Russia’s Arctic Dreams Have Chinese Characteristics

The most significant geophysical event on our planet since the end of the ice age is taking place today—the opening of the Arctic. As the High North maritime environment warms, the Arctic Ocean’s abundant energy, minerals, fish stocks, and other natural resources are becoming increasingly accessible, while new potential maritime routes promise to reduce shipping times and costs and accelerate ties between major commercial centers. These new opportunities for energy development, natural resources extraction, and shipping suggest that the region risks becoming an arena of intense competition, tension, and potentially even confrontation, not only between the United States and its two near-peer strategic competitors—China and Russia—but also among other Asia-Pacific states with observer status in the Arctic Council.

Without question, the Arctic Ocean region is emerging as a new geopolitical and geoeconomic landscape with significant security and environmental implications for the United States as well as for U.S. allies and partners in Europe and Asia. Whether the region remains a venue for multilateral cooperation and sustainable development or becomes an arena for great-power competition is highly uncertain. Aside from the impacts of a warming climate, two key geopolitical developments will shape the Arctic’s future: (1) Russia’s extensive extended continental shelf claims and its willingness to abide by an impending “recommendation” by the UN Commission on the Limits of the Continental Shelf (CLCS), and (2) the role of China as a strategic player and self-described “near Arctic” state whose ambitions are highly uncertain. By analyzing and monitoring Sino-Russian energy cooperation in the Arctic as a signpost, concerned stakeholders and policymakers can draw inferences about the potential for broader strategic collusion between Russia and China in the Arctic that could challenge regional security, multilateral governance, and international law.

Russia’s Ambitions in the Arctic

Russia’s vast landscape dominates the Arctic, with its northern coastline spanning nearly half the circumference of the Arctic Circle. Even so, Russia has spent the past fifteen years working diligently to further increase its share of the Arctic through the addition of 1.2 million square kilometers (463,000 square miles), an area almost three times the size of California.[1] Russia’s extended continental shelf claim reaches 150 nautical miles (nm) beyond its exclusive economic zone (EEZ) into the international waters of the Arctic Ocean as far as the North Pole. Moscow initially submitted its claim to the Lomonosov and Mendeleev Ridges in 2001, which the CLCS noted lacked sufficient documentation. After several years of additional research, Russia submitted a revised claim in August 2015 that included the Mendeleev elevation, and in February 2016 it added the Chukchi high plain to the claim.[2]

Overall, most of these oil and gas resources are located in shallow water near the coastline or onshore. Given the challenges in operating in the deepwater offshore Arctic, Russia is prioritizing development of the shallow waters of the Barents and Kara Seas, as well as onshore on the Yamal Peninsula in conjunction with a planned expansion of the Northern Sea Route.

Russia’s Wary Look East

A key driver of Russia’s long-term Arctic strategy is to defend its perceived sphere of influence in the Arctic and its extended continental shelf claims against the threat of internationalization led by these Asian observers, particularly China. Russia’s extended continental shelf claims overlap with the international waters of the Arctic Ocean’s high seas. Known as the “donut hole,” this central area is beyond the reach of the five Arctic-state EEZs (belonging to Canada, Denmark, Norway, Russia, and the United States) and is considered part of the global commons. Non-Arctic states, particularly Asian observers, look to these international waters for opportunities to secure a strategic foothold in the region and harvest their perceived fair share of Arctic resources.

While China has not yet articulated an official Arctic policy, it claims to be a near-Arctic state with legitimate rights and interests in the Arctic. In 2010, retired rear admiral Yin Zhuo notably declared that “the North Pole and the sea area around the North Pole belong to all the people of the world.”[5] This statement has been frequently interpreted by analysts on both sides of the Pacific to mean that China believes that no country can have sovereignty over the Arctic. This interpretation has had a long shelf life, given that Beijing has not yet clarified the scope of its interests and ambitions in the region.

History has repeatedly demonstrated that Russia and China will remain strategic competitors regardless of their many shared interests. However, since 2014, the combination of low oil prices and targeted sanctions by the United States and European Union have significantly restricted Russia’s plans to develop Arctic oil and natural gas. Without access to key technologies from these countries and international financing, Arctic greenfield projects will not likely be realized. Despite Russian concerns over China’s long-term ambitions regarding the Arctic’s global commons, China is positioning itself as an indispensable partner in the development of Russia’s Arctic zone.

Nowhere is this more evident than with the Yamal liquefied natural gas (LNG) project, which symbolizes the growing asymmetry in the energy relationship between Russia and China. Located deep within Russia’s Arctic zone, the project has been subject to sanctions targeting Arctic development generally and Novatek specifically. As a result, the project’s ability to move forward has been largely dependent on China’s participation throughout the value chain, including as an upstream equity partner, strategic investor, lender of last resort, LNG buyer, tanker operator, and even equipment supplier.

New Model for Arctic Development?

While China positioned itself as an indispensable partner in Yamal, it is not yet a preferred partner. Instead, Russia has preferred to partner with mostly international oil companies (IOC), which, in addition to finance, bring to the table the business acumen, cutting-edge technology, and project management experience to develop resources at lower cost. Rosneft’s deals with Statoil, Eni, and ExxonMobil that were signed in 2012, and stalled by targeted sanctions, demonstrate this preference. Even when Rosneft has contracted with China Oilfield Services Ltd. to conduct exploratory drilling in the Sea of Okhotsk and seismic surveys in the Barents Sea, it has done so in the context of its strategic partnership with Statoil. Should sanctions be lifted, Rosneft will quickly seek to resume its strategic partnerships with IOCs.

However, the scope and durability of China’s role in the Arctic can only be tested once sanctions are lifted. Even then, China will face increasing competition from other Asian national oil companies, in addition to IOCs, as the Arctic becomes internationalized and more integrated with East Asia. In particular, Russia is looking to develop partnerships with the other Asian observer states—India, Japan, Singapore, and South Korea—rather than risk the Arctic becoming a resource appendage to China. Ultimately, China’s role in the region may be limited by Russia’s need to hedge against the risks of a Chinese monopsony.

Full article: Russia’s Arctic Dreams Have Chinese Characteristics (NBR)

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