FP Analytics Special Reports: Arctic Competition – Part One

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Arctic Competition

Part One: Resource Competition in the Arctic

PUBLISHED ON OCTOBER 13

FP Analytics’ two-part Arctic Competition Power Map provides readers with an in-depth breakdown of how melting sea ice is enabling increased commercial activity and geopolitical competition over resources, shipping routes, and territory in the Arctic. In Part I, we visualize how climate change is physically transforming the Arctic, lay out the scale of potential resources that will be made available, and detail the positions and interests of major players in the region. We provide a thorough walk-through of why the region is gaining increasing commercial and geopolitical importance, and explicitly lay out different actors’ interests in the Arctic, from domestic economic development to securing critical supply chain. As new actors such as China establish their presence in the region, nations are forging fresh political and commercial partnerships across a rapidly changing geopolitical landscape. The impacts of these new partnerships will transform the Arctic and create major political fault lines with the potential to spark future conflict and confrontation.

Read Executive Summary

Executive Summary

Rapidly receding sea ice is enabling access to a range of highly valuable resources across the Arctic. In addition to energy reserves, critical minerals, and fisheries, newly opened shipping routes across the Arctic could potentially help to re-route global trade and enable high-speed Internet connectivity between Europe and Asia. The ability to exploit newly available Arctic resources is drawing increasing interest from both commercial and national actors and is enticing nations, such as China and Japan, to pour both political and financial capital into the region.

When oil prices peaked in 2008, it appeared that a race to secure oil resources in the Arctic was inevitable. However, due to a rapid fall in global oil demand and the high cost of oil extraction in the Arctic, development failed to materialize. Instead, the dynamics of resource competition in the Arctic have shifted toward securing critical minerals, exploiting natural gas reserves, and asserting territorial control over recently opened shipping routes along the Arctic coast. Additionally, the entrance of Asian and European Nations into Arctic affairs has dramatically shifted regional geopolitical dynamics.

The admittance of Asian countries—China, Japan, South Korea, India, and Singapore—as Observer states to the Arctic Council in 2013 significantly expanded the geopolitical landscape of the Arctic. As more national interests converge there, new commercial alliances are being forged. China now looks to Russia’s Arctic energy resources as a means to diversify its energy supply, while European nations are eager to partner with Asian nations to develop high-speed Internet and shipping along the Northern Sea Route.

With new players and commercial relationships emerging in the Arctic, there has been an attendant increase in international tensions. Strengthening commercial ties between Asian and European nations, and deepening levels of Chinese investment across the region—coupled with Russia’s emerging primacy—are generating pushback from the U.S. In May of 2019, U.S. Secretary of State Mike Pompeo directly called out Chinese and Russian activities in the Arctic as threats to U.S. national interests and security. Moreover, the wider uncoupling of the U.S. and Chinese economies are making the Arctic an arena of great power competition.

Growing tensions over control of critical minerals that are essential to modern technologies, disputed shipping routes, and Chinese entrenchment across the Arctic are also putting pressure on the region’s governance framework. Consisting of an amalgamation of governance organizations and treaties, the region’s governance structures are not designed to contain or mitigate potential great power conflicts. An escalation between the U.S. and China or Russia would divide the region and significantly harm cooperative efforts toward environmental preservation and mitigation of climate change.

Part I of FP Analytics’ Arctic Competition Power Map breaks down key emerging trends across the Arctic by:

  • Mapping access and control of key resource bases;
  • Breaking down the public- and private-sector actors collaborating and competing for Arctic access and influence;
  • Projecting the key points of geopolitical tension and the relative power positions of the actors involved; and,
  • Outlining the legal landscape and governance structures in place to mitigate conflict across the region.

FP Analytics’ Arctic Competition Power Map is a powerful tool for businesses and others seeking to understand how emerging great power competition across the Arctic will help shape and influence the wider geopolitical landscape. Part II will map out Russian and NATO military activities in the Arctic and will explore materializing national security risks.

PART ONE Resource Competition In The Arctic

Introduction

Climate change has impacted the Arctic more than any other region in the world, with changes in surface temperatures increasing between two and three degrees over the last fifty years. Rising temperatures are rapidly changing the Arctic’s physical geography and allowing increased access to an immense untapped resource base of 13 percent of the world’s oil reserves, nearly 30 percent of its natural gas, a wide range of critical minerals, and fisheries accounting for 10 percent of the global catch. Melting ice is also freeing up new shipping routes among Asia, Europe, and the U.S., cutting down average shipping times between Europe and Asia from thirty-seven days to twenty-two, and shipping times from the U.S. to Asia from forty-three days to thirty-two. Resource accessibility and expansion of commercial shipping routes are increasing the Arctic’s commercial and strategic importance, as national governments and private industry move to secure greater influence in the region.

For national governments, there are both strong incentives to cooperate on trade and investment across the Arctic, as well as emerging disputes over territory and alliances that are heightening tensions—particularly among geopolitical superpowers, notably Russia, China, and the United States. Russia’s position as the largest and most economically active Arctic state, and China’s growing investment in Russian infrastructure and energy projects in the region are fueling competition and potential conflict. For Russia, the Arctic represents a critical pillar for its economic development, with billions of dollars’ worth energy and mineral resources for domestic use and export, and a means to expand its international influence through control of critical shipping routes between Asia and Europe. To date, Russia has been the nation most heavily invested in Arctic development, and many in Europe and Asia are reliant on Russian natural gas exports, which are predominantly extracted there.

Notably, China has partnered extensively with Russia, as both an importer of Russian natural gas and an investor in infrastructure development along the Northern Sea Route (NSR), which could give China access to shorter shipping routes to Europe, saving billions of dollars in shipping costs and strengthening commercial ties to Europe. The opening of the NSR would also benefit Europe, granting easier access to China—its second-largest commercial trade market—and paving the way for high-speed digital connectivity between the two continents by way of submarine Internet cables along the NSR seabed. While not commonly reported, undersea Internet cables will play a crucial role in spurring future tech-based industrial growth in the Arctic, as well as in boosting Arctic nations’ defense capabilities by enabling the monitoring of both the Arctic seabed and cyberspace communications. For the U.S., there is potential to access a range of resources, including critical minerals such as rare earths, copper, and phosphorus. Beyond the potential for resource extraction, the U.S. government views the Arctic as an arena for countering Russian and Chinese international influence and is now seeking to establish a stronger presence in the region for deterrence, as articulated in the Pentagon’s June 2019 Department of Defense Arctic Strategy report to Congress.

As these resource plays and global trends play out, competition in the Arctic is set to be a multi-dimensional and evolving power struggle with commercial and geopolitical implications. In Part I of this two-part Power Map series, we break down the current state of this competition, outline how different actors are positioning themselves, and explore the implications for companies, national governments and the environment.

Part 1

The Impact of Climate Change and Rapidly Expanding Access to Arctic Resources

While there is no universally agreed-upon definition of what territory constitutes the Arctic, it is generally understood to be the northernmost part of the Earth that lies above the 66°33′ north latitude line in the region referred to as the “Arctic Circle.” This region has played a number of historically significant roles, from Britain’s early attempts to find the Northwest Passage, to Russia’s militarization of the Arctic throughout the Cold War. Today, the impacts of climate change are making this region more critical to global commerce and geopolitics than ever as sea ice melt rapidly degrades natural habitats within the Arctic and makes abundant natural resources more readily available. Russia, China, the U.S., Europe, and other nations are intensifying their focus on the Arctic. Apart from Europe, these three other global powers have each released updated Arctic strategy policy documents in the past three years and have recently deployed commercial, scientific, and/or military expeditions in the Arctic. The large stores of oil, natural gas, minerals, and fisheries held in the Arctic are becoming increasingly accessible, drawing interest from national actors and private industry, while generating pushback from conservation groups that hope to prevent further exploitation of the region and its Indigenous peoples.

