China Moves on Arctic Resource Potential

China Moves on Arctic Resource Potential

China hopes to utilize its growing economic clout and new Arctic council observer status to push for greater polar influence.

This year, the Arctic Council admitted six new nations as observers: China, Japan, India, Singapore, South Korea and Italy. The Council has become more important as warmer waters open the potential for trade and resource extraction around the North Pole. Climate change has highlighted the complex dynamic of economic competition and tangled sovereignty within the region. Currently, the United States, Russia, Denmark, Norway, Sweden, Canada, Iceland and Finland are full member states of the Arctic Council.

Explorers were long captivated by the promise of a Northwest Passage connecting the Pacific Ocean to the Atlantic through Canadian waters. Now, due to a receding ice cap during the summer months, such a passage has become possible and, with it, potentially large trade opportunities.

Across the Arctic Ocean, the Northern Sea Route hugs the coast of Russia and connects Asia to Europe. Rather than looping down past India through the Suez Canal, the Northern Sea Route is estimated to be 40 percent shorter for ships transiting between Japan and the Netherlands. Last year 46 ships were able to make the passage, up from four in 2010. With Asia increasingly a driver of global commerce, these routes could be potentially lucrative. Unsurprisingly, the newly admitted nations to the council were mostly strong trading Asian nations.

In addition to the potential for time saving trade routes, the Arctic ice caps have concealed large reserves of natural resources. A 2008 U.S. Geological Survey assessment estimated that the Arctic circle region contained 90 billion barrels of oil and 1,670 trillion cubic feet of natural gas yet undiscovered. This would represent 13 percent of the world’s undiscovered but recoverable oil and 30 percent of natural gas. Having exclusive access to these resources or controlling the means to extract them means higher energy security, more economic clout and better geopolitical positioning in a changing world.

However, rising powers like China will not sit idly while the northernmost countries claim their prize. By becoming observer nations, the six countries enhance their ability to influence the principal multilateral governing body in the region – but at a cost. Accepting membership entailed also accepting the current members’ position of sovereignty under international law. The UN Convention of the Law of the Sea (when followed) stipulates that a nation has exclusive economic rights within a 200 mile radius of its shores.

While China has ignored this in claiming islands in the South and East China Sea, it seems that it plans on utilizing other means to wield influence in the Arctic. Analysts have detailed the number of large deals China has struck with Russian and Icelandic energy firms to explore the region for natural resources. By lending money to European firms that may no longer be as strong as they once were – thanks to lingering aftereffects of the financial crisis – China can wield political power through economic leverage.

Investments in oil and gas exploration and subsequent extraction are both pricey and lengthy. Building pipelines or receiving terminals in ports for oil and gas are capital-intensive as well. With such long lead times, understanding which countries plan on fighting the strongest for applying the UN Convention of the Law of the Sea matters, as does whether a nation’s indebtedness might force it to outsource exploration and production capabilities to a country like China.

Further input by Asian countries makes sense given the number of consumers and energy demands of that region but it also brings into play the competitions and political alliances with those nations. Trusting in a multilateral council to ensure international law applies uniformly might be risky if political pressure or poor finances pressure other Arctic countries to cut deals. A firm might find itself boxed out after having planned a large investment. Accounting for this risk and advocating for accepted access rules would be a sound strategy.

About Author

Ned Pagliarulo

Ned Pagliarulo works for a Japanese press company, reporting on economics and government statistics. Ned received a BA in History with a minor in Japanese from Georgetown University in 2012.