A recently released report prepared by POLARISK highlights political, geo-political, security and regulatory economic risks in the polar regions for 2015. The report tries to answer one essential question.
"how will D.C. policymakers (re)define the role that both the US and the Arctic Council should play in the Arctic? For other Arctic players, including non-Arctic and near-Arctic stakeholders alike, much depends on America’s answer. Said differently, the coming year will be the one during which we will finally know if the US are ready to dare being an Arctic leader or keep playing their somewhat comfortable waiting game.
As Ian Bremmer would say: “the realities of a G-Zero order, a world of geopolitical creative destruction without global leadership, are evident.” 2015 will have companies and countries rethink their Arctic strategies to adapt to the changing regional geopolitical order. Overall, the Arctic and the Antarctic have close to nothing in common besides the fact that they will be HOT geopolitical flashpoints this year, yet again."
The report identifies and reports on the following risks in the rapidly warming Arctic as follows:
• Russia’s Arctic re-militarization
Arctic ice is melting before our eyes, In this regard, in order to understand the geo-strategic consequences of the Arctic’s increased navigability and exploitability,
recent developments in the High North should be regarded not only from the perspective of the never ending competition against the West, but also from the
perspective of Russia’s will to assert its authority and power in what it considers to be its backyard.
From a security standpoint, Russia’s Arctic military buildup is neither a response to NATO’s own build-up (there is none), nor a preventive response to a future NATO threat.
On the one hand, communicating on its Arctic build-up helps Moscow assert its power and control on “its Arctic” onshore (vis-à-vis the local elites) and offshore (vis-à-vis
western Arctic competing states). On the other hand, it helps Russia to establish itself as the key safety actor in the area. In a sense, Putin's Arctic projects, such as the fully operational availability of SAR bases by the end of 2014 on Russia's shoreline or the
Russian Arctic Army program (100 bn USD per year for a RAA fully operational by 2020), are not only defensive but also the realization of a structural mastering of its
Northern fringe.
Russia shall remain politically independent from the West, closing in with rising Asian powers when necessary. In that sense, President Putin is not more unpredictable
than any other leader. Russia cannot afford to start a conflict in a first-shooter position today. Consequently, Putin applies an I.R. concept that has been long forgotten
by many reporters and analysts: the notion of strategic surprise. Crimea was a strategic surprise, so can be the Arctic and Antarctic.
• The battle for the North Pole
Danish officials presented their claim to the United Nations for about 895,541 sq.km. beyond the coast of Greenland – an increase of more than 150,000 sq.km. compared with the original claim. The submission makes Denmark will become the first country to lay formal claim over a part of the Donut Hole, and especially over
the geographic North Pole. The move will put Denmark in conflict with Canada and
Russia. The three countries’ claims are expected to overlap one another because they each lay claim to parts of the Lomonosov Ridge, which stretches 1,800km from
off the coast of Greenland and Canada to Siberia. At this point, Canada and Russia are still gathering data to support their own High Arctic claims.
• Global economic and financial markets
Going further, regardless of global spot prices, we have long argued that if Arctic energy developments are led by profitability rationales, almost half of Arctic oil and gas
programs are actually primarily led by politically motivated geo-economic rationales. Located mostly in the Eurasian Arctic, most of them are onshore programs
for a few offshore ones. Even if Cairn, Chevron and a few other companies have
already canceled some of their Arctic plans for 2015; Even if the US brings one more million barrels a day on the global market as soon as Q2 2015 thanks to the lifting
of crude oil export restrictions; Even if markets get panicked because Greece exits the
Eurozone and a barrel of light crude costs $20; At the current level of sanctions hitting Russia, we expect at least Statoil, Rosneft, Gazprom, Lukoil, CNPC, CNOOC,
Total and Petrovietnam will keep moving forward on
their Arctic programs this year.
• Misinformation on the Arctic
Whether we read on security, economics, development, ice melt, geopolitics, and even social issues like the #Sealfie movement, what’s being printed in Arctic media gets very often distorted once the information crosses the Arctic Circle southward.Many journalists, desk analysts, and even experiencedacademics who are new to Arctic affairs make the same mistakes. They all talk ‘The Arctic’ when they should actually talk about the ‘Barents Arctic,’ the ‘Alaskan Arctic’, ‘Nunavut’, let alone name Arctic regions by their names, and so on. They often fail to discriminate onshore developments from offshore ones. They almost always fail to mention that the 2008 USGS study on hydrocarbon resources across the Arctic actually dismisses shales and several other non-conventional resources. Those reporting on infrastructure often place Arctic shipping routes in competition with the trans-Eurasian “new silk road”, the Suez, Panama and Nicaragua canals, when they actually don’t and won’t.
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We’ve decided to label inexact and biased reporting as a “top polar risk” because it has led to bad political and economic decision-making, already costing hundreds of
millions of dollars to ill-informed investors, as well as leading to the publication of ill-informed yet official strategic assessments by several non-Arctic countries.
• China
In May 2013 in Kiruna, Russia wasn’t happy at all to let China become observer to the Arctic Council. Since then, Russia has started its pivot eastward. Moscow’s new best
friends seems to be New Dehli, Pyongyang, Ulan Bator and Beijing. The bear and the dragon have always had this love-hate relationship but it now seems to be stuck
on the “friends” mode. All Arctic projects considered, China is committed to invest more than $500bn in the Russian Arctic. What’s more? The central banks of China and Russia signed a 3-year ruble-yuan currency swap deal up to $25bn last October, a swap launched on December 29. Internationalizing the renminbi, Beijing plays long strategic game with ruble deal. And when the ruble crashed in mid-December, China did nothing less than bailing out Russia.