Key Takeaways

  • The Issue

    The Arctic today provides an estimated $281 billion worth of food, minerals, oil, and gas, and climate change is set to increase the economic opportunities across these industries as well as provide new commercial shipping routes. The promise of these resources is attracting national and private interests to the Arctic while threatening Indigenous communities and local ecosystems.

  • The Reaction

    The abundant resources held in the Arctic have generated interest from myriad commercial and national actors looking to seize on and strengthen regional energy, food, and technology supply chains. These resources include roughly a quarter of the world’s untapped and accessible energy resources, fisheries that currently generate an average of $560 million annually and are set to increase up to thirty-seven times in size due to climate-driven migration, and an estimated two trillion dollars’ worth of minerals held in the Russian Arctic alone.

  • What’s at Stake

    Commercial industry stands to gain access to billions of dollars’ worth of resources—in the forms of oil, natural gas, critical minerals, and fisheries—while increased economic activity in the Arctic will simultaneously accelerate sea ice melt, ocean acidification, and rising temperatures. The economic potential the Arctic holds is also aggravating political tensions among Arctic nations, Indigenous populations, and environmental groups. While resource extraction in the Arctic is still costly and potentially dangerous due to an inhospitable environment, the increasing global demand for critical minerals and seafood supplies provided by fisheries continues to drive investment into the region.

The Breakdown
How Climate Change is Rapidly Expanding Access to Arctic Resources
Rapidly receding sea ice levels are making abundant deposits of oil and gas, critical minerals, and ocean fisheries newly exploitable.
  • GRAPHIC 1: Arctic Ice Concentration Change
  • GRAPHIC 2: Arctic Timeline
  • GRAPHIC 3: Oil And Gas Basins In The Arctic
Click to expand

Changes in surface temperatures in the Arctic are more significant than anywhere else in the world, increasing by two to three degrees over the last fifty years, leading to a drastic reduction in sea ice covering the Arctic in both the winter and summer months, at an average rate of 12.9 percent per year. Record low extents of sea ice were recorded in 2012, with 2019’s sea ice extent being the second lowest recorded since 1979. At its current rate of decline, current projections put the Arctic as being ice-free in most late summers as soon as the 2030s. The rapid decline of Arctic sea ice is drawing commercial and national interests towards the Arctic, looking to exploit both its natural resources and new shipping routes that are opening through the region. In the summer of 2020, the two most important shipping routes through the Arctic—the Northern Sea Route and the Northwest Passage—were open and ice-free for weeks. The Northern Sea Route would connect China and Europe, and potentially reroute shipping trade from the Suez Canal. It is critical to Russia’s plans to develop the Arctic, as well as China’s aspirations there.

Despite the allure of vast resources and potential for increased trade and investment between continents, some Arctic resources are still exceedingly difficult to access. For example, multibillion-dollar energy investments from Cairn Energy, in 2014, and Shell, in 2017, yielded no oil—and a precipitous fall in the price of oil since 2014 has made this type of high-cost, high-risk investment increasingly unattractive. Access challenges and low market prices have changed the calculus and are deterring oil exploration in the Arctic, but geopolitics and increased global demand continue to drive investment in natural gas and mineral exploitation.

China’s voracious energy consumption continues to drive its investment in Russian Arctic energy supplies. China has been the largest contributor to global energy consumption growth every year since 2000, accounting for 24 percent of global energy consumption in 2018, and despite its economic slowdown, diversifying energy supplies from the Arctic remains a strategic imperative. Growing demand for resources is catalyzing Chinese investment in the region more broadly, and Arctic nations are eager to capitalize on these capital inflows. The competitive dynamics of the Arctic’s major natural-resource bases are broken down below.

Graphic 1

Arctic Ice Concentration Change

Arctic sea ice levels have been receding at an average rate of 12.9 percent per year since 1979. Click the map below to see the overall reduction.

Less Concentrated More Concentrated
Data Unavailable Median Ice Edge 1981-20
SOURCE: National Snow and Ice Data Center

Energy: Russia Capitalizing on Natural Gas Reserves While Oil Fails to Attract Investment

Energy companies have a long history of Arctic activity, starting with the discovery of oil in Siberia by the Soviet Union in 1962. However, climate change, new technologies, and a 2008 report by the United States Geological Survey—estimating that the Arctic contained nearly one-quarter of the earth’s undiscovered recoverable petroleum resources—ushered in a new era of oil prospecting in the region with nineteen major oil and gas companies active in the Arctic, including BP, ExxonMobil, and Shell. However, commercial oil competition has failed to materialize due to disappointing returns on investment, as none of the fourteen offshore oil wells drilled in the Arctic has yielded economically profitable quantities of oil. Global oil and gas price declines of over 50 percent since 2014 have made the cost and difficulty of extracting oil an economically unfeasible investment. Natural gas extraction still plays a critical role in Arctic development for Russia, Norway, and Canada, but global commodity prices, coupled with the U.S. shale revolution, which has increased U.S. oil and gas production 57 percent since 2010, have deterred extensive natural gas investment by most Arctic nations and outside commercial interests.

For Russia, natural gas represents the backbone of its economic and geopolitical future. It is the world’s second-largest producer of natural gas (after the U.S.) and Europe’s largest natural gas supplier, with fourteen European countries importing more than 50 percent of their natural gas from Russia. Production is concentrated in the Arctic, with roughly 85 percent coming from northern West Siberia in Russia’s Arctic. Russia’s strategic geographic position allows it to supply natural gas directly to Europe and Asia, which it is leveraging to develop two major gas pipelines—the Nord Stream 2 (connecting to Europe) and the Power of Siberia (connecting to China). The Power of Siberia gas pipeline began directly supplying China with Russian natural gas reserves in 2019 and is a key point of cooperation between the two countries in the Arctic. While other Asian countries such as Japan and South Korea have also invested in Russian natural gas, the closer economic ties between China and Russia are the focus of growing geopolitical concern, heightening energy security risks among European importers and U.S. natural gas exporters.

Graphic 2

Arctic Timeline

Over the past five decades, a number of seminal events have shaped the current geopolitical dynamics of the Arctic. Major commercial, political, and environmental developments influencing the region today are chronicled below.

1962

First Major Arctic Energy Find in Siberia

The Soviet Union discovers the first oil and gas fields in the Arctic in Western Siberia. The energy resources in this region remain largely unexploited today, but with tens of trillions of cubic meters of natural gas, it holds the largest reserves on earth. If fully developed, it could potentially supply enough energy to power all of Europe for decades beyond 2020.

March 12, 1968

Oil Discovered on Alaska’s North Slope

Arco and Humble Oil discover the Prudhoe Bay oil field on the North Slope of Alaska, about 250 miles north of the Arctic Circle. Containing thirteen billion recoverable barrels of oil, it is one of the single largest oil fields discovered in North America.

November 12, 1969

Supertanker Completes First Navigation of the Northwest Passage

A U.S. merchant ship, the SS Manhattan, completes the 4,400-mile voyage along the Northwest Passage. The ship transports a lone symbolic barrel of Alaskan oil from the Pacific Ocean through Canada’s Arctic waters and finishes its trip in New York.

December 10, 1982

The UN Convention on the Law of the Sea (UNCLOS) Establishes Ocean Governance

The UN Convention on the Law of the Sea (UNCLOS) codifies hundreds of years of maritime customs into an overarching governance system for the world’s oceans and its ocean resources. To date, 167 states have ratified UNCLOS. However, the U.S. remains one of the few nations to abstain.

