The Thawing Arctic: Risks and Opportunities

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Introduction

The melting of Arctic sea ice to record lows in recent years has prompted many nations, principally those with an Arctic coastline—the United States, Canada, Russia, Norway, and Denmark (Greenland)—to reassess their commitments and strategic interests. Many scientists forecast ice-free summers in the Arctic in a matter of decades, opening the region up to greater commercialization, including energy production and shipping. Yet others say great obstacles to Arctic investment will endure for years to come despite the region’s warming. The thaw will also pose new security challenges, as greater human activity induces Arctic nations to increase their military and constabulary presence in the high north.

What’s happening with Arctic sea ice?

The Arctic is warming faster than anywhere else on the planet. The extent of Arctic sea ice, which melts to its low each September, has steadily declined over the past three decades, as the chart below illustrates. The years 2007–2012 saw the six lowest levels since satellite imaging began in 1979. The trend is likely unmatched in recent human history, reported a UN panel on climate change in 2013.

Steady Decline in Annual Summer Sea Ice

Source: National Snow and Ice Data Center

Although the ice cap rebounded slightly in 2013, the extent remained well below its thirty-year average. Scientists expect some annual variability as wind and weather patterns change, but predict the contraction will continue long-term. "We may even recover for a few more years," said Ted Scambos, senior research scientist at the National Snow and Ice Data Center in Colorado. "However, the long-term trend is downward."

Three Decades of Thaw From Space

Beyond surface area, recent data indicate that Arctic sea ice is also younger and thinner, and hence more inclined to melt. Less white ice and more dark sea means that more solar radiation is absorbed, accelerating the thaw. If global greenhouse gas emissions continue unabated, said the UN panel, "a nearly ice-free Arctic Ocean in September before mid-century is likely."

What nations have interests in the Arctic?

The region holds major strategic significance for the handful of nations that ring the Arctic Circle—the United States (Alaska), Canada, Russia, Norway, Denmark (Greenland), Iceland, Sweden, and Finland. Russia has the longest Arctic coastline by far, extending more than ten thousand miles.

The overarching legal framework that governs activities on, over, and beneath the Arctic—as with all the world’s oceans—is the 1982 UN Convention on the Law of the Sea.

But in fact, most nations will be touched by developments in the Arctic because the region’s shipping, fishing, energy and mineral production, scientific research, and other activities affect national economic welfare and security. For instance, shorter trade routes through the Arctic could be a boon to export-driven nations like China (discussed further below). Extensive thawing in the Arctic will also have significant, global climatic and environmental implications (detailed in CFR’s Crisis Guide: Climate Change).

Who governs the Arctic?

The Arctic is administered according to the domestic laws and regulations of each Arctic state, but also subject to bilateral, regional, and international agreements. The overarching legal framework that governs activities on, over, and beneath the Arctic—as with all the world’s oceans—is the 1982 UN Convention on the Law of the Sea. UNCLOS settled a number of important issues related to ocean usage and state sovereignty:

• It established freedom of navigation rights;
• set territorial sea boundaries: twelve miles offshore;
• set exclusive economic zones: up to 200 miles offshore;
• set rules for extending continental shelf rights (up to 350 miles offshore);
• created the International Seabed Authority; and
• created other conflict resolution mechanisms (i.e., the UN Continental Shelf Commission).

While the United States subscribes to most of UNCLOS as universal law, it remains one of only a few nations in the world to not have acceded to the treaty. Some conservative lawmakers view the convention as a potential burden on U.S. sovereignty and have opposed it since the Clinton administration moved it to the Senate for ratification in 1994. Meanwhile, the grand majority of the military establishment, as well as successive administrations—George W. Bush and Barack Obama—have endorsed the regime, holding that it fortifies U.S. interests.