• Weaponization of the Canadian Arctic
The 2015 federal elections in Canada will bring a whole new level of implications for Northern Canada, and, in return, the main contenders will very much use Northern
issues as propaganda elements. Said differently, Northern issues, which are poorly known in the general public but have strong political drama potential, are likely
to be used as cheap weapons by the three main parties.
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With regards to the Canadian Forces’ capabilities in the Arctic, the campaign is first likely to revolve around procurement issues, namely whether Ottawa can buy
icebrakers and what to choose between Lockheed Martin’s F-35 and Dassault’s Rafale
Secondly, the campaign is very likely that two of the main stakes regarding the Canadian Forces capabilities in the Arctic will be both the Nanisivik Naval Facility and the
Canadian Armed Forces Arctic Training Centre (CAFATC).
In fact, the Nanisivik Naval Facility will be constructed on the Baffin Island, Nunavut. It was announced by Canadian Prime Minister Stephen Harper in August 2007 that
Nanisivik would have a docking and refueling facility for the Royal Canadian Navy. The facility would further maintain a Canadian military presence in the Arctic during the navigable season.
• Unsustainable developments
It is often mistakingly reported that France’ s Total has given up on the Arctic. If it is true that Total backed off from many projects — including a very promising JV
with Russia’s Lukoil to hunt for shales in Eastern Siberia — the French oil company still has a 20% stake in Yamal LNG, alongside Novatek and CNPC.
What Total’s late CEO Christophe de Margerie said in a famous interview with the Financial Times back in 2012 was that Total would refrain from drilling in icy waters.
The reason he then gave was as simple as can be: if an oil spill were to happened up there because of Total, its shares would be instantly worthless and the company
would be bought off in a week.
He could have also added that such a spill would close down the Arctic market to nearly all Western company in record-time due to the fact that the event would have brought public scrutiny levels on Arctic stuff to record heights. Indeed, together with political, regulatory and operation risks, reputational risk is undoubtedly the most important aspect of any Polar investment. Reputation risk applies to companies, individuals and countries alike.
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That said, such reputational risks have never bothered most Russian and Chinese Arctic operators. Western companies know they must engage in true corporate social esponsibility efforts. Some play the game, some don’t — and lose more than 5 billion USD playing like Shell in Alaska.Eastern companies and investors tend to overlook sustainability and transparency gains… until they become hard costs.
• Arctic protests
Greenpeace attempted some spectacular offshore publicity stunt every summer since 2007, feeding the media frenzy surrounding the exploration of Arctic resources. Beware, oil rig owners and operators… in 2015, they will be back!
These questionable stunts in remote areas may be a clever way for them to garner extra-Arctic financial support, but the slightest miscalculation could result in a
human disaster. The line between what is ‘civil disobedience’ and what constitutes an attack is thin.
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In 2015, we expect Greenpeace to aim even further eastward, going after Shell in London, in the Netherlands and in Alaska.
• Other polar issues
COP 21 - PARIS
In December, the world meets in Paris to try to reach a consensus on a binding treaty on carbon emission reductions and the creation of the global green fund. France has chosen to include “the fate of the Arctic” as part of the debates despite it being a possible dealbreaker. France will publish an Arctic roadmap this Spring with more details — that being the first step towards France crafting a formal Arctic strategy.
ICELAND FX CONTROLS LIFT
Encouraged by positive growth rates, inflation below the target and a considerable trade surplus, the Governor of the Icelandic Central Bank recently revealed that “currency controls will be gone in 2015 or early in 2016.” The Icelandic economy may ready to cope with the lift, but will Icelandic banks appear credible again to foreign investors and FX shorting traders think they are?
EUROPEAN UNION’S FIRST ARCTIC STRATEGY
As requested by the European Council, the European Commission will publish the EU’s first official Arctic strategy by December 2015. Russia’s expected veto regarding the EU’s full accession to observer status at the Arctic Council’s Iqaluit ministerial meeting may have an impact on the way the EU promotes its strategy and on the way its Arctic member-states respond to the document.
ARCTIC ECONOMIC COUNCIL
Finally created after 18 years of gestation, the AEC is the main success of the Canadian Arctic Council chairmanship. It is the first states-sponsored pan-Arctic forum for economic affairs gathering experts and business leaders from all Arctic Council member states. The US will have the pursue the work initiated by Canada and will have to welcome experts and business leadersfrom non Arctic Council member states to
GENERAL ELECTIONS IN FINLAND
An EU member state, Finland may be greatly hurt by the russian sanctions this year, with up to 200.000 jobs being in jeopardy. Discussions on security, NATO, Russia’s
airspace violations & increased SIGINT capacities across the Lapland border, will be campaign feats to watch.
THULE AIR BASE
During Greenland’s 2014 snap election, the US Department of Defense terminated its decades-longcooperation with Danish service company Greenland Con regarding the daily management of USAF’s Thule Air Base (Northwest Greenland). The 21st CSD 1 at the US Embassy in Copenhagen, responsible for contract negotiations, chose Vectrus to service the air base for the next seven years. Vectrus is a Danish subsidiary of the well-known Virginia-based military contractor Exelis Inc. Capitol Hill has made it very clear this past summer: US Arctic military assets shall be maintained and serviced by US businesses so as to restore a certain level of independence vis-à-vis Arctic operations. While it upsets Greenland’s opposition party Inuit Ataqatigiit, it seems the State Department and the DOD agreed with the GOP.
Fasten your seat belts. It's going to be a bumpy ride.