The (Failed) Race For The Arctic?

Northern Sea Route still untapped

"The Race for the Arctic" has dominated the headlines of various reports since the beginning of this century, whenever Arctic Geopolitics was mentioned. The prospect of a battle for the North's resources and trade routes grew with the global awareness of a warming climate, especially in the far north. Anyone who looked at the map was quick to connect the dots. Since the climate in the Arctic is warming, that means the ice is melting. Since the ice is melting, new maritime trade routes are opening up - especially between Europe and East Asia, thousands of nautical miles shorter! In addition, the raw materials of this vast, largely unexplored region of the world - oil, gas, and the rare earth metals essential to modern technology - were to become more accessible.

Powerful Arctic countries such as the United States and the Russian Federation have lined up in the starting blocks of the aforementioned race, as have countries not even close to the Arctic Circle - such as China, which declared itself a "near-Arctic" state in 2018.

But despite the fact that the Arctic has been the target of the superpowers and beyond for perhaps 20 years, and despite the inevitable warming of the climate and the melting of the northern ice, traffic along the Northern Sea Route remains … frozen. Why do shipowners prefer to travel 9,000 kilometres longer and sail around Africa rather than along the Russian northern coast, and how is the Arctic viewed in the great power game? This and more on today's episode. Welcome to the Twenties Report.

Wild Arctica

The boundary of the North Polar Circle, often referred to as the Arctic Circle, is marked by the parallel 66°33'N. Interestingly, this is not a fixed border. It is defined by the southernmost latitude where the sun does not set for at least one day during the summer solstice and does not rise for one day during the winter solstice. This line is in constant motion due to the Earth's axial tilt and changes by 15 meters each year, with a range of change of up to 2 degrees, or 266 kilometers or 165 miles. However, we will have to wait millennia for a more noticeable shift.

Meanwhile, the total area of the Arctic, including the waters of the Arctic Ocean, is 20 million square kilometres, of which 40%, or 8 million, is land mass. This is an area only 20% smaller than Europe's 10 million square kilometres, but much more difficult to access.

Eight countries have a stake in the area, and they also form the Arctic Council, a platform designed to manage the Arctic. They are Iceland, Norway, Sweden, Finland, Russia, Canada, the United States and Denmark - in the form of Greenland, which is an autonomous area of Denmark. However, a quick glance at the map shows that up to 92% of the Arctic Circle's land mass belongs to the latter three countries. More than half or 52% of the Arctic territory belongs to the Russian Federation, almost 23% to Canada, while 17% to Denmark. The Americans, through Alaska, account for 6%, while the Nordic countries, with the exception of Denmark, have less than 1% of the "Arctic pie" each.

Reversing this relationship, all three of the largest "shareholders" are eminently Arctic countries. As much as 25% of Russia's vast territory is Arctic. In the case of Canada, it is 40%. In the case of Denmark, it is even 61%, although here the situation is different, as we are talking about the Greenlandic autonomous area.

Nevertheless, still 60% of the Arctic is water, and although when one thinks of the North Pole as the boundless ice sheet, this is something of a cognitive error. As the scientists of the National Snow and Ice Data Center write - the average thickness of the Arctic ice sheet used to fluctuate around 2-3 meters, while in recent years, due to climate warming, it has become even thinner and is increasingly 1-2 meters thick, with a vast ocean underneath.

And this brings us to a segment that any material talking about the Northern Route, or essentially the Arctic, must address - climate change.

Until recently, scientists estimated that the Arctic was warming three times faster than the rest of the planet. But the latest research by a team of Finnish scientists, published in Nature, says the rate of change is up to four times faster! Since 1979 alone, the temperature of the Arctic is said to have risen by 5 degrees Fahrenheit, or about 2.8 degrees Celsius.

Whether we're talking about three times or four times the rate, the change is rapid. Today, seasonal ice in the Arctic Ocean, which appears in the colder months and disappears in the warmer ones, already accounts for up to 70% of the total ice cover. And what's more, the Arctic is predicted to lose all of its seasonal ice cover very soon, in 2040 or earlier.

The Northern Route stands open?

And while climate scientists have been sounding the alarm on this issue for some time, there are people or entities who are watching this process with growing interest and inevitable anticipation.

The Russian coastline accounts for as much as 50% of the Arctic coast, so at a time when it is increasingly and for longer periods ice-free, this opens up an extraordinary opportunity for the Russians to take a large part in one of the world's largest commercial processes and the main mechanism of globalization - maritime transport. Just a few figures show the magnitude of this phenomenon. Trade in physical goods in 2023 was estimated by UNCTAD, the UN trade agency, at $31 trillion. 80% of this figure, or $25 trillion, was transported by sea. Naturally, the vast majority of this trade takes place on the Europe-East Asia-U.S. West Coast axis, with key routes passing through points such as Malacca, Suez, Bab al Mandab, and Panama.