In 2008, the five littoral Arctic nations reaffirmed their commitment to the law of the sea in the Arctic with the Ilulissat Declaration, but a few sovereignty disputes persist. For example, the United States and other nations assert that the Northwest Passage is an international strait with free navigation rights, while Canada says it’s an inland waterway over which it maintains exclusive jurisdiction. Washington and Ottawa also disagree on their maritime boundary in the resource-rich Beaufort Sea. Several states have also made competing claims on the Lomonosov Ridge, an undersea mountain range bisecting the Arctic Ocean.

How will shipping be affected by ice melt?

As the Arctic ice cap retreats, shipping lanes are opening that many trading nations hope could rival, or at least complement, conventional routes during summer months. The Northern Sea Route (NSR), a.k.a. the Northeast Passage—a shipping lane across the rim of Siberia connecting the Atlantic to the Pacific—first became ice-free in 2007, and is gaining traction as a seasonal alternative route. A voyage from Shanghai to Hamburg via the NSR (shown below in blue) shaves roughly 30 percent of the distance off a similar trip via the Suez Canal (shown in red), and it also avoids pirate-infested waters.

Source: Wikimedia

Only four cargo vessels sailed the whole route in 2010, but this number has increased markedly each year: to thirty-four in 2011; forty-six in 2012; and seventy-one in 2013. Indeed, Russia is investing billions of dollars in Arctic infrastructure to realize a "Suez of the north." By comparison, more than 17,000 ships pass through the Suez Canal annually.

But industry executives and analysts say a number of challenges for shipping along the NSR will remain in the years ahead. Even during the summer, the harsh environment makes navigation difficult, amid unpredictable weather and ice floes. Ships often require an icebreaker escort (roughly $400,000) and additional insurance that offsets some of the route’s potential fuel savings. Moreover, the fact that Moscow controls most of the NSR and the attendant icebreaking fleet is troubling for some shipping executives, who fear the Kremlin could abruptly decide to hike costs. Finally, while the NSR may provide a viable alternative for bulk cargo shipping (e.g., oil, coal, ore) in the near future, it may be of limited value for container shipping, which operates on a tight delivery schedule.

"It’s early days," Gary Li, a senior maritime analyst with IHS Maritime in Beijing, told the Financial Times. "The Northern Sea Route probably needs another twenty or thirty years of climate change to make it fully viable. And even then, it’s got so many constraints."

There is also modest anticipation for an uptick in shipping along the Northwest Passage, the legendary sea route atop North America, running from Alaska through the Canadian Arctic Archipelago. The route can cut several days off a traditional voyage through the Panama Canal. The Danish-operated Nordic Orion became the first bulk carrier to traverse the Northwest Passage in September 2013, reportedly saving around $80,000 in fuel costs. But experts believe the commercial potential of the seasonal shortcut is much less than that of the NSR.

What are the prospects for energy production in the Arctic?

Experts believe the oil, natural gas, and mining potential for the Arctic is considerable, but stress that projections vary. The most recent Circum-Arctic Resource Appraisal, conducted in 2008 by the U.S. Geological Survey (USGS), estimated that nearly one-quarter of the earth’s undiscovered, recoverable petroleum resources lie in the region: 13 percent of the oil; 30 percent of the natural gas; and 20 percent of the liquefied natural gas. More than 80 percent of these are thought to be offshore. "The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth," said the USGS. The study did not account for nonconventional resources like oil shale, tar sands, or gas hydrates.

"The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth."—U.S. Geological Survey

Energy-related investment in the Arctic will depend on a number of factors, including global commodity prices, exploration and production technologies, geographic access and infrastructure, legal and political climates, and environmental concerns. "Half the Arctic’s basins are unexplored. But this is now changing, with oil firms increasingly heading north, nudged by high oil prices, better technology, a dearth of easier opportunities, and melting ice," wrote the Economist in 2012.

A 2012 report by Lloyd’s of London says that the region’s oil and gas investment will account for a relatively small but strategically significant portion of the industry’s global investment over the next two decades. "Sustaining current and projected rates of Arctic oil and gas could transform local economies and global energy dynamics."

