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strategy and business
Published: August 27, 2013
 / Autumn 2013 / Issue 72


Is the Arctic the Next Emerging Market?

2. Insufficient investment for infrastructure. Except for certain areas of Norway and Western Russia, the Arctic region remains vastly underserved by transportation, ports, and other critical infrastructure. This deficiency will continue to limit access and hinder development. Increasing the attractiveness of the Arctic for investment in infrastructure is tied to the need for stable, transparent political, governance, and judicial systems and a consistent, clearly defined regulatory regime. The main issue here is that without clear rules for how to operate, multinationals will hesitate to engage with the region—and if they don’t, there is no need for infrastructure. Establishing clear criteria for obtaining a license to operate is of particular importance to the oil, gas, and mining industries. At present, clarity exists for onshore operations, but not for operations performed offshore, which increases risks to both project success and the environment. Addressing this inconsistency would create a more favorable investment climate.

3. Navigation of dangerous waters. As the extent of summer sea ice in the Arctic Ocean continues to lessen, the likelihood is mounting of increased commercial traffic in one of the most remote, dangerous oceans on Earth. Besides ordinary open-water ships, there will be more moderately strengthened ice breakers (such as those used currently in the Baltic). These are treacherous waters, and ice conditions can change rapidly, capturing unsuitable vessels in the ice, or even worse, cracking their hulls—resulting in loss of life and serious environmental damage. The prospect of common open-water ships, which make up the vast majority of the global fleet, entering the Arctic Ocean, Northern Sea Route, and Northwest Passage heightens the urgency for a comprehensive International Maritime Organization (IMO) regulatory framework. Such a framework would ensure adequate vessel safety standards, navigation control systems, environmental protections, and search-and-rescue capability in this uniquely challenging polar ecosystem. Establishing clear rules for the classification of ships permitted to enter these waters in different seasons and under various ice conditions is critical.

4. Unresolved governance disagreements. The vast majority of Arctic territories and coastal waters are uncontested and under the jurisdiction of the eight Arctic states: Russia, Finland, Norway, Sweden, Iceland, Denmark (Greenland), Canada, and the United States. Further offshore, much of the central Arctic Ocean has been or will likely be apportioned among Russia, Norway, Canada, Greenland, and the U.S. under the provisions of Article 76 of the United Nations Convention on the Law of the Sea (UNCLOS). Importantly, a decades-long overlapping claim in the Barents Sea (between Russia and Norway) was recently settled. However, some lingering disputes create an atmosphere of uncertainty for both policymakers and business interests. For example, the United States has not yet ratified UNCLOS, and it also has overlapping claims with Canada to a small triangle of coastal waters in the Beaufort Sea. Canada considers the Northwest Passage to be a domestic waterway, whereas the U.S. and other countries consider it to be an international strait. Other barriers include a dispute over Hans Island (claimed by both Canada and Greenland) and a “doughnut hole” of high seas between the coastal waters of Russia and Alaska that is excessively fished by international trawlers. Resolution of these disagreements would further remove tensions among the Arctic states and facilitate implementation of environmental protection and economic development in contested areas.

5. A lack of research. Natural resource development, sustainable economic growth, ecosystem protection, and comprehension of the impact of climate change in the Arctic all have one thing in common—a pressing need for science. Despite coming under intense global interest, the Arctic remains one of the most logistically difficult environments in the world for scientific research, and is thus one of the least studied. A few small locales have received relatively high levels of attention and funding (for example, Arctic Alaska, the Greenland ice sheet, and ocean-floor bathymetric mapping to support UNCLOS Article 76 claims), but the vast majority of Arctic landscapes, oceans, ecosystems, and climate have received little field study. Even basic seafloor mapping and a complete set of navigation charts remain incomplete. The region’s oceans and landscapes are critically important for global migrations of whales, birds, and fish, yet there is little understanding of how economic development and climate change will affect these populations. Similarly, the effects of thawing permafrost on global methane gas emissions, and of shrinking Arctic snow, sea ice, and glaciers on global sea levels, weather patterns, and fisheries, remain unclear. This lack of basic scientific understanding and the paucity of data pose a challenge for business and environmental interests alike. To enable informed decision making in the region, there is a pressing need for new scientific observations—including long-term monitoring and mapping programs, improved computer modeling, and development of new technologies ranging from autonomous sampling platforms to satellite observing systems—by both public and private actors.

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