A potential business hub is emerging in the Arctic, as the icecap is shrinking due to climate change. These emerging prospects will have their impact on the extraction of natural resources, navigable shipping routes that will have further geopolitical ramifications, and subsequently on the international economy, which needs to adapt to this harsh environment to gain profit. The Arctic region is suffering from meltdown. In the summer of 2012, the smallest measurement of the Arctic Ocean’s icecap was recorded since records started in the late seventies. Even if international efforts succeed in immediately slowing down climate change, we are still dealing with a permanent amount of heat, which is impossible to reverse. This is giving birth to a new arctic business hub due to the combination of the Arctic ice reduction, political attention and economic attraction of minerals and non-renewable energies, which creates hype about the industrial opportunities in the circumpolar North.
However, the parties involved in developing the Arctic are challenged and face expensive futures because of harsh environmental conditions, the lack of research, knowledge, and the infrastructure to benefit sustainably and efficient from the Arctic’s reserves.
The Arctic constitutional structure is based on the existing national governments that border the region (Denmark via Greenland, USA, Norway, Iceland, Russia, Canada); international UN frameworks that clarify how the nations’ continental shelves extend beneath the sea; and the intergovernmental Arctic Council, which coordinates and interacts among the Arctic states to promote cooperation. The key sources of dispute between stakeholders in the Arctic region and ocean are: control of extraction and natural resources, control of shipping routes, defence, security and territorial claims to certain areas in terms of sovereignty.
The increased commercialisation of the Arctic also frightens stakeholders relating to environmental factors such as waste, oil spills, and exploitation of one of the last true wild spaces on earth. Parties are represented on both sides of industrialising the Arctic in terms of the bordering nations and their companies, the international marketable interests, while environmentalist organisations try to prevent industrial development, and prefer to see the Arctic as a global nature reserve. In between, more democracy-orientated NGOs have focused on settling for the Arctic peoples the better, proper negotiation of claimed areas of the Arctic and opening of business opportunities.
Shipping and tourism
As the waters become more navigable, trans-Arctic shipping routes are emerging. Already those passages are now accessible for a short time during the warmer Arctic months, which is hoped to contribute to logistics savings. The opening shipping routes may even spike global environmental profits from the reduction of fuel consumption and greenhouse gas emissions as the frozen waters disappear. With a too narrow Panama Canal for larger crafts, and a currently politically unstable Egypt that controls the Suez Canal and the necessitates of crossing the pirate-plagued Arabian Sea, the new routes are seen as alternatives. For instance, the Bering Strait is a wide, deep and pirate-free potential distribution channel between Alaska and Russia uniting the Arctic and Pacific Oceans. As a result of the sea-passage changes, the Arctic experienced 1 million tons of cargo shipped in 2012, and from 2008 to 2012 the Bering Sea alone experienced a 118 per cent increase of transits and shipping.
The Northwest Passage can save 7.000 km to the US Atlantic Seaboard route, while the Northern Sea Route of Russia offers a 10.000 km shortcut to the EU states from Asia bypassing the most inaccessible and unsafe seas in the world. The shipping industry is therefore likely to see a growth in production of ice-breakers and the development of navigation systems that can navigate in the anticipated dangers of the Arctic Ocean, as the icy conditions change very fast, with potential results in loss of life and environmental damages. Additionally, it has been estimated that 1 million tourists paid the Arctic region a visit in 2013.
This confirms the various types of developing alternative attractions in the Arctic, such as hunting, fishing, extreme sports, expeditions, ethnographic, historical as well as educational tourisms. With shipping only to increase, as well as the minor cruise ships in these waters, it could be a question of time that sub-surface icebergs will cause harm to the unequipped. This sheds light on securing the navigational challenge and establishing a unit for search and rescue (SAR) purposes, as the Arctic sea routes develop.