Climate and geography completely blocked the routes along the northern coast of Russia or Canada, until suddenly global warming opened the floodgates of its potential. What’s more other promising arguments started to emerge as well. In 2008 The U.S. Geological Survey estimated that 13 percent, or 90 billion barrels, of the world's undiscovered oil reserves are in the Arctic. Most of these resources are located in Alaska and the Russian Federation.

In addition to oil, there are natural gas, fish, and rare earth metals. A year ago, the Swedes announced the discovery of a large deposit in their part of the Arctic Circle. Greenland's huge potential in this area is also known, and we even made material about it some time ago.

All of this caught the attention of - you guessed it - the Chinese, who, despite the fact that they are not even close the Arctic Circle, declared themselves a "near-Arctic state" as part of their 2018 white paper. Beijing was not hampered by geography in this regard, and it was not a problem that China's northernmost point is 1,440 kilometres from the Arctic Circle, or 900 miles - that’s the same as Warsaw Poland, or Fargo, North Dakota. Nevertheless, with its Arctic strategy, Beijing wanted to show that it has a vested interest both in the raw materials that lie in the Arctic (which it is already importing from Russian Siberia, among other places) and in the sea lanes, which for northeastern China would actually shorten the route for ships bound for northern European ports. To this end, the Polar Silk Road headline has been enthusiastically promoted as the northern part of the One Belt and One Road project.

Indeed, for example, the distance from China's largest port, Shanghai, to Europe's largest port, Rotterdam, via the Straits of Malacca, Suez, and Gibraltar is nearly 20,000 km. According to Maersk, the duration of such a voyage is 30-45 days.

Meanwhile, a voyage from the same port of Shanghai to Rotterdam via the northern route is 5,000 km shorter! This means, in theory, a reduction in travel time from, for example, 35 days to only 26 days. In terms of logistics, a difference of 9-10 days is a gulf.

This festival of arguments in favour of the Arctic route didn't even end there, as it received another crowning argument in November 2023, when rebels from the Houthi movement began hunting Western commercial ships. On November 19, 2023, they seized the Galaxy Leader with 25 crew members, and footage of the terrorists' actions circulated around the world. The crew remains in Houthi captivity to this day.

Several more attacks followed, causing insurers to suddenly and dramatically raise the price of insurance for ships passing through the Bab Al Mandab Strait. Traffic through the Red Sea dropped by as much as 85 percent, according to Turkey's Anadolu Agency. In such a situation, many shipowners preferred to take the longer route around Africa rather than pay for insurance up to 1% of the value of the entire ship - a hundredfold increase over the standard price!

And yet this is another extension of the route. For our example of the Shanghai-Rotterdam cruise, the circumnavigation of the Africa variant is up to 24,000 kilometers, 9,000 more than the northern route.

So, there is melting ice in the north, a shorter way, terrorists on the main route, high insurance costs, and a lot of money at stake. So, shipowners should press on to the gates of the north, right?

The problem is that they don’t.

Icy unpredictability

Russia's Interfax agency proudly reported at the end of 2023 that Russia's northern route handled a record 37 million tons of cargo last year, up from 34 million tons in 2022.

Millions of tons sound proud, but over 11.5 billion tons, or about 300 times as much, passed through Malacca alone in the same period, carried aboard 90,000 commercial vessels. How many ships passed through the Northern Sea Route? We don't have data for 2023, but it was not much more than in 2022, when exactly 314 ships sailed this route, of which only 36 were non-Russian ships.

In other words, on the commercial map of the world - the Northern Sea Route still does not exist, despite all the arguments mentioned above. For the past five years, the cargo tonnage of shipments through the Arctic route has essentially stagnated. "In 2022, there was not a single fully international transit through the Northern Sea Route, that is, a transit voyage from one non-Russian port to another non-Russian port. The largest number of transits - 35 - took place between Russian ports". - says the report of the Center for High Logistics.

Why, then, if so many factors favour the Arctic route, does virtually no one use it, except occasionally the Russians themselves? The question itself conceals part of the answer.

Since the Russians control most of the Northern Sea Route's coastline, it is to them that one must pay tolls to use the road and obtain transit permits. Given the current relationship between the West and Moscow, this is problematic to say the least. But after all, the merchant fleet is owned not only by the West, but also by the friendly Chinese, who do not want to sail there either. Besides, if you look at the graph of transport on the Northern Sea Route, there has been no collapse since the beginning of the war in Ukraine.

In fact, the problem of the Northern Sea Route is more complex than just the politics of the great powers.

