Arctic power thanks to its long coastline from the Barents Sea in the west to the Bering Sea in the east, Russia is well-placed to benefit from its position, especially as melting sea ice will allow ships to sail along its northern coast.

For over a decade, Russia has been sending important signals to others, while projecting its own power and capabilities in the high north.  Moscow does not have many friends in the region.  Five other Arctic states are members of the North Atlantic Treaty Organization, which has not yet recognized Russia¡¯s increased military position.  Given its strong interest in the Arctic and the military investment it is making there, it is not unimaginable that Russia may move to make additional territorial claims in the region.

Russia has already reopened some of its abandoned military installations from the Soviet era and placed new facilities and airfields in its northern territory. It has also established a string of seaports along its northern coastline.  And in so doing, Russia¡¯s growing military presence in the region has caused mistrust amongst neighboring countries in the region. Norway, for example, fearing that tensions between Russia and the West could spill over to its territory, has been lobbying its partners in NATO to focus on the collective defense of its territory rather than interventions outside its borders. As a result, Russia pledges to respond to Norwegian military activity.

In March of 2015, Russia practiced the largest Arctic military deployment since the Cold War when it mobilized 45,000 soldiers, 3,360 vehicles, 110 aircraft, 41 naval surface vessels, and 15 submarines in a ¡°force readiness exercise.¡±  Likewise, its submarine capability beneath the ice has been revitalized and Russia¡¯s submarine fleet has grown.  While some militarization is probably just for basic security purposes, much of it coincides with the protection of expanding oil wealth generated near and within the Arctic Circle.

At the same time, however, the Arctic is naturally of great concern for Russia in terms of security. For this reason, Moscow traditionally has been suspicious about Beijing¡¯s increased Arctic involvement, its partnership with other states and its desire to internationalize the Arctic due to fears that China will eventually challenge its own sphere of influence. The Kremlin, for instance, has refused to permit Chinese research vessels to enter Russia¡¯s Arctic exclusive economic zone at least twice, while it also opposed Beijing¡¯s application for observer status in the Arctic Council - only relenting when it also endorsed Japan¡¯s application to the body in an apparent bid to balance China¡¯s entry. But with the decline of Russia¡¯s options as a result of its economic crisis in 2013 and Western sanctions over the Ukraine crisis in 2014, Moscow has beaten a path to Beijing¡¯s door at a time when Arctic development is becoming a greater priority.

In addition to military presence, Russia plays a leading role in infrastructure development in the Arctic. Russia has a five-year plan for Arctic investments in regional infrastructure and natural resource development.  Its energy giant, Gazprom Neft, already pumps oil from beneath Arctic waters via a different offshore field in the Pechora Sea.  Funded by Chinese banks and partly owned by France¡¯s Total, the Yamal LNG project controlled by Russia¡¯s Novatek will produce 16.5 million tons of super-cooled gas a year in 2019.

China, a non-Arctic state, has taken a keen interest in what the Arctic has to offer in terms of global shipping, energy security, and mineral resources.  In its ¡°Arctic Policy¡± white paper issued in early 2018, China expresses a desire to work with all parties to build a ¡°Polar Silk Road.¡± This includes developing the Arctic shipping route and encouraging its enterprises to participate in infrastructure construction for these routes and conducting commercial trial voyages in accordance with the law to pave the way for regular commercial operations.  Chinese companies, some with close government ties, are investing heavily across the Arctic.  Chinese companies stand to gain big by investing in the Arctic because China is a top-ten trading partner with each of the Arctic countries and the second largest partner for the United States, Canada and Russia.  Chinese investments in the mining and energy industries are taking place in Iceland, Greenland, Russia and beyond.  China has also taken an active role in intensifying research in both the Arctic and Antarctic and maintains an active polar research program.

Today, China is entering the fray from a position of weakness.  Unlike the five ¡°Arctic states,¡± China¡¯s lack of a coastline on the ocean deprives it of a legal basis to articulate claims for access to the region, as well as the ability to project power Directly.

At the same time, the Arctic¡¯s strategic value, as well as the cost of not getting a slice of the pie, are simply too great for Beijing to settle for the status of a mere ¡°stakeholder,¡± like South Korea and Japan. In the end, the growing importance of Arctic resources and sea routes, as well as the emerging military competition between Russia and the United States, obliges Beijing to sail north. But instead of projecting power outright, Beijing is carefully pursuing multilateral mechanisms and bilateral cooperation with friendly Arctic states to gain access to the area. In so doing, China might ultimately help change the as with other aspects of the Belt and Road Initiative, the Polar Silk Road is more of a concept and loose framework than a clearly defined national strategy. Moreover, the ambiguity - whether intentional or not - of the self-proclaimed designation of ¡°near-Arctic state¡± gives Beijing the ability to cultivate its role at its convenience. Such an identity, however, does not automatically grant China the right to access resources and sail without restrictions in the region due to its lack of legal recourse to Arctic territory and the absence of international agreements on Arctic sovereignty and right of passage. To achieve its objectives, Beijing initially sought to frame Arctic affairs as an international issue, but that strategy risks drawing suspicion from a number of littoral states, particularly Russia, thus undermining Beijing¡¯s attempts to form a closer partnership with regional states.  But as Beijing has worked to nurture ties with these regional states, cooperating, for instance, with Greenland over mineral resources and attempting to gain oil exploration rights in Iceland, Russia¡¯s economic challenges and the standoff with the West have provided China with a window into a relatively closed region.

