Geopolitical Risk in the Arctic

Icelandic President Ólafur Ragnar Grímsson made it clear: “The security of Shanghai in the future will be determined in the Arctic.” Shanghai is the world’s major city most vulnerable to flooding in a warmer planet. As more Arctic ice melts sea levels will rise, which in turn will sink China’s financial capital.

Melting Ice, Freezing Politics

China accepts the dangers of climate change and is a leader in environmental technologies that mitigate greenhouse gas emissions. But at the same time it appears more than willing to lend billions to projects like Yamal in the Russian Arctic. Yamal will provide 5 percent of the world’s natural gas supply and raising greenhouse gas emissions. But projects like this also place environmental pressures on the pristine Arctic environment.

Drill, Baby Drill

In contrast the US in the form of State Secretary Pompeo refuses to acknowledge climate change. Instead of seeing climate change as a geopolitical risk. He sees the disappearing ice as an opportunity for US firms to benefit from new mining and drilling opportunities.

The unpredecented melting of Arctic ice is a powerful reminder that reality of climate change has arrived. The rapid rise in average temperatures in recent years has shocked even seasoned climate scientists. Climate change is considered by many the biggest global risk.

The melting ice has allowed ships to traverse through Arctic Russia and even Canada’s Northwest passage. Vessels taking these routes will save time and fuel by avoiding traditional routes.

Russia’s Geopolitical Advantage

The opening up of this sea route transforms Russia’s geopolitical dynamic. As an ice free Arctic gives Russia influence over a new northern trade route. The lack of ice also opens up the possibility of more mining and drilling in the region. A prospect the US and Russians have openly welcomed.

Others like the Norwegians see the damage this would cause to a fragile region relatively untouched by humans until the recent ice melt. The Oslo government have ruled out oil drilling in the region and appear prepared to defend the Arctic’s environment.

Ownership of the region is also disputed. Russia put in a claim to the UN to extend its exclusive economic zone across the region. If applied this would extend the other Arctic state’s zones. The success of this claim would open up similar ones for the US, Denmark (via Greenland), Norway and Canada.

But this extension of territory could also stoke geopolitical conflict between the states, particularly if new mineral or hydrocarbon deposits are uncovered.

Other countries have also taken a keen interest in Arctic affairs through close proximity, Finland and Iceland are fairly obvious members. Others like the self styled “near-Arctic state” China demonstrate its new global role. China is a global power on the lookout for new markets, sea routes and avenues of power to explore.

Polar Silk Road

China has called for a Polar or Ice Silk Road and has sent an exploratory ice breaker Xue Long (Snow Dragon) to the region. China has also been investing in the Arctic such as the Yamal project and the hunt for rare earth minerals in Greenland.  

Every move by China will be carefully monitored by its neighbour Russia who remains friendly with China. Russia has watched painfully as China supplants it economically and diplomatically across much of the world. Russia will not be happy to see this happen in a region it views as its backyard.

Economic Potential

The Arctic region is reckoned to contain massive oil and gas reserves. It is reckoned that there are 44 billion barrels of natural gas and 90 billion barrels of oil. The Arctic is home to many different metal deposits and around 10% of global fish stocks, all of this makes it a hugely tempting target for a resource hungry world.

But the harsh conditions even with global warming make exploiting any of it rather expensive. Some analysts put estimate that the price of a barrel of oil would have to hit over US$ 100 to make it worthwhile drilling in the Arctic.

Currently oil prices are far from supporting that kind of investment. The geopolitical risks involved are significant and the reputational and operational risks are high. An oil spill or mining accident spoiling white ice bergs, killing seals and whales would be an environmental disaster but also a public relations one. The cost, difficulties and risk of operating in a polar region is also high. Most people do enjoy working and living in the freezing cold.

Arctic Risk and Global Risk

The irony is clear, the more climate change melts Arctic ice, the easier it is to exploit the Arctic through mining and drilling, which in turn will accelerate climate breakdown stoking massive geopolitical risk. So while China may well make significant short term investments and geopolitical point scoring. Ultimately it will also be contributing to the long term demise of its populous coastal cities such as Shanghai.

Instead China and the Arctic Council should focus on developing a more resilient region, better able to withstand the coming ravages of climate breakdown.

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