Audun Halvorsen, director of the Norwegian Shipowners' Association's emergency department, talks about this in an interview with Foreign Policy. Halvorsen seems to be one of the best people to answer this puzzle, as Norway has the world's fifth largest merchant fleet and the largest mutual war risk insurance pool. Halvorsen points out several important aspects that are often forgotten when it comes to the Northern Route.

The easiest and safest waters to navigate in the Arctic are the coastal waters, but they are also very shallow. This means that shipowners would have to reduce tonnage and use smaller ships or sail further from the coast, but the weather is much worse there. What's more, the lifeboats base and other equipment needed to maintain commercial traffic on the route, is still virtually non-existent. If a container ship the size of the Ever Given were to become stranded in the Arctic shoals in a manner similar to the 2021 Suez Canal incident, it might never be recovered. The chances of survival for the crew of a ship in distress in the icy Arctic Ocean would also seem slim - especially given the immensity of the terrain we're talking about and Russia's non-existent patrol and rescue capabilities.

In addition, navigation experts say that the ice may be melting faster and the body of water without permanent ice is growing. However, this does not mean that sailing conditions are becoming easier. Sailing conditions in the Arctic have become more challenging in recent years, not less.

The ships themselves would have to be stronger than standard ones to withstand a collision with an ice floe of massive proportions. On top of that, the sun sets over the Arctic in August and the entire voyage is shrouded in total darkness 24 hours a day.

"Due to the distances, the weather, the darkness, [and the] floating ice, the predictability of moving along this route is so low that it’s not worth the reduced number of days compared to around either Suez or Africa".

So what are the chances of the northern route gaining traction? “Short answer, viability close to zero [...] It’s not a realistic alternative in the foreseeable future.” - says Halvorsen.

Race for the Arctic

The development of economic relations is not helped by the fact that the atmosphere around the Arctic is becoming more tense. The aforementioned Arctic Council, which consists of eight countries with territory in the Arctic Circle and coordinates issues related to the region, suspended its activities with the Russian invasion of Ukraine. After two years, Russia was allowed to participate in talks to discuss a simulated oil spill in the Arctic, but cooperation remains limited. The Arctic security architecture is an outgrowth of the global security situation south of the High North.

Of great importance, of course, is the war in Ukraine. From Moscow's point of view, the last two years have brought a deterioration of its own position within the Council as well as in the Arctic itself. Even before that, the majority - five of the eight members of the Arctic Council - belonged to the North Atlantic Alliance. After the Russian aggression, however, all members of the Arctic Council - except Russia - are now in NATO. The accession of Sweden and Finland - countries with high military potential, whose armies are able to operate effectively in the difficult polar area - weakens Russia's position in this theatre of operations, especially in the European part of the Arctic Circle.

NATO confirms its Arctic readiness with military exercises. In March this year, the alliance held large-scale maneuvers called "Nordic Response 2024" on the territory of Arctic Council members Norway, Sweden and Finland. The exercise involved 20,000 troops from 13 countries, including up to 4,000 Finnish soldiers, who were participating in a NATO event for the first time.

The Russians are trying to respond with their own exercises and demonstrations of their own combat capabilities, but it is an open secret that the Kremlin is being forced to pull equipment from all parts of the Federation to send to Ukraine. The Russian border hasn't been this vulnerable in decades, and the Arctic is just one of many theatres where we can see this.

As we read in The Economist, Russia's strategic problem is even recognized by the Chinese themselves. In Russian Studies, a Chinese academic journal, two Chinese scholars, Yue Peng and Gu Zhengsheng, wrote: “The original balance of the Arctic has been disrupted, and the scales in the Arctic region are tipping towards the Western countries.” China’s image in the region, they said, faced “a significant risk of decline”. This could have a “huge negative impact on China’s future participation in Arctic affairs”, the academics suggested.

The deteriorating political and economic climate between China and Europe also argues against the Northern Route - and let’s remember, the Polar Silk Road is needed first and foremost to facilitate trade between the two opposite coasts of the great supercontinent of Eurasia. Meanwhile, the Old Continent is beginning to adopt an increasingly protectionist stance toward China, mostly citing unfair practices on the Chinese side. A prime example of the trade war, which may only be developing, is the recently announced tariffs on electric cars. The cooling economic climate is not conducive to the development and opening of new, risky trade routes, and it is no coincidence that the "Polar Silk Road" slogan, which the Chinese often invoked as recently as five years ago, is no longer on the agenda promoted by Beijing.