Drilling and mining
Arctic extraction already exists and is developing. Yet, it is occurring much slower than first anticipated. Among others, the oil company Royal Dutch Shell, has had difficulties with their exploratory wells in 2012. Ships did not meet the environmental requirements and drilling platforms went aground. The drilling industry justifies their broad Arctic existence and investments by having a responsible and sustainable approach towards releasing unexplored fossil fuels. Recognizing the challenging offshore environment that requires proper oil spill response ability, eight companies of the global drilling industry are behind the preventive International Association of Oil & Gas Producers joint industry programmes on oil spill responses in the Arctic. The companies are developing standards relating to the Arctic and to expand operational knowledge. However, the USA is not yet ready to respond according to a recent report by The National Research Council.
As the increasing Arctic Ocean drilling comes with the parallel risk of harmful and irregular oil spills hidden from visual observation due to shields of drifting ice, methods are currently under development using high-frequency sonar chirps to reveal oil under ice or trapped within ice. However, environmentalists argue that companies and governments that caused global warming now are looking to profit from exploiting the environmental changes. Greenpeace, for example, has drawn attention to Shell’s Arctic drilling activities specifically through their comprehensive advertisement campaign: “Let’s Go! Arctic”, with the purpose of making the company leave the region.
Metals, rare earth types and high value minerals such as diamonds and gold are open to being mined. Major projects like a USD 15bn Greenlandic iron mine 150 km north of the capital Nuuk has, in October 2013, received the acceptance to start working, and will alone double the country’s GDP. It is expected to bring approximately 3,000 workers, mostly Chinese, to Greenland for mine building and operation of the demanded infrastructure.
However, the self-governing Greenland still relies on Denmark, as Denmark still has the responsibility for Greenland’s foreign affairs and defence. A game changer for the Greenlandic mining industry could be the granting of permission to extract radioactive substances such as uranium, which could be a dynamic point in Arctic history, both economically and culturally, as well as politically, due to the strategic importance of the element for the nuclear power and defence industries.
The potential new shipping routes save transit days and costs in travel and transportation, and thereby it might be possible to see slow changes in global trade patterns. The new routes are called by China The Golden Arctic Waterways, because of its potential efficiencies, and in August 2013, the first 19.000 tonne Chinese vessel had already done a test route through the Northwest Passage. Dockyards in India, South Korea and Singapore already bulk up with ships that have structures and hulls capable of resisting the glacial waters of the Arctic. However, the severe environment, which makes it difficult for the approaching companies’ adaption in accordance to shipping as well as drilling, challenges the Arctic development. The region might additionally experience competition from Iceland, which already has much of the required infrastructure for commercialisation.
With greater industrialisation comes social change. These factors have implications for an Arctic that already is home to four million inhabitants and diverse cultures. The melting Arctic ice will have its impact not only on the indigenous people, as the rest of the world will also experience the consequences of the rising global sea levels, as well as experiencing anticipated oceanic and atmospheric circulation changes.
It is crucial that the mentioned stakeholders will agree on corporate policies, to meet the sustainability requirements and standards of operation in the Arctic, and that decision-making relies on scientific research and development with a long-term perspective. Short-term focus is not enough to secure the Arctic, and to prevent climate refugees from low-lying islands and flooded cities due to melting Arctic ice, especially if the increasing Arctic activities will only be ‘business as usual’.
Both the UN and the approaching energy companies claim to have a sustainable approach, which leads to the question: is being sustainable enough? Sustainable means to get further with less for longer, which in figurative sense just means to be less damaging. In commercial contexts, UNESCO recommends that involved countries and companies follow very stringent standards to protect the environment, and that sustainable approaches such as the use of renewable resources should be promoted in Arctic business. A scenario is likely that the comprehensive extraction plans and realisation of commercial shipping routes may get further postponed because of the physically hard and highly demanding environment’s unreliable impact on business plans, as well as the political ramifications encountered.
Even though the region is under international monitoring, it remains one of the most difficult environments with regards to logistics and conducting scientific research, and therefore the Arctic region remains one of the world’s less studied places. The sustainable development, unexplored natural resources, economic growth, protection of the ecosystem, the potential acceleration of climate change, as well as the lack of infrastructure, all have a common denominator – the lack of scientific evidence and data, along with resilience, in the region. However, the involved parties are arming up with a contingency approach to protect their interests, and they are open to international cooperation and collaboration to benefit from, and to adapt to the new opportunities that this emerging market offers.
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