What¡¯s the bottom line?

The national interests of Russia, China, and the United States will increasingly collide above the Arctic circle as access to natural resources and shipping routes increases.  Inevitably this will lead to diplomatic, military and financial disputes between the three great powers.
Given this trend, we offer the following forecasts for your consideration.

First, Arctic competition will inevitably lead to ¡°a marriage of convenience between Moscow and Beijing.¡±

Much as in their cooperation in other areas, Beijing compensates for Moscow¡¯s lack of funding and infrastructure development capacity with its rich capital and construction expertise.  Meanwhile, Russia will satiate China with its long-desired access to resources and fewer restrictions on passage through the Northern Sea Route.  In line with such cooperation, Chinese entities have purchased about a 30 percent stake in Yamal LNG in a deal that could eventually meet 10-25 percent of China¡¯s total liquefied natural gas import demands. Both countries are expected to cooperate further on a new liquefied natural gas project, called Arctic LNG 2, which will also boost Russia¡¯s energy exports to China.  Naturally, such cooperation is also helping Moscow reorient its energy exports from the West to the East

Second, as the global tensions between China and the United States inevitably rise, the Arctic will become a crucial friction point.

The rapid expansion of Chinese activity in the Arctic in recent years has been noted by the United States government.  A report by the US State Department¡¯s International Security Advisory Board (or ISAB) concludes, ¡°China¡¯s¡¦quest for resources, particularly in Iceland and Greenland, are sources of concern.¡±  Since the collapse of Russia¡¯s relationship with the West over Ukraine, the Sino-Russian strategic partnership has become more pronounced in recent years.  There have been recent instances of Chinese military vessels operating near the Arctic Ocean, with two examples being the passage of People¡¯s Liberation Army Navy ships near Alaska in September 2015 and the July 2017 joint maneuvers between PLA Navy and Russian Navy vessels in the Barents Sea. The report noted China¡¯s cooperation with Russia in the development of natural-gas deposits in the Arctic Siberian Yamal Peninsula.  Some ISAB members suggested that the impact of Sino-Russian cooperation on Arctic regional security has not attracted enough attention from the US government. The report also concluded that the United States should strengthen its operational capacity in the Arctic by building new icebreakers and gradually establishing infrastructure in the Arctic as a precaution for potential future security crises.

Third, despite Russian-Chinese cooperation, Beijing will focus on cultivating ties with as many partners as possible.

That¡¯s because of its conflicting interests with Russia, the possibility that Moscow could look elsewhere if the West lifts sanctions, and the prospect that Japan could also make greater forays into the region.  Furthermore, the emergent great power competition over sea routes and resources, as well as the militarization of the Arctic, will likely compel Beijing to turn its focus toward the military front, raising the stakes in the already-crowded Arctic region and ultimately unnerving Russia.

Fourth, the Arctic is one place where the United States will work to cultivate its natural allies.

Canada, Norway, Iceland, and Denmark are all NATO allies with shores on the Arctic Ocean and should be incorporated and extensively consulted in any American strategy.  Meanwhile, Finland, another NATO partner in the Arctic and Sweden, a friendly security partner with ties to the alliance, will also play their respective roles in mutual cooperation.  And,

Fifth, the future of the Northeast and Northwest Passages will remain unclear through at least 2030.

The sea route stretching from Baffin Bay to the Beaufort Sea runs through Canadian waters.  The Canadian government would like to see this recognized as their own territorial waters, while other maritime powers, particularly the United States, would like to see the region be recognized as an international highway.   Far more contentious and potentially volatile is the Northeast Sea Route. With the potential to cut transit distance between Europe and Asia by 40 percent, the Northeast Sea Route could become an international highway in a more open Arctic. But disputes over its use between the United States and Russia date back to the 1960s. Then and today, Moscow treats the passage as territorial waters over which they have control. The United States, in its freedom of navigation mission, declares that the lanes must be open. Russia will continue to exercise claimed rights, citing the Law of the Sea treaty, arguing that the straits are their historic territorial waters. Under such provisions, they can claim modern legislative support.  Russia¡¯s economy is largely dependent on energy exports, and it may look to diversify and tax shipments moving through the Northeast Sea Route. In that case, Putin will try to use the opening lanes as a source of steady income and as a pressure point on other powers. He will also likely use militarization in the High North to enforce and buttress territorial claims.

References
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