September 19, 1996

The Arctic Council Is Established

The signing of the Ottawa Declaration by the eight Arctic states (Russia, Canada, the U.S., Norway, Iceland, Denmark (Greenland), Sweden, Finland) officially creates the Arctic Council. As the central international organization for Arctic cooperation and governance, the Arctic Council is designed to address common regional issues related to environmental protection and sustainable development. However, it does not address issues related to fishing and military security. In addition to the eight Arctic Nations, the organization includes six Indigenous peoples’ groups, named the “Permanent Participants,” and twelve non-Arctic observer states. Read more

September 16, 2007

Arctic Sea Ice Levels Reach Record Lows

Arctic sea ice retreats to its lowest level since satellite imaging began in 1979, sparking debate over climate change and environmental preservation. Melting sea ice levels also attract new economic interest in the region, bringing hope that receding ice will enable access to previously unexploitable energy resources and shipping routes.

July 23, 2008

New Research Illuminates the Extent of Untapped Arctic Resources

The U.S. Geological Survey issues a comprehensive appraisal of Arctic’s untapped energy resources. The survey estimates that the Arctic holds nearly a quarter of the earth’s undiscovered, recoverable oil and natural gas.

September 6, 2008

Arctic Maritime Routes Unlocking

For a few days in the summertime, parts of the Northwest Passage (along Canada’s Arctic coastline) and the Northern Sea Route (along Russia’s Arctic coastline) are both navigable for the first time since satellite imaging began. Easier navigation of these sea routes could potentially reshape ocean shipping trade globally.

August 30, 2011

First Supertanker Transits the Northern Sea Route

The Russian supertanker Vladimir Tikhonov becomes the first ship to navigate the entire Northern Sea Route. The state-owned vessel completes the transit in less than eight days, a record, and with little help from icebreakers. Weeks later, the Japanese-owned Sanko Odyssey becomes the largest bulk carrier ship to complete the journey.

September 16, 2012

Sea Ice Retreat Shatters Record for Previous Low

Arctic Sea ice recedes to a new low, melting to 1.32 million square miles, roughly a quarter of the surface of the Arctic Ocean. The rapid thaw vastly surpasses the two previous records.

December 5, 2012

World’s First LNG Supply Delivered Via the Northern Sea Route

A liquefied natural gas carrier, the ice-capable Ob River, successfully navigates the Northern Sea Route, sailing from Norway to Japan. By completing the journey, the ship becomes the first to successfully move LNG between the Atlantic and Pacific Oceans using Arctic waters.

March 22, 2013

China and Russian Reach New Energy Deal

Russian state-owned oil company Rosneft and the China National Petroleum Corporation agree to partner in the energy exploration of three areas in the Arctic. The deal is the first of its kind between the Kremlin and an Asian company and is expected to lay the groundwork for future Chinese investment in Russian Arctic energy resources. Read more

May 10, 2013

First Asian States Join the Arctic Council as Observers

The Arctic Council adds China, India, Italy, Japan, Singapore, and South Korea as observer states (joining the UK, Netherlands, Poland, Spain, Germany, and France). The admittance of Asian nations into the Arctic Council has been a major catalyst for new commercial connections as well as debates of the future of the region’s economic development and governance. Read more

SOURCE: Council on Foreign Relations

Graphic 3

Oil And Gas Basins In The Arctic

The major discovered and accessible oil and gas basins in the Arctic are mapped below.

SOURCE: United States Geological Survey

Minerals: Critical Minerals Set to Drive Future Investment from the U.S., China, and Russia

Mining represents the leading and most valuable economic sector in the Arctic. Abundant and significant deposits of zinc, iron ore, silver, lead, nickel, copper, coal, gold, uranium, tungsten, diamonds, rare-earth elements, and other critical minerals remain untapped. Russia has the largest mineral extraction operations in the Arctic—and holds an estimated $1.5 to 2 trillion worth of unmined mineral reserves—with Canada and the U.S. also engaging in extensive mining operations. Interest in mineral resources is intensifying, particularly due to their essential roles in a range of advanced technologies. Since the early 2000s, strong demand for zinc, iron ore, copper, silver, lead, and diamonds, notably from developing Asian economies—has pushed up prices and drawn in prospectors. Attention is now turning to previously inaccessible rare-earth elements, key inputs for the manufacturing of modern technologies from smart phones to defense applications.

While energy investments draw Russia and China closer, the dynamics over minerals are more nuanced. Russia’s state-owned Far East Development Fund is creating a $1 billion joint mining venture fund with China National Gold Group, a government-controlled producer of the precious metals. At the same time, Russia is pushing to end its reliance on China for rare earths—Russia plans to invest $1.5 billion over the next ten years to become “self-sufficient,” a goal similarly articulated by the U.S. However, China dominates rare-earth elements’ production and global supply chains, and its position will be difficult to challenge. It is currently home to 63 percent of global production of these elements and is heavily investing in mining activities across the Arctic (and elsewhere around the globe). Despite U.S. ambitions, it lacks the processing capabilities to refine rare earths domestically and relies on China for 80 percent of its rare earth supply, with China continuing to wield the valuable resources as geostrategic weapons. In May of 2019, China threatened to cut off rare earth supplies to the U.S. due to mounting trade tensions, driving the Pentagon (once again) to seek alternatives. As these and other countries around the world seek to ramp up their rare earth and other critical minerals production, the Arctic will become an arena for that competition.

Fisheries: Warming Oceans Enabling Rampant Exploitation of Arctic Fisheries

A central industry for many Arctic nations, regional fisheries also represent a coveted resource for global food supply. Fishing represents 90 percent and 40 percent of Greenland’s and Iceland’s exports, respectively, and industrial fishing is booming as warming ocean environments globally drive northern migration of fish species toward cooler waters, and melting ice opens access to new fisheries. The vast fishing potential in unclaimed Arctic waters has attracted interest from China, which consumes seafood at twice the average global per capita rate. Fears that overfishing in the Arctic Ocean would accelerate climate change and endanger food supplies for local and Indigenous populations prompted an international agreement banning commercial fishing for sixteen years. The agreement—reached in 2017 among nine nations (Russia, Canada, the U.S., Norway, Denmark, Iceland, China, Japan, and South Korea) and the EU—covers the entire Arctic Ocean. However, lack of policing and strong financial incentives have enabled rampant illegal fishing, costing nations an estimated $15.5 billion annually. As global food insecurity intensifies, demand for, and competition over, these coveted resources is set to increase.

Part 2

Arctic Governance and Positioning of Power Players

Overlapping organizational mandates, treaties, and conventions complicate Arctic governance. The patchwork nature of Arctic governance is not effectively designed to constrain great power competition, and China’s entrance into the Arctic—as well as the U.S.’s increased focus on the region—are putting pressure on this framework. In the absence of a more coherent and collaborative governance structure, national interests prevail, with outside forces leveraging bilateral relationships to achieve their aims and strengthen their footholds in the region. The current governance framework has increased cooperation among Arctic states on issues such as climate change, Indigenous rights, and scientific research. However, it is ill-equipped to resolve economic disputes between the U.S. and China, or a potential military escalation between the U.S. and Russia.

Key Takeaways

  • The Issue

    A fragmented Arctic governance framework, the Trump administration’s strategic prioritization to counter Russian and Chinese influence in the Arctic, and increasing tensions among the U.S., China, and Russia could further disrupt commercial investments. While a patchwork governance framework of international standards, laws, and treaties has proven effective at resolving small-scale Arctic disputes to date, it is ill-equipped to mitigate a major escalation or confrontation between great powers.