However, burying the Arctic route prematurely would undoubtedly be a mistake - especially for the sake of raw materials. The Middle Kingdom's interest in Siberia's vast deposits is strong and will not wane any time soon. The Chinese have invested in at least several major energy projects in northern Russia. In the Yamal LNG project, China National Petroleum Corporation (CNPC) and the Chinese Silk Road Fund have a combined 30 percent stake. And China National Offshore Oil Corporation (CNOOC) and China National Oil and Gas Exploration have a combined 20% stake in the Arctic LNG-2 project, which is under construction. In addition to LNG, the icing on the cake is to be the Power of Siberia 2 pipeline, through which the Russians plan to pump 50 billion cubic meters of gas from the Arctic Yamal Peninsula to China. Russian Deputy Prime Minister Alexander Novak announced in May that the two countries are expected to sign the relevant document to finally commission its construction. The pipeline would run through Mongolian territory.

The Arctic, unlike the rest of the world's oceans, also has one fundamental advantage for China - the absence of Americans. The U.S. Navy hardly sails there, and it is perhaps the only area of maritime combat where the Russians - thanks to proximity to their own territory - have the edge over the Americans.

There are fears that the Russians or the Chinese, on the basis of their own equipment superiority, will begin to claim rights over this part of the Arctic Ocean, which under international law belongs to no one. This concern is echoed by U.S. Admiral Daryl Caudle, among others. "The Arctic basin is full of competition, beyond controlling sea lines of communications. There is $1 trillion worth of minerals in the region. The United States cannot sit idle as Russia creates a nine-dash line of territorial claims over the Arctic, like China aims to do in the Pacific”. - said the US Navy admiral.

The fact is that the Russians have the world's largest fleet of icebreakers and the priceless advantage of proximity to their coastline. The Chinese, on the other hand, are developing their own Arctic-related capabilities and technologies, despite the lack of commercial traffic through the Northern Sea Route and friction with Europe.

As experts from The Arctic Institute write: The Chinese are taking a long-term approach. "Main efforts are at the moment concentrated in research and development of technologies necessary for polar shipping and mining, such as ice-enhanced LNG ships, icebreakers, and polar deep-sea exploration vessels. This also includes tracking and navigation technology, high-power polar ship propellers, polar amphibious unmanned vehicles, polar floating oil and gas drilling platforms and ships. While not all these technologies may prove to be viable, a commitment to R&D backed by policy documents and funding expands the decision-making options and demonstrates the continued pertinence of the Polar Silk Road in the future.” the experts write.

However, one should also keep in mind a fact that is sometimes forgotten by proponents of the "dragonbear alliance" - namely, that the Arctic is also a field of direct confrontation between Moscow and Beijing. As Russia is perhaps the most "Arctic" country in the world, with Arctic territories accounting for up to 20% of its gross domestic product, 20% of its exports, 20% of its oil production, and as much as 80% of its natural gas production, it is clear that the Russians treat this area with extreme priority. So when they see increasingly ambitious Chinese plans for the far north, they have every reason to fear that they may come at their expense. The cautious relationship can be seen, for example, in the decision not to give the Chinese a privileged position in the use of the Northern Sea Route or the six major Russian Arctic ports, i.e. Pevek, Tiksi, Dikson, Sabetta, Arkhanglesk and Murmansk. "Chinese ships have either been refused entry or have abided by Russian transit laws that force them to pay tolls, provide ample notice about journeys and accept Russian pilots." - says the Australian Strategic Policy Institute report. The Russians also care for that foreign entities - primarily Chinese - do not take a majority stake in any, strategic energy projects.

It seems that the Arctic, its resources, and the northern route are one of Russia's last significant levers vis-à-vis China, and the Kremlin is trying to use this to somehow defend itself against Beijing's dominant position in bilateral relations. Therefore, Moscow is continuing the process of building and reconstituting its own military capabilities in the Arctic, and has been doing so for many years. Although the war with Ukraine is sucking up military equipment and capabilities, Russia still has an advantage over NATO in the number of bases and ports in the Arctic. The war is certainly slowing down the process of investment in the Russian Federation's polar military potential, but it remains substantial, especially given the geographic advantages and neglect of NATO countries.

Thus, transportation and commercial activity in the Far North remain essentially dead - despite great Russian hopes that the Arctic will provide the autocratic regime in the Kremlin with further financial turbocharging and legitimacy for the next decades of oligarchic-mafia rule.

Despite the slow pace of change, this does not mean that the current status quo will remain forever. The Chinese are developing their own polar research and development sector, the Americans are slowly recognizing the importance of the North, while the results of the war in Ukraine may have major implications for the Arctic. If they lead to a reshuffling of the Russian power structure - interest in the Northern Route could rise quickly. Note that in addition to the Northern Route, there is the Northwest Passage around the northern tip of North America, and the Transpolar Route, which goes from Alaska to Europe almost directly through the North Pole - but their potential is even more difficult to exploit than the Northern Route.

So the pace of change is slow, but a lot is happening under the (melting) ice, and the parties are still gradually preparing for the growing competition for Arctic resources and trade routes.

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