Few countries have been as keen to invest in the Arctic as Russia, whose economy relies heavily on hydrocarbons. Of nearly sixty large oil and natural gas fields discovered in the Arctic, forty-three are in Russia, eleven are in Canada, six are in Alaska, and one is in Norway, according to a 2009 U.S. Department of Energy report. Development of energy in the Russian Arctic has been dominated by state-controlled firms, but industry analysts expect Western petroleum companies to help provide needed technology and management expertise, as demonstrated by the Arctic partnership of ExxonMobil and Rosneft in 2011.

Meanwhile, Royal Dutch Shell, ConocoPhillips, and Statoil have drilling leases in the U.S. waters off the coast of Alaska, which are projected to hold the largest undiscovered oil deposits in the Arctic (roughly thirty billion barrels). Shell plans to resume exploratory drilling in the Chukchi Sea in July 2014, after suffering major operational setbacks in 2012. Analysts say production could begin in ten to fifteen years.

What are the security implications of a warming Arctic?

The Arctic’s potential economic bounty has prompted the littoral states to update security strategies for the region. A handful of territorial disputes remain, as cited above, but all governments have stressed that disagreements can and should be settled peacefully. Russia and Norway resolved a decades-old maritime border dispute in the Barents Sea in 2010, which diplomats cite as a model for Arctic diplomacy. Meanwhile, the overwhelming majority of Arctic resources fall within accepted national boundaries.

Most military analysts play down the prospects for armed conflict in the Arctic, but nations are nonetheless preparing to protect their interests in the region. Russia, the only non-NATO littoral Arctic state, has made a military buildup in the Arctic a strategic priority. "The Russian leadership has made a political decision to return to the Arctic. We’ll be restoring airfields, reviving Soviet-era hydrometeorological services, and deploying the naval means to convoy ships and defend Russia’s economic zone of interests," said Viktor Litovkin, military affairs editor of Moscow newspaper Nezavisimaya Gazeta.

The Arctic has also received greater attention from Washington in 2013. The Obama administration unveiled a National Strategy for the Arctic Region in May, as did the U.S. Coast Guard. In November, the Pentagon followed suit, outlining a host of U.S. interests in the region, including missile defense, strategic deterrence, maritime presence, and freedom of the seas.

Many security experts believe existing U.S. maritime capabilities in the Arctic, led by the Coast Guard, will need to expand. As of 2013, the working U.S. polar icebreaker fleet consists of only one heavy icebreaker, the Polar Star, and one medium icebreaker, the Healy. A 2010 Coast Guard report stated that "the Coast Guard requires three heavy and three medium icebreakers to fulfill its statutory missions." Russia operates more than thirty—including the only nuclear-powered icebreaker fleet—while Canada operates six.

What is the Arctic Council?

The Arctic Council is the leading international forum for cooperation in the region, established by the eight Arctic states in 1996, with participation from indigenous peoples like the Inuit and Saami. (Approximately 10 percent of the Arctic’s four million people are indigenous.) Headquartered in Tromsø, Norway, the organization sponsors major scientific research, focusing on environmental stewardship and sustainable development issues. Chairmanship of the council rotates among member states every two years; the United States will assume this role in 2015. (In 2011, Hillary Clinton became the first U.S. secretary of state to attend a council meeting.)

Thus far, member nations have signed two legally binding instruments: a search and rescue agreement in 2011, and a marine oil pollution preparedness and response agreement in 2013. Meanwhile, China, India, Italy, Japan, Singapore, and South Korea became Arctic Council observer states in 2013.

But Arctic cooperation takes place in a variety of other forums. For instance, Nordic nations—Denmark, Sweden, Norway, Finland, and Iceland—also partner in the Arctic via the Nordic Council. Nineteen countries are party to the International Arctic Science Committee, a nongovernmental organization dedicated to research.