  • The Reaction

    China cemented its status as an Arctic Observer state on the Arctic Council in 2013 and has continued to expand both its political and economic influence in the region ever since. In May of 2019, U.S. Secretary of State Mike Pompeo openly condemned Chinese and Russian Arctic activities along the Northern Sea Route at an Arctic Council meeting, citing competing territorial claims. The U.S.’s increasingly hostile relationships with China and Russia are challenging Arctic governance structures and diverting focus from cooperation on climate change and research.

  • What’s at Stake

    Future access to Arctic resources, shipping routes, and territorial claims. National governments and companies that establish their positions in the Arctic now are likely to influence the reorientation of trade and balance of power in the region. However, competing strategic interests and visions for development in the region could imperil future collaborative governance, which would risk necessary cooperation on trade and development in the region.

The Breakdown
Arctic Governance Is Not Designed to Effectively Mitigate Great Power Competition
The amalgamated treaties, resolutions, and governance organizations aimed at promoting Arctic cooperation are coming under strain from China’s growing presence in Arctic geopolitics and from increasingly hostile U.S. rhetoric.
  • GRAPHIC 4: Arctic Territorial Boundaries & Disputed Areas
  • GRAPHIC 5: National Economic Interests and Geopolitical Positions
Click to expand

Established in 1996, the Arctic Council is the main international body for regional cooperation in the region and, to date, has served as an effective government mechanism for promoting coordination and cooperation across Arctic states and Observers. Consisting of eight permanent member states and thirteen Observer states, the Council is the primary governance body through which disputes over territorial claims, environmental standards, and relations with Indigenous communities take place. It provides a forum for dialogue and cooperation and has brought Arctic nations together to sign on to numerous international agreements, such as the Agreement on Enhancing International Arctic Scientific Cooperation, signed in 2017.

However, the Arctic Council is only one of many regional governance structures—including the Barents Euro-Arctic Council, the Nordic Council, and the Baltic Sea Council—and international treaties governing the Arctic. While the current governance structure has proved adept at navigating existing legal, economic, and scientific disputes in the Arctic, it is coming under increasing pressure as states outside of the Arctic’s geographic boundaries seek greater commercial and political influence. The growing list of Arctic Observer states eager to assert themselves in the region—such as China, India, and Japan—and exogenous events impacting great power competition are putting pressure on the existing governance structure that it may be ill-equipped to handle.

The 1982 UN Convention on the Law of the Sea (UNCLOS) is the international legal framework governing offshore activities in the Arctic Ocean. Critical to resource control and management, UNCLOS establishes exclusive economic zones (EEZs) up to 200 miles offshore for each littoral Arctic nation and sets rules for extending continental shelf rights up to 350 miles offshore. Under the convention, each nation is granted control over all living and non-living resources within its EEZ, and the 1.1 million square miles of Arctic Ocean beyond any nations’ EEZs are considered outside of national control. Among the Arctic states, the U.S. is the only member that has not officially ratified UNCLOS, so it is excluded from submitting territorial claims of its continental shelf to the U.N. While UNCLOS establishes control over the majority of Arctic resources, disputes persist over control of key shipping routes—sovereignty over both the Northern Sea Route and the Northwest Passage is contested—and competition for resources such as fisheries and critical minerals is exceedingly difficult to regulate.

China’s presence, in particular, could upset the current governance framework and delicate balance of power. Having joined the Arctic Council as an Observer in 2013, China does not have Arctic territory or historical treaties with the other Arctic states. Nevertheless, its multibillion-dollar investments across all five of the littoral Arctic states and its admittance to the Arctic Council as an Observer state are cementing its increasingly powerful presence in the region. Expanding interests from other non-Arctic states, as well as geopolitical developments outside of the region, are reshaping Arctic relations, with the potential to further disrupt commercial cooperation there. To help explain these evolving dynamics, the key economic interests, and Arctic policies of each of the Arctic littoral nations, as well as other key nations with Arctic interests, are broken down below.

Graphic 4

Arctic Territorial Boundaries & Disputed Areas

Select Map To View
Territorial Boundaries Special Regions And Disputed Areas
Territorial Boundaries map
  • Canada
  • Finland
  • Denmark (Greenland)
  • Iceland
  • Norway
  • Russia
  • Sweden
  • United States
  • Unclaimed Territory
  • Disputed Territory
  • Agreed International Boundaries
  • Continental Shelf Limit
Special Regions And Disputed Areas map

OVERLAPPING CONTINENTAL SHELF CLAIMS

  • Russia/Canada
  • Russia/Canada/Denmark (Greenland)
  • U.S./Canada
  • Russia/Denmark (Greenland)
  • Canada/Denmark (Greenland)

DISPUTED AREAS

  • Beaufort Sea This 7,000-square meter area is currently under dispute, with Canada claiming sovereignty due to an 1825 treaty between Great Britain and Russia that the U.S. does not recognize.
  • Lomonosov Ridge Canada, Russia, and Denmark all claim sovereignty over the Lomonosov Ridge—an 1,800-kilometer-long (1,120 miles) underwater mountain range that splits the Arctic in two.
  • Hans Island Canada and Denmark have a longstanding friendly dispute over the 320-acre rock island located along the Canada-Greenland sea borders.

SPECIAL AREAS

  • Norway-Russia Special Area This disputed area is governed by a 2010 agreement that grants both countries access to fisheries and hydrocarbon deposits for at least fifteen years from its signing.
  • Russia-U.S. Special Eastern Territory A 1990 treaty between the Soviet Union and the U.S. gives the U.S. jurisdiction to treat this territory as part of its EEZ.
  • Svalbard Treaty Area A 1920 treaty gives Norway sovereignty over this region. However, all thirty-nine countries named in the treaty are allowed equal access to the region for commercial purposes.
  • Iceland-Norway Joint Zone A 1981 agreement allows grants each country the right to 25 percent of petroleum on the other’s continental shelf.
SOURCE: Durham University: Department of Geography

Graphic 5

Country Profiles And Policies

Scroll below for a breakdown of key Arctic players’ economic and geopolitical interests and relative strengths in the region. (Note: China is an Observer to the Arctic Council.)

SELECT COUNTRY TO SEE MORE INFORMATION

Russia

The development of the Arctic is central to Russia’s economic and geopolitical fate. Russia has the most Arctic territory and coastline, population, and natural resource reserves, and it plans to invest $231 billion in Arctic oil and gas development. Russia is heavily invested in oil and gas exploration and production and mineral extraction and is actively carving out shipping routes and laying digital infrastructure for submarine Internet connectivity. Continued Russian investment across these sectors is critical to the economic development of Russia and of the region as a whole.

Oil and gas exports have enabled strong commercial and coercive ties with Europe for over fifty years. While more recently establishing itself as key natural gas supplier to Asia in 2018, Russia is increasingly attracting investment from China, Japan, and South Korea. For these partnerships to thrive, Russia needs to further develop its existing Arctic infrastructure to access additional natural gas reserves, 95 percent of which are still untapped. Russia is also the critical actor in developing the Northern Sea Route (NSR) for trade and submarine Internet connectivity through undersea fiberoptic cables, activities that are attracting investment from both European and Asian countries. Successful development of the NSR would potentially make Russia critical to global trade and communications between Asia and Europe, strengthening Russia’s commercial ties and political leverage on both continents.

