Lloyd’s of London, the British insurance company, and Chatham House, a London-based think tank, have released a report together entitled, “Arctic Opening: Opportunity and Risk in the High North.” The report states that four key industries will be the “biggest drivers and beneficiaries of Arctic economic development.” They are: mineral resources (oil, gas, and mining), fisheries, logistics (including shipping), and Arctic tourism. Thus, governments and corporations are much more likely to profit from growth than the people and wildlife living in the circumpolar region. Yet while governments and corporations stand to gain the most, there are still risks involved. In this blog post, I will focus on the geopolitical risks for companies. They are not likely to materialize, and environmental disasters are much more of a palpable threat. However, they are still interesting to consider given the strategic nature of the Arctic.
The report encourages the eight Arctic Council member states to take the lead and enact regulations to prevent disasters from occurring up north. Risky situations, however, could arise from the very fact that there are eight countries in the Arctic, all with separate (though sometimes overlapping) interests and strategies. The report notes that “The Arctic is not – nor is it likely to become – a truly single regulatory space, even while the Arctic Council, Arctic states and other interested parties are increasingly forging common approaches to shared challenges” (p. 9). There may be shared challenges, but there is not shared territory. That is why there are geopolitical risks in the Arctic.
Two of the discussed risks seem to be quite unlikely. The first is that terrorists will target Arctic installations with “substantial commercial and environmental risk,” such as a research station in Svalbard or an offshore oil platform. Given the difficult nature of operating in the Arctic for an established company, it would be much more tricky for terrorists to reach a remote installation and successfully carry out an attack. Granted, security in the way of border patrols and customs agents would be minimal, if not non-existent. Yet a significant amount of defense is already provided by the adverse conditions of the Arctic.
The second unlikely geopolitical risk is that military tension between Arctic states could potentially compromise Arctic installations. Since some of countries main interests in the Arctic involve getting companies to successfully operate in the region, it is unlikely that military conflict would break out – and even then, countries would presumably (and hopefully) keep private installations unrelated to the conflict out of the line of fire given the vast expanse that is the Arctic theater.
The two more interesting and slightly more plausible scenarios are as follows:
The April 20 Trebs oil spill in the Nenets Autonomous District in Russia’s Arctic is one example of the risks of oil drilling up north. 2,000 tons of oil have contaminated some 8,000 square meters of land, and it is possible that they affected another 6,000 square meters as well. As it stands, the situation does not look so bleak: much of the oil spilled onto snow, much of which must be recovered by hand. It is a painstaking process, but once gathered, the snow be melted and burnt for fuel. As of May 5, 1,713 of the 3,000 cubic meters of oil-contaminated snow have been removed. The same is not possible when the oil is a thick slick floating in the Arctic Ocean. Had the oil spill occurred offshore, it could have been much worse. The Lloyds report notes, “Managing risk in the offshore Arctic and insuring it is likely to be costly.” That is because the stakes are so high. Offshore oil spills can eat away at a company’s profits, but it is really the people and ecosystem which will suffer the most. The report advocates ecosystem-based management that looks at the cumulative effects of development, rather than just the effects of a one-off project. This is a smart recommendation, but hard to put in place when budgets in many Arctic regions are touch and go, and projects depend on the whims of capitals down south.
As the Lloyd’s report demonstrates, there are plenty of opportunities in the Arctic, but plenty of risks as well. The risks and rewards are not equally borne: Indigenous peoples and the environment will shoulder more of the former, while companies will win more of the latter. The report states that up to $100 billion stands to be invested in the Arctic, but the risks of everything from oil spills to shipwrecks to geopolitical tensions are much harder to quantify.