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Arctic Prospects

The Arctic Circle is growing in importance for both business and global energy needs. Business prospects hinge upon the prospect of the emergence of new trading routes and the potential bounty of the Arctic’s undiscovered resources. But, there is currently an obstacle that must be overcome, which is the climate. It is not a matter of how to overcome the current prohibiting climate conditions, but when. Given the rise of global warming the melting of Arctic ice is perceived by many to be inevitable.

Currently, there is limited trade activity occurring in the Arctic. The Northern Sea Route (NSR) links the Kara Sea to the Pacific Ocean and it has been reported that this route is diminishing in importance. The amount of cargo transported in 2014, compared to the previous year, fell by 77%. This is due to current difficulties: the necessity of using more expensive ice-breaking ships, lack of schedule reliability, highly variable transit times and the list goes on.

The graphic illustrates two different trading routes from Rotterdam to Shanghai. The blue route is the NSR and the red is the route used today. Visually it is easy to see that the NSR is shorter and it is estimated when the Arctic ice clears, approximately in mid 21st century, the NSR route would shorten the travelling time by 15 days. The shortening of this route has the potential to bring vast cost savings to exporting countries like China. But, the only way these cost savings can be realized is if the current difficulties can be addressed.

China has already made efforts in seeing these potential benefits become a reality. It has signed a bilateral agreement with Iceland and joined the Arctic Council as an “observer”. China’s biggest motive to join the council is likely to be future trade prospects but also to tap into the potential minerals and oil that the Arctic has to offer.

The NSR can also provide security. The ships will no longer have to pass through pirate-infested waters. This advantage coupled with the fact that the Russians are investing $3.4 billion for maritime traffic for the next 10 years will also bring safety through better infrastructure, as there is very little of it at present. Russia will be hoping that this route will be of economic importance globally as it could bring prosperity to once thriving coastal cities during the Soviet Union and more importantly, could diversify their economy. Nordic countries too are likely to see some of their cities converge to global ones.

It is important to understand that although the NSR may bring prosperity to some countries, it may also divert it from others. Singapore in 2014 joined the Arctic Council as an observer. The reason for Singapore joining is likely due to the threat that the NSR poses seeing as they hold the second busiest port in the world and the NSR would bypass them completely. Another country that would be hurt by the NSR would be Egypt. In 2012 Egypt earned more than $5 billion from the Suez Canal.

Lastly, Russia, Norway, USA, Canada and Denmark are all looking to have a piece of the Arctic pie. It is said that the Arctic Circle could hold 90 billion barrels of oil, which represents one-seventh of the worlds undiscovered oil reserves. The future looks even brighter for Russia as their share of this 90 billion is around 41%. The Arctic could change the economy as we know it today. It is clear that there are winners and losers, the winners being, for example, China and Russia who have already demonstrated this through their recent actions. It will be interesting however to see how the “losers” will react in the near future.




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