- Russia has been quietly expanding its political, economic and military influence in the Arctic.
- Russia's coastline accounts for 53% of Arctic Ocean coastline and the country's population in the region totals roughly 2 million people.
While the world focuses on trade wars and shifting geopolitical dynamics, Russia has been quietly expanding its own political, economic and military influence in a lesser-watched space: the Arctic.
Russia certainly feels at home with the Arctic, and vice versa; Russia's coastline accounts for 53% of Arctic Ocean coastline and the country's population in the region totals roughly 2 million people — that's around half of the people living in the Arctic worldwide, according to the Arctic Institute, a center for circumpolar security studies.
As such, it's perhaps no surprise that Russia wants to extend its influence in a region that it feels at home in, and one that offers multiple opportunities in a variety of areas ranging from energy and trade, to defense.
"Russia is by virtue of its geography, the largest Arctic country. The fact that there are 2 million people that are Russian living there too means that the Arctic is Russia in many ways," Andreas Østhagen, senior research fellow at the Fridtjof Nansen Institute in Norway, and at the Arctic Institute, told CNBC.
"In Russia too, the Arctic resonates with people and they have so many of their resources in that region; oil and gas, fisheries and minerals."
It is estimated that there could be trillions of dollars' worth (as much as $35 trillion) of untapped gas and oil reserves, as well as mineral resources, that Russia and its Arctic neighbors are keen to tap.
Østhagen said that Russia can draw on the Arctic for economic purposes and it has for a while been instrumental in investing in grand projects, such as the Yamal LNG project, "one of the largest and most complex LNG (liquefied natural gas) projects in the world," according to Total, which has a 20% stake in the project based in the Yamal Peninsula above the Arctic Circle. Novatek, Russia's second-largest natural gas producer, has a 50% stake in the venture.
In a bid to encourage energy companies to increase exploration and extraction activities in the Arctic, the Kremlin announced in October a trillion-ruble tax cut, or around $40 billion, to incentivize those activities.
The tax cut reportedly came after domestic and international investors said they would only invest in Vostok Oil, an Arctic oil project led by Russia's largest oil company Rosneft, if the government gave in to demands from Rosneft's chief executive for preferential tax rates. Vostok Oil is expected to produce up to 100 million tons of oil per year, or a fifth of what Russia currently pumps, Reuters noted.
But the Arctic is more significant to Russia for more than resources and it has an important economic, defensive and transport value too. It has symbolic and nationalistic value, Østhagen said.
"The name of the game in the Arctic is presence," he said, noting that the region had value for Russian President Vladimir Putin who has overseen a rise in Russian nationalist sentiment during his two decades in power.
But that drive to magnify Russia's status on the world stage has competed with its sluggish economy in the last five years, following a slump in oil prices on which it largely relies in terms of export revenues. Russia's changing economic fortunes were reflected in its spending plans for the Arctic region, in which it had planned super-projects as part of an "Arctic Program" of investment and development.
In 2017, RBC news agency reported that funding for the program had been slashed severely: the Ministry of Economic Development had wanted 209 billion rubles for the new national Arctic Program, funding that would take it up to 2020, but was expected to get only 12 billion ruble.
There are signs of recovery now, however, and the economy is expected to grow 1.2% in 2019; 1.6% in 2020; and 1.8% in 2021, the World Bank forecast earlier in December. Experts agree that the cost-benefit analysis of Arctic expansion, a region whose hostile environment quickly increases operational costs, needs to be carefully assessed.
"Arctic development is indeed costly for Russia, but the government deems it necessary, and legitimate, to perform 'great power status' across this new frontier, as well as to anticipate the negative impact of climate change for coastal regions in the Arctic Zone of the Russian Federation," Mathieu Boulegue, a research fellow at the Russia and Eurasia Programme at Chatham House, told CNBC.
"Civilian investment, however, has been tremendously slashed since 2017, with few prospects to increase again for the time being," he noted.
In 2017, Russian military spending fell by a fifth marking its first decline in nearly two decades and data from 2019 showed Russia was no longer in the top five global military spenders, just as the U.S. and China have increased spending.
Martina Bozadzhieva, managing director of research at consultancy firm DuckerFrontier, told CNBC that defense spending was continuing to decline in Russia, with money being redirected toward other pressing domestic issues.
"(There is now) the focus on the domestic economy, income standards, and what you've seen over the last couple of years is that there was a big spike in military spending, some of which went towards a range of strategies including the Arctic. But that military spending growth is being wound down to free up money for salaries, pensions etc," she said.
"That money is being redirected. So it's not to say that Russia is trying to pull back from the Arctic, it's more that the funding is being restructured."
One of the projects that combines economic and symbolic importance for Russia is the Northeast Passage or Northern Sea Route (NSR), a once inaccessible shipping route in the Russian Arctic that, as ice sheets melt, Russia sees as a future shipping super highway to transport goods and resources between Asia and Europe. It hopes the route could rival the traditional Europe-Asia sea route, via the Suez Canal, as it shortens the shipping duration by around 15 days.
The Arctic institute's Andreas Østhagen noted that the NSR fulfilled both an economic and symbolic need for Russia to assert itself in the Arctic (the NSR runs along the entirety of its territorial waters, from the Bering Strait between Siberia and Alaska to the Barents Sea, near Norway) but that it might be too early for Russia to reap the economic benefits yet, given the hostile environment for much of the year and the need for more maritime infrastructure.