Russia’s resource exports to Europe and China and the country’s role pioneering development of the Northern Sea Route make it the most commercially connected and important Arctic nation. Given its heavy dependence on the Arctic for its own future power supply—not to mention its status as a global supplier, Russia has the most to gain or lose from Arctic economic development. The centrality of Russia’s role in the Arctic makes its contentious relationships with the U.S. and Europe a key point of Arctic tensions. Russia’s annexation Crimea in 2014 and the subsequent U.S. sanctions on Russia’s energy, financial, and defense sectors forced ExxonMobil out of Russia’s Arctic in 2018. Russia’s military buildup in the Arctic and its assertion of sovereign control of the Northern Sea Route continue to fuel U.S. backlash. However, Russia’s centrality to Arctic development for other Arctic nations notably limits U.S. leverage and is unlikely to deter continued international investment in Russia’s Arctic development projects.

Arctic Policy Basic Principles of Russian Federation State Policy in the Arctic to 2035
Key Objectives:
  • Ensure Russia’s sovereignty and territorial integrity
  • Preserve the Arctic as a territory of peace and a stable and mutually beneficial partnership
  • Guarantee high living standards and prosperity for the population of the Russian Arctic
  • Develop the Russian Arctic as a strategic resource base and use it rationally to speed up national economic growth
  • Develop the Northern Sea Route as a globally competitive national transportation corridor, and to protect the Arctic environment

Active Polar Icebreakers: 38

Arctic Council Status: Member since 1996

United States

A deepening of U.S. engagement in the Arctic began in 2009, under the Obama administration, which focused on climate change as the primary U.S. security challenge in the Arctic. The administration’s climate-focused efforts culminated in National Security Presidential Directive 66, focused on environmental preservation, scientific research, and international collaboration. The U.S. has held considerable economic clout in the region as well, with the state of Alaska accounting for 10.8 percent of the gross regional product produced in the entirety of the Arctic—the second largest economy in the region. However, its economic power is waning, as the low price of oil and the shale revolution continue to take their tolls.

U.S. commercial and strategic interests also extend to critical minerals located in the Arctic. In September of 2020, President Trump released an executive order calling for the U.S. to end its reliance on foreign supply chains of critical minerals. To do that, the U.S. would need to rebuild its domestic processing capability to efficiently exploit and process most critical mineral reserves. Rebuilding these processing capabilities will make Arctic critical minerals deposits significantly more important to the U.S.

Under the Trump administration, however, focus has shifted to Russian and Chinese deterrence in the region, as outlined in the Pentagon’s June 2019 Department of Defense Arctic Strategy report to Congress. President Trump’s June 2020 Memorandum on Safeguarding U.S. Interests in the Arctic called for a review of Arctic icebreaking capabilities and an upgrade on the country’s currently diminished fleet of polar icebreakers by 2029. Three new icebreakers are now being commissioned; once completed, they will compliment two existing icebreakers (which are over forty years old and not suitable for most Arctic missions). These investments, however, will not generate near-term returns, as developing these ships will take years and billions of dollars, and American capabilities will still pale in comparison to Russia’s fleet of thirty-eight, leaving the U.S. far behind Russia in its ability to navigate Arctic waters for scientific, commercial, or military aims.

Due to its relative underinvestment in the region, the U.S. is unlikely to be able to compete economically with either Russia or China in the region. Relative underinvestment in economic development and environmental efforts is diminishing U.S. soft power in the region, making the U.S.’s efforts to curb Russian and Chinese development of the Arctic difficult to enforce. Nevertheless, the U.S. has had some limited success subverting Chinese investment in Greenland and has effectively raised alarms to some other European nations, such as Norway, that are also concerned with the extent of Russian and Chinese presence in the Arctic.

Arctic Policy National Strategy for the Arctic Region (2013)
Key Objectives:
  • Advance U.S. security interests
  • Pursue responsible Arctic region stewardship
  • Strengthen international cooperation

Active Polar Icebreakers: 2 (3 more commissioned)

Arctic Council Status: Member since 1996

Canada

Canada’s Arctic is home to over 100,000 people, and territory 40 percent of the country’s landmass is located above the Arctic Circle. Arctic economic development is a key domestic policy issue in Canada, while the international focus has been on cooperation. While Canada continually emphasizes cooperation, its economic ties to China, scientific cooperation with Russia, and territorial disputes with the U.S. and Greenland are all sources of international tension. Canada has welcomed extensive Chinese investment, most notably the “Plan Nord,” an $80 billion, twenty-five-year development plan in Quebec. Chinese companies also maintain a presence in mineral extraction and shipping along the Northwest Passage. Canada claims sovereignty over this shipping route, while the U.S. maintains that it is in international waters. This dispute mirrors the territorial debate between Russia and the U.S. over the Northern Sea Route, with Canada sharing Russia’s legal perspective on the Northern Sea Route, positioning itself in opposition to the U.S. in both instances. Additionally, Canada has a scientific partnership with Russia in the Arctic and has not demonstrated similar levels of concern as the U.S. over Russian and Chinese Arctic activities.

Arctic Policy Canada’s Arctic Foreign Policy (2008)
Key Objectives:
  • Promoting economic and social development in the Arctic
  • Defending Canada’s sovereignty over Canadian Arctic territories
  • Empowering Indigenous governance in the region
  • Environmental protections

Active Polar Icebreakers: 6 (1 under construction)

Arctic Council Status: Member since 1996

Denmark (Greenland)

Greenland’s small population of just 56,025, reliance on Denmark for two-thirds of its budget, and lack of military power make it one of the weaker players in the Arctic. However, Greenland’s abundant mineral resources and its need for outside investment are placing it at the center of Arctic debates. Greenland has abundant mineral and energy resource reserves, but it has been unable to develop them economically. Oil exploration has yielded few results, and fisheries remain essential for Greenland’s economy, accounting for over 90 percent of exports. Greenland has turned to tourism and foreign investment in mining to drive its economy. In 2012, China’s minister of land and resources made an initial prospecting visit, and since then Greenland has welcomed Chinese investment in mining and infrastructure development, and China has maintained a strong presence in Greenland since 2016. Seeking to limit Chinese influence in the region, the U.S. and the Danish government successfully blocked Chinese development of three airports in 2019 and the purchase of an abandoned naval base in 2016. Of strategic military importance to the U.S., Greenland is the location of the U.S.’s Northern-most military base, and Chinese presence in Greenland is emerging as a major point of concern for U.S. security forces in the region. In 2019, President Donald Trump suggested that the U.S. purchase Greenland outright. Greenland’s abundant mineral resources, including rare earths, and its history as a U.S. military outpost in the Arctic make it a potential arena for continued confrontation between the U.S. and China in the Arctic.

Arctic Policy Kingdom of Denmark Strategy for the Arctic 2011–2020
Key Objectives:
  • Ensure a peaceful, secure and safe Arctic
  • Sustained economic growth and development
  • Preserve the vulnerable Arctic climate, environment and nature
  • Close cooperation with international partners

Active Polar Icebreakers: None

Arctic Council Status: Member since 1996

Iceland

Iceland’s borders place it geographically outside of the Arctic Circle, denying it territorial rights in the Arctic Ocean under United Nations Convention for the Law of the Sea (UNCLOS). Still, the country is heavily reliant on fishing in the Arctic Ocean, which accounts for 27 percent of GDP. As the chair of the Arctic Council since 2019, Iceland has made preserving the ocean environment and gaining territorial rights in the Arctic Ocean top international policy priorities. Iceland’s economy was one of the hardest hit during the 2008 financial crisis, and the lack of offshore oil development has slowed its recovery. To boost its economy, Iceland has turned to exporting geothermal and hydroelectric energy and developing a domestic tourism industry, which grew to account for 7 percent of GDP in 2018. Additionally, Iceland has opened economic ties to China, signing a bilateral energy accord in 2012 and a free trade agreement the following year. Since 2012, Iceland has welcomed $1.2 billion in Chinese investment, accounting for 6 percent of Iceland’s GDP from 2012 to 2017. Accompanying China’s investments, Iceland has also lent China access to scientific facilities, geothermal energy expertise, and telecommunications infrastructure. China’s growing presence, combined with recent Russian aggression toward Iceland—including two Russian bombers entering NATO airspace near Iceland twice—led to visits from both U.S. Secretary of State Mike Pompeo and U.S. Vice President Mike Pence in 2020. While Iceland is deepening economic ties with China, its diplomatic relationship with Russia is tense, having deteriorated following NATO sanctions over Russia’s annexation of Crimea.

