BUS604: Innovation and Sustainability

The most strategically sensitive resources are the new maritime lines of communication opened by receding ice. The new routes present an opportunity for unprecedented efficiency, with 40 percent distance reduction, and similar reductions in fuel and CO₂ emissions.  Significant savings are possible in time, fuel cost, and insurance cost, with shorter distances and the absence of insurance 'piracy premiums' for the passage between the Gulf of Aden and the Suez Canal.

China is particularly interested in the Arctic, because the route from Shanghai to Rotterdam or Hamburg across the Northern Sea Route over Russia is 10,000 km shorter than through the Panama Canal; or 6,400 km shorter than through the Malacca Strait, Gulf of Aden, Suez, and Gibraltar. The route from Shanghai to New York is 3,000 km shorter through the Canadian Northwest Passage than through Panama. For supertankers that normally go around the Cape because they are too big to pass through the Suez Canal, the prospect of a northern route is even more profitable, although with a greater distance from the shore they might need to lease an escort to break the ice.

The natural trends differ between Russia and Canada, however, resulting in different policy and strategy priorities. While in Russia the receding ice has already created new northern shipping opportunities for seasonal transit, the ice will not disappear from the Canadian Northwest Passage any time soon.

Even if the Arctic is ice-free, the Canadian archipelago will be the last to clear its sea ice.

But not all shipping will concern serious transit and energy. There will also be leisure. More than five million tourists visit the broader Arctic each year and cruise tourism in the northern seas currently represents 10 percent of Arctic shipping.  Because tourists want to see "cool stuff",  cruise tourism may become a very hazardous activity for which search and rescue capabilities are currently inadequate. A major shipwreck could have disastrous consequences. In 1989, the Soviet cruise liner TS Maxim Gorky crashed into an iceberg, but the Norwegians managed to rescue everyone on board because they happened to be close.

For these reasons, Russia is currently investing the most in building the infrastructure to support and secure increased economic activity, in all areas of transport, energy, and natural resources. Canada and Russia are careful about admitting unrestrained shipping to the northern routes, for reasons of sovereignty and environmental protection. But with the right conditions and management, both countries stand to gain from overseeing viable trade routes. These passages are the principal reason that China and the European Union have been clamouring to be admitted as permanent observers to the Arctic Council, in order to secure non-discriminatory trade privileges. Russia has a keen interest in developing effective logistics for the Northeast Passage, not only to support transit, but especially to bring Russian resources to the world market.

The new trade routes are strategically the most sensitive issue in the Arctic. Their success will depend very heavily on great power relations, because in the Bering Strait, Russia is on one side, the US on the other, and China is in between. If one of the three has a problem with any of the other two anywhere in the world, the Arctic would be the place to cause a nuisance. A standoff is unlikely to be initiated in the Arctic itself. However if tension builds up between the US and China in the South China Sea, the Chinese could counter this in the future by sending a nuclear ballistic missile submarine (SSBN) to the Polar Seas or carrying out another military action in the Arctic that could trigger a more systematic militarisation.

Developing northern trade routes still requires big investment in specialized shipping and icebreaker capacity; in refueling and support logistics; and in search-and-rescue capabilities. The big question is when these routes will be ready for maritime transit traffic on a larger scale. A quick answer is that it will happen when these investments are covered by the revenues they generate.