Monday, August 26, 2013

Asia Eyes The Arctic

The admission this year of six new permanent observers to the Arctic Council was a pivotal moment, in more ways than one.

In May this year, Japan, China, India, South Korea, Singapore and Italy were admitted as permanent observers to the Arctic Council—a forum bringing together the eight Arctic member states (United States, Canada, Norway, Denmark (via Greenland), Russia, Sweden, Finland and Iceland), indigenous Arctic populations, and other interested parties to discuss a range of issues posed in this unique region. Formed in 1996, the Council and its work has been attracting growing worldwide attention in the wake of the record low levels of sea ice coverage documented in the summer months of 2007—a  record which itself was broken last year.

That five of the six new observers to the Council are Asian states reflects two developments: first, the great interest of these states in the commercial opportunities made possible by a transformed Arctic region; and second, the Council’s need to reinforce its position as the preeminent body for the discussion of Arctic matters. Taken together, these developments suggest that the future of Arctic affairs, both inside and outside the Council, is likely to be far more complex and far more influenced by Asian actors than has been the case to date.

The economics supporting the Asian observers’ interests in the Arctic are well known. 
Increasingly long ice-free periods in the North West Passage (NWP) and the Northern Sea Route (NSR) due to the effects of climate change raise the prospect of a quicker and cheaper transit for Asian products destined for Europe than that currently provided by the Strait of Malacca and the Suez Canal.

In a speech given a few days after South Korea was accepted as an observer, its Vice-Minister for Foreign Affairs estimated that by using the NSR, travel time and distance between the shipping hub of Busan and Rotterdam would be reduced by about thirty per cent – leading him to refer to the new route as the “Silk Road of the Twenty-First Century.” Shipping in the other direction—from Europe to Asia via the NSR—has also begun, with the first Japanese-owned ship carrying Russian iron ore concentrate from the Kola Peninsula to China in 2011. Presently, China is attempting its first commercial transit of the NSR, expecting the journey time between Dalian and Rotterdam to be reduced to 35 days, instead of the usual 48 days. The dangers associated with the traditional Suez Canal route—namely, piracy around the Horn of Africa—only  adds to the appeal of new Arctic shipping lanes, despite the considerable uncertainty that still surrounds their viability in one of the world’s harshest environments.

Should regular, commercial, maritime activity in the Arctic become a reality, then this is likely to be a mixed blessing for global shipping hubs such as Singapore and South Korea. On the one hand, less traffic to these hubs as companies increasingly choose to “go over the top” means the direct economic contribution gained from marine transport will drop. On the other, the expertise these states have in related areas—including port infrastructure management, ship-building, plus offshore and marine engineering—will itself count as a valuable resource, particularly for certain Arctic states with an eye on the burgeoning economic opportunities in the region, but with little up-to-date experience in these areas.

A second economic rationale underpinning Asian observers’ interest in the region is its resources. 
The U.S. Geological Survey has estimated that the Arctic contains 30% of the world’s undiscovered reserves of natural gas, and 13% of its undiscovered oil. The same survey suggested around 84% of the Arctic’s estimated resources are located offshore. While global prices for these commodities remain high, there will be a strong incentive to explore recovery options despite the high cost and high risk involved.

Already this year, the China National Offshore Oil Corporation (CNOOC) has submitted a joint application with Eykon Energy to Icelandic authorities for a license to explore and produce oil and gas in Arctic waters. Other recent deals by Chinese companies in relation to oil, gas and mineral exploitation in Russia and Greenland have already been documented. Similarly, the state-owned Korea Resources Corporation (KORES) signed a memorandum of understanding in September of last year with Greenland to pursue joint ventures with respect to rare earth elements, tungsten and cobalt. The cash infusion and know-how provided by Asian states to local resource companies has made it possible for these projects to proceed, given the ongoing budgetary constraints faced by many Arctic and/or European governments in the wake of the global financial crisis. To the extent that such activities become important sources of revenue for Arctic states, then their domestic politics are also likely to reflect the growing influence of the partnering Asian states. The Diplomat Photo Credit: NASA Goddard Photo and Video

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