How the Arctic Ocean could transform world trade

Melting northern waters attract Asia’s commercial giants, but they will need the help of Arctic nations to succeed.

The Chinese research vessel and ice-brea
Ice-breakers are needed for cargo ships travelling across the Arctic Ocean [AP]

China, the world’s largest trading nation, suffers from several strategic weaknesses related to its all-important shipping routes.

The “Malacca dilemma” results from China’s dependence on the Strait of Malacca between Indonesia and Malaysia for over 80 percent of its oil imports. This leaves the country’s energy supply vulnerable to interruption.

Another major chokepoint is the Suez Canal, which is controlled by politically unstable Egypt. Ships wishing to use it must also transit the pirate-infested Arabian Sea. Then there is the Panama Canal, controlled by Panama, which is heavily influenced by the United States. The passage is also too narrow for many large vessels.

Ships can avoid these chokepoints by looping around Africa or South America, but the extra distance costs time, fuel and wages.

Exploring other options

Chinese companies are scoping out alternatives to the Panama Canal, including a parallel canal through Nicaragua and so-called “dry canals” – container ports linked by rail – in Honduras and Guatemala. Another dry canal could link Eilat and Tel Aviv by rail through Israel, allowing ships to bypass the Suez Canal.

Signs of global warming in the Arctic

China, along with other Asian trading nations, is also looking towards the north for alternate shipping lanes. The Bering Strait is a deep, wide, pirate-free channel between Russia and Alaska that connects the Pacific and Arctic Oceans. Eastward from there, Canada’s Northwest Passage offers a 7,000-kilometre shortcut to the US’ Atlantic Seaboard. Westward, Russia’s Northern Sea Route offers a 10,000-kilometre shortcut to Europe. With time, a third route will open across the centre of the Arctic Ocean.

These Arctic routes are becoming alternatives to conventional routes because of climate change. Rising temperatures are causing sea-ice to melt at an unprecedented rate; all six of the lowest ice-extents on record have occurred in the last six years. Last summer, the area of Arctic Ocean covered by ice was just half the average seasonal low from 1979 to 2000.

Cashing in on climate change

In China, the media refer to the Northern Sea Route as the “Arctic Golden Waterway”. Professor Bin Yang of Shanghai Maritime University estimates the route could save his country $60bn to $120bn per year.

In preparation for Arctic routes, shipyards in South Korea, Singapore and India are building ice-strengthened cargo ships and tankers. Some of these are equipped with dual-directional technology that enables them to use a high efficiency bow on open seas, and an icebreaking stern when moving backwards through ice.

Russia is also preparing to take advantage of changing ice conditions. In September 2011, President Vladimir Putin told the media, “I want to stress the importance of the Northern Sea Route as an international transport artery that will rival traditional trade lanes in service fees, security and quality”.

Russia already uses icebreakers to escort commercial vessels, and charges for the service. In 2007, it launched the Fifty Years of Victory, a nuclear-powered behemoth able to break through 2.5 metres of ice at speed. Other projects designed to increase the viability of the Northern Sea Route include ten new search-and-rescue stations, renovations to rundown Arctic ports, easier-to-obtain shipping permits, and a new central office in Moscow to provide improved weather and ice forecasting in English.

Russia’s efforts are being rewarded. In just four years, shipping along the Northern Sea Route has increased ten-fold. In 2012, more than 40 ships sailed through, most of them bulk carriers or tankers carrying iron ore, oil and liquefied natural gas from Northwest Russia to China, South Korea or Japan. As a sign of things to come, one transit involved a load of coal being shipped from Vancouver, Canada, to Hamburg, Germany.

This year, 55 ships have already received permission to sail through, during a season that now extends from July through November.

US-Canada dispute

Shipping through the Northwest Passage has also increased, but at a slower rate. In 2012, there were a total of 30 transits, none of which involved large cargo ships or tankers sailing to other countries. This is at least partly due to the Canadian government’s lack of investment in its northern infrastructure, and its failure to provide icebreaking services for commercial vessels.

Further complicating the situation, the US opposes Canada’s claim that the Northwest Passage constitutes “internal waters” which foreign ships require permission to enter. Instead, the US insists the waterway is an “international strait” through which foreign ships may pass without constraint.

However, on the two occasions that US ships have sailed the Northwest Passage without seeking permission, they either accepted assistance from a Canadian icebreaker or agreed the voyage would not affect the legal dispute. In 1988, the two countries agreed that the US would always seek permission for transits by its coastguard icebreakers, which Canada would then always grant.

Big business eyes Iceland’s Arctic treasures

Still, the US-Canada dispute casts a cloud of uncertainty over the Northwest Passage that, until resolved or otherwise clarified, will contribute to keeping international shipping away.

Russia takes the same position as Canada with respect to the Northern Sea Route, insisting that the narrowest stretches of the waterway constitute Russian internal waters. But while the US protests the Russian position, it has never physically challenged it. When the US Coastguard icebreaker Northwind approached the Vil’Kitskii Straits north of Siberia in 1965, Moscow threatened to “go all the way” if the ship continued onward. Washington wisely ordered the Northwind to turn around – and has kept its ships away ever since. The resulting strength of the Russian position has contributed to the Northern Sea Route’s viability for shipping, albeit on Moscow’s terms.

One might assume that China and other Asian trading nations support the US position that both Arctic waterways are international straits, because it allows greater freedom of navigation. However, there is no evidence of any such support so far. Before the Chinese research icebreaker Xuelong traversed the Northern Sea Route in 2012, Beijing first sought permission, and then arranged for an escort from a Russian icebreaker.

Asian shipping companies know they will need the cooperation of Arctic countries if they are to use the northern routes, because although sea-ice is disappearing, the Arctic remains a dangerous place. “Icing”, caused when sea spray freezes onto the infrastructure of ships, can cause them to become unstable and even capsize. Poor maritime charts can result in ships running aground, while great distances and extreme weather conditions often delay search-and-rescue efforts.

Because of their geographic proximity, the Arctic countries are the best source of good charts, navigation aids, ports of refuge, weather and ice forecasting, and search-and-rescue efforts in the Arctic Ocean – as well as a police presence to manage threats from pirates, smugglers or terrorists.

If the Arctic countries provide these services, Asian shipping companies will likely comply with reasonable laws concerning ship safety, navigation lanes, insurance coverage, and the provision of crew lists and cargo manifests to coastal authorities. One could even imagine some companies partnering with Arctic countries in building new ports to further improve safety and facilitate the movement of goods.

Arctic shipping routes offer significant benefits, but also carry risks. If the Arctic Ocean is to become a new “Mediterranean Sea” – a middle ocean across which the world trades – the world’s Asian and Arctic nations will have to work together.

This article is part two in a three-part series on the Arctic. The first part appeared here.

Michael Byers is the author of International Law and the Arctic, published this month by Cambridge University Press.