Arctic Policy A Parliamentary Resolution on Iceland’s Arctic Policy (2011)
Key Objectives:
  • Securing Iceland’s position as a coastal state in the Arctic
  • Improvement of socio-economic conditions for Arctic residents
  • Strengthening regional cooperation with the Faroe Islands, Greenland and Denmark in the West Nordic area

Active Polar Icebreakers: None

Arctic Council Status: Member since 1996

Finland

Finland was the most recent chair of the Arctic Council (prior to Iceland), from 2017 to 2019. During its chairmanship, Finland focused on strengthening ties between the EU and the Arctic Council and pursuing cooperative climate change mitigation strategies. With well-developed infrastructure above the Arctic Circle, including airports, heavy industry in forestry, mining, renewable and bioenergy, and metal industries, Finland represents a strong actor in the region and a desirable economic and strategic partner—with Finland and Russia already closely aligned. Russia is Finland’s third largest trading partner, and its leading shipbuilding industry makes it an attractive partner to work alongside Russia in developing the Northern Sea Route. The two countries are working on developing polar icebreakers and are collaborating on developing shipping ports and submarine Internet cables along the Northern Sea Route. Finland is one of the six EU states that are not NATO members, and its close relationship with Russia and willingness to collaborate with China make it unlikely that Finland would support increasing U.S. efforts to block those countries’ increasingly assertive development in the region.

Arctic Policy Finland’s Strategy for the Arctic Region (2016)
Key Objectives:
  • Attracting sustainable tourism and making the Arctic aspect an asset in Finland’s international tourism-marketing strategy
  • Enforcement of the Paris Climate Agreement and multilateral environmental agreements throughout the region
  • Developing wireless communication infrastructure by developing the telecommunications cable project along the Northern Sea Route and wireless networks across the region

Active Polar Icebreakers: 3

Arctic Council Status: Member since 1996

Norway

Nearly 10 percent of Norway’s population lives above the Arctic circle, the greatest proportion of any Arctic country. Norway has extensive economic interests in the Arctic, which is a key resource base for future economic development. The Arctic contains an estimated 43 percent of Norway’s remaining undiscovered oil and gas resources and provides 33 percent of the country’s mining activity, and 80 percent of total Arctic shipping volume passes through Norway. Arctic tourism has also emerged as an attractive source of revenue, seeing a 206 percent increase from 2006 through 2013. Building on its strong base, Norway is heavily invested in further developing the Arctic, allocating 40 billion NOK (4.4 billion USD) to infrastructure development and 24.5 billion NOK (2.7 billion USD) to business development since 2016.

Norway’s growth and development agenda would be undermined from increased geopolitical tensions in the region, and international cooperation is the country’s primary foreign policy priority in the Arctic. With strong commercial ties to Russia, and being a NATO member state, Norway is effectively positioned to act as a de-escalator between the U.S. and Russia. It has pursued multilateral cooperation with Russia through international and regional organizations such as the UN and the Arctic Council, and it has collaborated with the U.S. and other NATO allies to deter increased Russian military presence in the Arctic.

Arctic Policy Arctic Policy: Norway’s Arctic Strategy (2017)
Key Objectives:
  • International cooperation
  • Business development
  • Knowledge development
  • Infrastructure
  • Environmental protection

Active Polar Icebreakers: 1

Arctic Council Status: Member since 1996

China

China became an Arctic Observer state on the Arctic Council in 2013 and has since dramatically increased its Arctic activities. From 2012 to 2017, China invested over $435 billion across all five of the Arctic littoral states, and it has conducted extensive scientific and commercial voyages, including multiple navigations of the Northern Sea Route by the state-owned China Ocean Shipping Company. Further cementing its presence in the Arctic, China has also forged research partnerships with Iceland, Greenland, Norway, and Russia. From 2017 to 2019, Chinese officials began development on a polar research base and a satellite ground station for climate change research in Greenland, a research station in Iceland to study space weather, a research station on Norway’s Svalbard Island, and a research center in Russia to forecast ice conditions along the Northern Sea Route. This influx of Chinese investment has provided a critical resource for Arctic economic development and furthering scientific understanding of the region. However, it has also been a major cause of tension in the region, as the U.S. has repeatedly singled out Chinese Arctic activity as a security concern.

A strategic region within China’s Belt and Road Initiative (BRI), officials have deemed it the “Polar Silk Road,” with sweeping BRI plans aiming to connect Asia with Africa and Europe via land and maritime networks in order to re-route global trade and stimulate economic growth. China plans to invest an estimated $1 trillion to $8 trillion into the BRI initiative overall, primarily on ports, roads, railways, airports, power plants and telecommunications networks. So far, its investments in the Arctic have reflected these priorities. For example, China is collaborating with Finland to develop the Talsinki tunnel, an undersea rail tunnel between Helsinki and Tallinn meant to eventually route trade from Europe to China through the Northern Sea Route. Additionally, China has invested extensively in mining and energy, reflecting efforts to strengthen and diversify its resource supply chains. In this respect, the Arctic is likely to become increasingly important to China, as the region contains the energy resources to fuel China’s economy, the critical minerals key to its advanced technology ambitions, and abundant seafood supplies to meet domestic demand. China’s deepening commercial interests and partnerships in the Arctic, are set to further inflame tensions with the U.S. and make the regional a focal point for intensifying geopolitical competition.

Arctic Policy China’s Arctic Policy (2018)
Key Objectives:
  • Increased exploration and understanding of the Arctic
  • Further understanding of environmental impact of climate change
  • Expanding ownership over, and development of, Arctic resources
  • Strengthening its role in regional governance and leading international cooperation
  • Integration of the “Polar Silk Road” within China’s broader BRI strategy

Active Polar Icebreakers: 2

Arctic Council Status: Observer since 2013; Arctic research station established in 2003.

Part 3

Emerging Arctic Geopolitical Competition and Cooperation

Competition for Arctic resources, particularly critical minerals and natural gas, is shaping geopolitics in the region, but direct military confrontation over resources has not yet materialized. Economic tensions in the Arctic today are largely manifesting from China’s investments in the region, Russia’s commercial partnerships and militarization, and territorial disputes. China invested $450 billion in the Arctic from 2012 through 2017, across all of the Arctic nations. Chinese investment is driving development of the Northern Sea Route, for both shipping and submarine Internet connectivity. In addition to creating stronger commercial ties between China and Russia, this development would strengthen Russia’s claim of sovereign control over the NSR, which the U.S. still disputes. The Arctic’s geographic position among the U.S., Russia, and Europe makes it a de facto location for competition to play out among these powers, and Russia’s and China’s investment ambitions are making the region a focal point of competition between great powers.

Key Takeaways

  • The Issue

    China’s extensive investments across the region are providing funding for the development of the Northern Sea Route and submarine Internet cables connecting Europe and Asia via Russia. The extent of Chinese FDI—and its critical role in Russian development of the Arctic and the Northern Sea Route—is the major point of friction driving U.S. intervention in the region today.

