President Obama’s visit earlier this month to Alaska focused attention on the Arctic region’s growing geopolitical and geo-economic importance, not to mention its ecological significance during a period of climate change. Although Obama’s visit and the sail-by of Chinese naval ships drew lots of immediate attention, the significance of the Arctic to world affairs will play out over several decades. Many are punning about the potential for a new Cold War in the region while others tout the significance of the region’s hydrocarbon reserves. National security and defense specialists are concerned about the former, but it’s the latter issue that’s attracting the attention of Fortune 500 companies.
When thinking about a situation whose timeline is long and complex, which is I think the case with the Arctic, not only is it useful to apply sound analytic methods, but we also have the luxury of time to do so. So there’s no excuse for loose thinking and incomplete analysis. And yet it’s easy to find examples of both in current discussions about the Arctic’s future.
The rush is on to exploit the Arctic’s vast hydrocarbon reserves. And yet experts estimate that it will take decades for any new oil or natural gas from the Arctic to come to market. These same decades will also see significant investment in cleaner sources of renewable energy, primarily solar and wind. It’s difficult indeed to forecast what oil and energy demand will in fact look like in 2050. The recent dive in oil prices means that most energy companies have for now shelved plans to explore for oil and gas in high-cost production areas such as the Arctic. The need to protect against environmental damage from oil spills—made even harder by the rugged Arctic weather—is another reason companies are proceeding cautiously.
The oil and natural gas headlines may draw attention away from other, more realistic economic opportunities. Chief among them is access to new deposits of rare earth minerals in the Arctic region. Tapping into Arctic mineral reserves also carries environmental costs, but not to the same degree as oil drilling. Greenland has some particularly appealing reserves of such minerals, but plans to develop them were set back late last year when the London-based company leading the effort declared bankruptcy after suffering losses at its mining operations in Sierra Leone because of, you guessed it, Ebola. This story is a vivid example of the wicked effects of exponential causality.
The Arctic is the next arena for the Great Power game. We all like to grab lessons and parallels from history. They are seductive and sometimes even instructive. But their downside comes when they replace analytic efforts rather than inform them. The vocabulary we use to talk about the world we live in matters; for example, the fact we continue to refer to a “post-Cold War” world is troubling and leads many to underestimate the salience of other new dynamics.
The desire to identify the Arctic as the next region for superpower conflict strikes me as ill-informed. First of all, the Arctic has for decades been an important strategic area for both the US and the Soviet Union/Russia. As CNN reported in August, US “submarines have been conducting under-ice Arctic operations for more than five decades, sometimes completing exercises that include building ‘ice camps,’ or temporary bases, on the surface.”
Much is made in the press of Russia’s program to reestablish its military bases and port facilities on its northern coast. The Russians are doing much more in this regard than the United States, but looking at any map will tell you why. Most of the Russian coastline is in fact along the Arctic Ocean. The distance from Murmansk to the Bering Strait is 3000 miles. The US exposure to the Arctic is limited to the Alaskan coastline and it is in fact Canada which has the most exposure in North America.
Canada reminds me that one of the more important disagreements in the Arctic may in fact end up being between Canada and the United States. Canada claims that the Northwest Passage—the route over the top of North America connecting its east coast to the Bering Strait—is Canadian water and not an international shipping lane. The US does not agree. Similarly, Russia claims that the Northern Passage along its own northern coastline is Russian, not international. As these disputes are mediated, Russia and Canada are likely to argue from the same playbook.
The opening up of the Arctic contains several other wrinkles that are not well explained by the narrative of Great Power competition. For example, unlike other previous periods in history when new areas became available for economic exploitation, such as the discovery of the New World or the colonial expansion of the 19th century, the emergence of the Arctic will be governed by any number of international treaties and organizations. In fact, the failure of the US to ratify the UN Convention on the Law of the Sea is complicating efforts by the US to claim mineral rights over the continental shelf extending beyond the customary 200-miles maritime border. Every other nation involved in the Arctic scramble has already ratified the treaty. Current pressures for independence in Europe could also interject new players into the Arctic. Greenland, currently under Danish sovereignty, and Scotland both aspire to independent status and presumably unique interests in the Arctic region. Finally, as the Arctic becomes more important economically, the views of the indigenous people of the region, such as Canada’s First Nations, are likely to become more complex and thus less predictable.
The new ice-free Arctic Ocean will open up shipping lanes that could over time replace traditional routes. Of all the memes surrounding the emergence of the “Arctic economy” this is the one I find most interesting. If the ice pack in the Arctic disappears as quickly and completely as some predict, China could indeed cut its travel time and distance to the German port of Hamburg by several weeks and thousands of miles. China could also use Canada’s Northwest Passage to reach US east coast ports more easily. Much would depend, however, on how Russia and Canada manage access to these sea lanes if their claim to sovereignty is upheld. (The importance of these sea lanes to China is a big reason why China pursued observer status on the Arctic Council, the intergovernmental coordination body for the Arctic.)
The significance and utility of these new sea lanes will depend upon the strength and nature of the Chinese and world economy in the next couple of decades. Will the Chinese still be the manufacturing hub for the rest of the world two to three decades from now? Or will Africa become more competitive in low-cost manufacturing, in which case the new Arctic sea lanes will be just curiosities. Will 3-D printing and other technological innovations yet unforeseen make the ocean transport of goods irrelevant?
Finally, what would be the unintended consequences, the second and third order effects, if the northern sea lanes did in fact draw significant traffic from existing international trade routes? How would Egypt fare without the significant foreign currency earnings from the Suez Canal? What would happen to the Panama Canal and the planned canal through Nicaragua? And what about the consequences that we cannot currently imagine?
What Can Decision Makers Do?
My last question above really wasn’t fair because decision makers in business or government must make decisions even when they can’t imagine all possible consequences. Without uncertainties, in fact, there is little drama in decision making. The key to handicapping uncertainties is a robust knowledge strategy. So if I were a business with potential interests in new Arctic opportunities, I’d consider including these components in my knowledge strategy.
Developing a comprehensive understanding of future economic outliers. Everyone can accumulate a list of economic trends, but commonly-understood trends won’t provide a business with unique economic advantages. Instead I would try to understand what could disrupt China’s economic prowess, for example, or what new minerals might be necessary for the economy twenty years from now.
Hiring marine biologists and environmentalists. All scenarios for developing the Arctic economy involve significant environmental risks. Understanding and calibrating these risks better than your competitors could empower a business to pursue the right investment or abandon the wrong one.
Developing sophisticated understanding of the Arctic region. Businesses need to protect themselves against the arrogance that staffs can truly understand the region from their offices on Wall Street, Houston, or London. Establish relations with universities and consultancies that are located in the Arctic region. If a business thinks it will be exploring meaningful business opportunities, it should look for ways to hire individuals with connections to the region and to develop meaningful relations with local communities.
There’s no magic to developing a knowledge strategy. But it rewards most those who pursue intriguing anomalies and nurture diversity of thought. The Arctic is sure to evolve in ways that we today have not considered. It’s foolish to try to anticipate that future, but wise to position yourselves to see its development most clearly.