"The route has symbolic and nationalistic connotations — just for Russia to be present and to develop the sea route and its military capabilities there, but also the economic benefits, although it's questionable how large these will be," he said, noting it would be costly for companies to operate there, particularly with the need for ice breakers for most of the year.
"We could see increased destinational traffic there, like services for the Yamal LNG superplant, or tourism traffic with cruise ship vessels. But it won't be that lucrative, it won't have the volume of shipments like the Suez or Panama Canal," Østhagen said.
Aside from Russia's commercial development of the Arctic, another pressing issue in the region, and a concern for the western military alliance NATO, is the perception that the area is becoming an increasingly militarized space, opening up a new, literally cold front in already frosty relations between Russia and the West.
In recent years, Russia has advanced its military capabilities in the Arctic, reopening old military bases that had been abandoned following the collapse of the Soviet Union in 1991, and bolstering the Russian Navy's prestigious Northern Fleet that oversees operations and defense in the region.
The Northern Fleet Joint Strategic Command was created in 2014 as Russia's fifth military district, reflecting the Kremlin's push to give defense in the region more weight; Putin announced that same year that Russia would build a unified network of Arctic defense infrastructure and improve the fleet's warships and submarines.
The Northern Fleet and military exercises in the Arctic were a key part of Russia's massive annual military drills, called Tsentr 2019, this year too.
"Russia has been consistently incorporating the Arctic in military thinking for less than a decade and therefore training, procuring and learning to survive, move, and fight in this extreme environment. Furthermore, a lot of effort has been put into deploying Arctic-capable air defense and sea denial systems," Chatham House's Boulegue told CNBC.
NATO has been increasingly concerned about what it sees as Russia's militarization of the Arctic and it has been warned that it must increase its own presence to counter what some see as Russian aggression. DuckerFrontier's Martina Bozadzhieva told CNBC that the Arctic was one area where Russia had an advantage, given its geography.
"They (Russia) have been trying to double-down in areas they can really dominate, just because relative to NATO defense spending, Russia is actually not spending that much. So where they do have a natural advantage, as they do in the Arctic, they will be looking to press that advantage," Bozadzhieva told CNBC. Boulegue and Østhagen believe that Russia is looking to avoid conflict in the Arctic, however.
Østhagen said military advances in the Arctic could on the one hand be seen as for domestic, defensive purposes or as potentially aggressive, but, he noted, "Russia would not have any interest in claiming any territory, but what you see beyond this is a focus on the Arctic strategically, as well as from China and the U.S., which brings the region into a geopolitical and geostrategic competition between these actors."
With the Arctic offering apparently abundant resources, albeit difficult and expensive to extract, it's no surprise that other Arctic nations (there are eight in all: Canada, Denmark (Greenland), Finland, Iceland, Norway, Sweden, Russia, and the U.S.) are also interested in developing their Arctic infrastructure and resources within their own territories too.
It's just that Russia's Arctic infrastructure happens to be more developed as it has more long-standing cities (like Murmansk and Norilsk), communities and investment there, experts note.
Despite varying degrees of competition and military tensions in the Arctic region, there are attempts at coordination and cooperation between Arctic states too, although at times somewhat reluctantly.
Dialog between Arctic states is frequent, for example; an International Arctic Forum was held in Russia in April with the summit dedicated to discussing the "socioeconomic development of Arctic regions and for developing multi-level, multilateral mechanisms for joint discovery and effective exploitation of the Arctic's rich natural resource potential."
Then in May, the Arctic Council (an intergovernmental forum to provide a means for promoting cooperation, coordination and interaction among the Arctic States) met in Finland. True to recent form, a joint declaration of intent from the council members was reportedly canceled because of the U.S.' refusal to sign a declaration — aimed at balancing environmental protection in the Arctic with the development of its mineral wealth — because it referenced climate change as a serious threat.
Aside from tensions over environmental challenges and defense, several Arctic states (but particularly the U.S.), are worried about the ambitions and intentions of a non-Arctic state increasingly involved in the region: China.
China published its own Arctic Strategy in January 2018, laying out its interest in the region and it has been increasingly investing in Arctic infrastructure and energy projects, like the aforementioned Yamal LNG project in which its Silk Road Fund (a state-owned investment project) has a 9.9% stake, making it the largest foreign shareholder in the project.
Putin has welcomed Chinese investment, inviting the People's Republic in late 2017 to help create an "Ice Silk Road," or Polar Silk Road; essentially, another strand of China's mega economic development project, the Belt and Road Initiative.
China has also invested in research stations in Iceland and Norway, and said it will collaborate with Russia on a research center to predict ice conditions along the Northern Sea Route and last year launched its first polar research ship, the icebreaker, Xuelong (or Snow Dragon) 2, that can break through 1.5 meters of ice. Like Russia, it is now building a nuclear-powered icebreaker; Russia launched its own, the Ural, in May.
The icebreaker will be one of a trio that will be managed by Russia's state-owned nuclear energy corporation Rosatom, Reuters reported. The Ural and its sister ships are "central to our strategic project of opening the Northern Sea Route to all-year activity," Alexey Likhachev, Rosatom's chief executive, was quoted as saying.
Russia and China have strengthened their geopolitical ties in a variety of areas in recent years and no less so than in the Arctic where both want to take commercial advantage of the Northern Sea Route. But China's increasing activities in the region are alarming to the U.S. In May, the Pentagon released a report saying deepening Chinese activities in the Arctic region could pave the way for increased military activity there.
At the Arctic Council in May, U.S. Secretary of State Mike Pompeo criticized China's claim to being a "near-Arctic" state, saying that entitled it to "exactly nothing" in the region.