  • The Reaction

    The U.S. is leading the pushback against China’s increased Arctic presence and its economic partnerships with Russia. Having openly condemned China’s and Russia’s Arctic activities, the U.S. has pressured countries into canceling Chinese-funded commercial projects and has cited Chinese activity as a key catalyst for its renewed focus on the Arctic.

  • What’s at Stake

    Chinese investments provide billions of dollars in funding for Arctic economic development, with several nations courting investors to shore up local economies. Chinese investment is critical to developing Arctic infrastructure and access resources, and U.S. efforts to deter China’s regional presence will be highly divisive among Arctic nations.

The Breakdown
Chinese FDI in the Arctic Is Fueling Arctic Economic and Geopolitical Tensions
Since the early 2000s, China has invested extensively in infrastructure development and research partnership activities across all of the Arctic nations, cementing its presence as a key Arctic actor today.
  • GRAPHIC 6: Chinese Investment In The Arctic
  • GRAPHIC 7: Potential Shipping Routes
Click to expand

As the nation with the most Arctic territory, population, and investments, Russia represents the dominant player in the Arctic today, but its stature is being propped up by nearly $200 billion in Chinese investment—the most China has invested in any country. Development of the NSR is key to Russia’s control of the Arctic in the future and will potentially re-route trade from Europe to China through Russian waters. However, the U.S. has disputed Russian control of the Northern Sea Route for over fifty years, with that battle intensifying over Chinese involvement. Additionally, Chinese investments in the development of submarine Internet cable along the NSR (built in part by Huawei Marine), which would provide a high-speed Internet connection between Europe and China—are ratcheting up tensions given the U.S.’s prolonged and deepening fight to keep Chinese telecommunications technology, and specifically Huawei, out of Europe. The development of submarine Internet cables between Europe and China is likely to incite further pushback from the U.S., which has already worked with the Danish government to push Chinese investments in airport infrastructure out of Greenland and cancelled domestic Chinese investments in natural gas development. The scope of China’s Arctic investments and its impacts on future development of the Northern Sea Route for shipping and Internet connectivity are broken down below.

China Is Heavily Invested Across the Arctic, Driving Development and Controversy

Amid the global economic downturn and plummeting commodity prices, many Arctic nations, particularly Russia, Finland, Greenland, and Iceland, depend increasingly on foreign direct investment (FDI). To date, China is by far the largest foreign investor in the region—investing $1.4 trillion into the Arctic from 2005 through 2017 across a wide range of sectors. Chinese investments include billions of dollars in energy extraction in northern Russia, prospecting for minerals in Greenland, and a sealed strategic joint venture between Huawei Marine and the Finnish company Cinia Oy to build a submarine communication cable along the Northern Sea Route linking Europe and Asia. From 2012 through 2017, China invested in over 281 projects in Russia, with an average investment of $691.7 million per project. While other countries have made major investments in the Arctic—France and Japan are both co-investors in Russia’s LNG pipeline —China is by far the most active, with 884 projects. Recent Chinese investments, in particular, have been spurring heavy international pushback from the U.S. and Europe, given concern that Chinese investment in the Arctic is strengthening ties to Russia.

In 2019, planned Chinese investment in three Greenland airports was cancelled after the U.S. pressured the Danish government to intervene and cancel the contracts citing security concerns. Until 2017, the U.S. (primarily Alaska) was the second-largest Arctic investment market for China. Since then, that relationship is increasingly under strain due to mounting U.S.-China tensions over trade, intellectual property rights, and territorial claims. In response to the Trump Administration’s 2018 tariffs on Chinese goods, China placed retaliatory tariffs on Pacific Northwest seafood—Alaska’s largest export to China—endangering future economic relations. In July of 2019, Alaskan governor Mike Dunleavy scrapped a $43 billion natural gas pipeline deal between a private U.S. company and three state-owned Chinese companies signed in 2017. In his 2019 speech to the Arctic Council, U.S. Secretary of State Mike Pompeo specifically called increasing Chinese presence and strengthening Russian and Chinese ties as threats to U.S. and Arctic security.

Notable Private Sector and SOE Activity:
  • Chinese company General Nice Group purchased a Greenland iron ore mine in 2015.
  • Huawei Marine invested in building a submarine Internet cable along the Northern Sea Route in 2016.
  • The China National Petroleum Corporation and China Silk Road Fund invested in the Yamal LNG project developed by Russia’s Novatek in 2016.

However, given the precarity of their economies, particularly in the aftermath of the 2008 global financial crisis, both Greenland and Iceland welcomed Chinese investment. From 2012 through 2017, Chinese FDI in Greenland and Iceland accounted for 11.6 percent and 5.7 percent of overall GDP, respectively. In 2012 Greenland passed the Large-Scale Projects Act, which grants foreign workers rights in Greenland and creates a pathway for more Chinese workers to immigrate to Greenland. Investment in the Arctic is also a critical source of employment for Greenland, where unemployment rates reached as high as 10.3 percent in 2014. However, weak or unenforceable labor regulations in the Arctic mean that there is no oversight to ensure that companies extracting resources from the Arctic adhere to environmental standards. The increase of Chinese and Russian companies in the region, with no mechanisms to hold foreign companies responsible for environmental disasters, has raised concerns among a number of environmental organizations. Nevertheless, Chinese investment is critical to the continued development of the region. Private investment in extractive industries has not provided the expected economic boost for most Arctic nations, and China’s willingness to provide state-backed investment capital is key for commercial development across Greenland, Iceland, Finland, and Russia.

Graphic 6

Chinese Investment In The Arctic

A large influx of Chinese FDI accounted for a significant portion of Iceland and Greenland’s total economic output from 2012 to 2017.

PERCENTAGE OF GDP (TOTAL USD DOLLARS)

Russia

2.8%
($194.4B)

U.S.

1.2%
($189.7B)

Canada

2.4%
($47.3B)

Iceland

5.7%
($1.2B)

Greenland

11.6%
($2B)

Norway

.9%
($2.5B)
SOURCE: CNA Analysis and Solutions

With Help from China, the Northern Sea Route Will Potentially Re-Route Future Trade from the Suez Canal

Access to Arctic shipping routes represents one of the most contentious ongoing debates in the Arctic. Newly accessible shipping routes will pass through multiple national borders, more directly connecting Europe, Russia, and China. The two major Arctic shipping routes that are now navigable during portions of the summer months include the Northern Sea Route (NSR) and the Northwest Passage. The Northern Sea Route connects Asia and Europe, extending from Rotterdam to Shanghai. If the NSR can be successfully developed, it would re-route shipping trade currently moving through the Suez Canal. A strategic priority for China and Russa, it’s completion would save China billions of dollars in shipping costs and provide Russia with revenues through transit fees. In January of 2020, Russian president Vladimir Putin laid out an ambitious decree that aims to triple shipping through the Arctic from 31.5 million tons of cargo in 2019 to 90 million by 2030. However, achieving this goal relies on continued investment from China, which has already set aside $9.5 billion to invest in Russian Arctic development.

Notable Private Sector and SOE Activity:
  • Maersk conducted an Arctic voyage along the Northern Sea Route in 2018 and is actively exploring opportunities for future shipping activities. COSCO has completed roughly thirty voyages throughout the Arctic.
  • Other major shipping companies CMA CGM, Hapag-Loyd, and MSC have backed away from use of Arctic shipping routes, citing environmental concerns.

Controversy and competition swirl around the NSR due Russia’s territorial claims over the route; it exercises complete control over the NSR, and any ship passing through must obtain clearance from Russian authorities. According to the UNCLOS, the entire NSR lies within Russia’s EEZ. The U.S., which is not a signatory on the UNCLOS, claims that the NSR is in international waters, meaning freedom of navigation applies and Russia does not have legal jurisdiction over trade along the route. Despite the U.S.’s ongoing challenge to Russian control, the U.S. has not been able effectively mount a challenge or bring or nations to its side.

While currently transiting only a fraction of the amount of cargo of the Suez Canal—in 2019, only 31 million tons of good were shipped along the NSR, compared to 1.2 billion tons shipped along the Suez Canal—the potential volume enabled by climate change could transform global trade. Development of the NSR is estimated to attract $200 billion in investment over the next fifteen years, primarily for icebreaking vessels and ports. As the volume of cargo transiting through the NSR increases, it is likely to attract more investment from nations beyond China. Finland is a leading ship manufacturer and is already working with Russia to develop polar icebreakers, and India is exploring the possibility of importing Russian natural gas through the Northern Sea Route. The Northwest Passage, which connects New York to Shanghai by cutting through the Arctic along the Canadian and Alaskan coasts, is not yet as developed as the Northern Sea Route. In 2019, only twenty-seven ships passed through the Northwest Passage, down from thirty-one in 2017. However, if the Northern Sea Route can create significant economic gains as sea ice melts in the coming years, development along the Northwest Passage will also increase. As that development materializes, the Canadian sovereignty of the Northwest Passage—which the U.S. also disputes—will become a more central issue.

Graphic 7

Potential Shipping Routes

SELECT MAP TO VIEW
Shipping Routes Shipping Routes & Ice Concentration (July 2020)
arctic shipping routes
arctic shipping routes ice
Less Concentrated More Concentrated
Data Unavailable Median Ice Edge 1981-20
Solid lines represent active shipping routes. Dotted lines represent potential routes.
Northern Sea Route

Extends from Rotterdam to Shanghai (10,500 km/22 days); would potentially replace the Suez Canal route (18,000 km/37 days).

Northwest Passage

Extends from New York to Shanghai (16,000 km/32 days); would potentially replace the Panama Canal route (20,200 km/43 days).

Arctic Bridge

The Arctic Bridge links the Russian port of Murmansk and the Norwegian port of Narvik to the Canadian port of Churchill. It could be used primarily for the grain trade. Although this is not a completely trans-Arctic route, it is designed to connect two hinterlands (Northwest Europe and the North American Midwest) through the Arctic. Similar to the Transpolar Sea Route, the iceless conditions necessary to navigate the Arctic Bridge are not yet a reality.

Transpolar Sea Route

The Transpolar Sea Route (TSR) would potentially use the central part of the Arctic to directly link the Strait of Bering and the Atlantic Ocean of Murmansk. Using this route necessitates ice-free conditions, which have not yet been observed.

Submarine Internet Cables Will Digitally Connect Europe and Asia While Providing Monitoring Capabilities to Russia and China

Notable Private Sector and SOE Activity:
  • Cinia Oy and Huawei Marine are building submarine Internet cables along the NSR.
  • Quintillion is invested in building submarine cables to connect London and Tokyo.
  • MegaFon is the Russian telecom company that is working with Internet providers to deliver services from the submarine cable along the NSR.
  • Datakortet is a Norwegian data storage company that is working to use the NSR submarine Internet connection to expand data center operations.

In addition to shipping routes, melting sea ice is enabling companies to lay submarine Internet cable beneath the Arctic Ocean. Submarine Internet cables increase connectivity speeds and enable real-time monitoring of Internet traffic and underwater activity using acoustic sensors. In 2018, the Russian Armed Forces began construction on a submarine Internet cable along portions of the Northern Sea Route that facilitates monitoring of the Arctic waters between China and Norway. An additional submarine Internet cable along the NSR began construction in 2016, as a joint venture between the Finnish company Cinia Oy and the Chinese company Huawei Marine. Once completed, the submarine cable between Finland and China will allow Chinese monitoring along the NSR seabed, similar to China’s existing monitoring capabilities in the South China Sea. The ability to monitor the seas using Internet cables is a key point of contention with the U.S., since Russian submarine cables create a distinct military advantage along the NSR, which the U.S. considers international waters.

The ongoing confrontation over global control of the Internet’s hard infrastructure playing out over 5G will no doubt turn to Russia’s and China’s development of undersea Internet cables in the Arctic and globally. While the U.S. is raising alarms over China’s control of global 5G networks, China is intensifying its focus on undersea cables—which make up 95 percent of all data and voice traffic between continents. China’s Huawei, under its Marine Networks division, is constructing or improving nearly 100 submarine cables around the world. Despite potential U.S. pushback, the demand for submarine Internet development along the NSR is high—with Finland eager to develop its growing data center industry, and Japan also invested in the Arctic Connect project, hoping to access increased Internet speeds. The U.S. has already demonstrated a willingness to take extreme measures to block Huawei’s development of 5G networks internationally, blocking companies around the world from using American-made machinery and software to design or produce semiconductors for Huawei, pressuring governments to ban its Huawei hardware, and banning U.S. government agencies and contractors from operating on Chinese telecoms. The same pattern will potentially play out with submarine Internet cables. If more European and Asian countries adopt submarine Internet cables linked to China, that will imperil their future commercial and diplomatic relationships with the U.S. and potentially force them to choose between commercial ties to the U.S. or China.

Planned Submarine Internet Cable Lines
  • Arctic Fiber (2014): A $1.5 billion submarine cable linking Tokyo and London via Alaska and Canada. Submarine cables would pass through the Atlantic Ocean, the Canadian coast, the Alaskan coast, and the Bering Strait.
  • Arctic Connect (2016): A joint venture between Finnish company Cinia Oy and Huawei Marine to build a submarine communication cable along the Northern Sea Route linking Europe and Asia. The submarine Internet cables would connect Finland, Norway, Russia, China, Japan, and South Korea.
  • Russian Military Cable (2018): Russian construction of a submarine cable for military communications, which will stretch 12,700 kilometers on the seafloor across the Arctic Ocean to the border of Norway.

Looking Ahead: Commercial Competition Setting the Stage for Regional Defense Buildup

Melting sea ice is enabling increased access to the Arctic’s abundant natural resources, with tensions growing over the control of Arctic waters and major commercial implications—particularly for shipping routes and future digital connectivity. Additionally, the Arctic’s geographic position among Europe, the U.S., and Russia makes it susceptible to geopolitical confrontations among nations, sparked by events outside of the region. While the Arctic has been a region of international cooperation and peace in recent decades, increased U.S. and Chinese involvement in the region could upset this balance. The U.S. is likely to continue pushing back against China’s increased presence and against Russia’s assertion of control over the NSR and its military buildup. While European nations have been split on accepting Chinese investment, with economic and geopolitical considerations differing across countries, to date they have largely not opposed Russian economic development in the region. However, Russia’s increasing military presence has pushed Europe to begin collaborating with NATO allies to counter military activity in the Arctic. Russia’s military buildup presents one of the greater challenges facing the region, and militarization of the Arctic is likely to increase tensions in the region more quickly than competition over resources. In Part II of FP Analytics’ Arctic Competition Power Map series, we will explore Russia’s increasing militarization of the Arctic, China’s role, and the Arctic’s governance framework’s ability to manage competition among great powers.

READ PART TWO NOW:Military Buildup and Great Power Competition

Written by Christian Perez. Edited by Allison Carlson. Copyedited by David Johnstone. Design by Jon Benedict. Development by Catherine Snow. Art direction by Lori Kelley. Graphics by Juan Velasco/5W Infographics for Foreign Policy.

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