Russia Arctic Expansion
22 Mar

Russia’s Arctic Expansion: The Future of Global Shipping

Russia’s Arctic Expansion: A Long-Term Strategy

 

While the world is currently focused on the war in Ukraine, Russia is quietly expanding its military presence in the Arctic, building new bases in the region. With untapped oil and gas reserves and melting polar ice, the Arctic presents an opportunity for Russia to access these resources. Additionally, new shipping lanes are opening up, and Russia has a grand plan to become the biggest beneficiary of climate change in the region. The country has a fleet of nuclear icebreakers, which can help open up and control Arctic trade routes, making trade between Asia and the West faster and cheaper. This article will explore Russia’s growing influence in the Arctic, the significance of shipping routes, and the Northern Sea Route as the shortest shipping option and discuss the opportunities and challenges of Russia’s Arctic expansion strategy.

 

The Importance of Shipping Routes in the Global Economy

 

To comprehend Russia’s growing influence, it is essential to understand the significance of shipping routes, which are the lifeline of the global economy. Russia’s strategic location between Europe and Asia places it in a vital position for trade. Currently, the primary route for transporting goods from Europe to Asia is the Swiss Trade route. This route is so popular that approximately 12% of global trade and 30% of all global container traffic pass through the Suez Canal.

 

Russia Arctic

 

Ships carrying manufactured goods from China to England follow a route that takes them through the Strait of Malacca, across the Indian Ocean, through Bab-al-Mandab Strait, and finally, the Suez Canal before reaching Europe. The distance covered via this route is approximately 21,000 miles. The Cape Route is an alternative, lengthier option where ships circumnavigate the African continent to reach Europe, covering an additional 5,500 miles and taking approximately two weeks longer than the Swiss route.

 

[Read More: Lifetime Basics of Foreign Trade Management – 3 Things You Need To Know]

 

The Northern Sea Route: The Shortest Shipping Option

 

The Northern Sea Route, the shortest option, starts from China, passes through both Koreas, crosses Russia’s vast landmass, the Arctic Ocean, Norway, Sweden, and Finland before reaching England. This route spans a mere 8,000 miles, which is 5,000 miles shorter than the Swiss route and 10,500 miles shorter than the Cape route. Despite its efficiency, the volume of shipping along this route is negligible compared to the other two options.

 

Russia Arctic Expansion

 

The reason why China-Europe and Russia-Europe trade is not being done through the Arctic Ocean is because the Arctic region is filled with ice, and as you move towards the North Pole, the thickness of the ice increases. Normal ships cannot travel through these routes, and ice-breaking ships are required to clear out the ice. However, this brings about three critical problems: ice-breaking is both expensive and time-consuming, the estimated time of arrival cannot be predicted when you don’t know how much ice you will break through, and an oil spill or a ship getting stuck in the Arctic can cause environmental and economic disasters.

 

Despite the challenges, the melting of ice in the Arctic is providing an alternate and cheaper shipping route. However, this also promotes global warming. The Arctic is warming four times faster than the rest of the world, and one of the major causes is global warming. The ice in the Arctic is melting rapidly, which is a climate crisis for the rest of the world but an opportunity for Russia.

 

Challenges and Opportunities of Shipping through the Arctic

 

The Arctic region, known for its harsh weather conditions and remote location, is gradually becoming the new frontier for global trade, with new shipping routes opening up as a result of melting ice. The Arctic region is rich in untapped oil and gas reserves, and with melting polar ice, there is an opportunity to access them. Additionally, new shipping lanes are opening up, and Russia’s Arctic expansion strategy has a grand plan to become the biggest beneficiary of climate change in the region. The country has a fleet of nuclear icebreakers, which can help open up and control Arctic trade routes, making trade between Asia and the West faster and cheaper.

 

Despite facing economic sanctions due to the ongoing war in Ukraine, Russia is investing heavily in developing this shipping route. The Arctic trade route could shift the balance of power in the world, as it could potentially cut the travel time between Europe and Asia by almost two weeks. Russia has already invested $29 billion to develop the route, constructing new ports, expanding railways, and modernizing its army in the region. This is a long-term strategy by Russia to exert its influence and challenge the West’s dominance.

 

[Read More: The Endless Complexities of the Ocean side of Supply Chains]

 

Challenges of Arctic Shipping

 

The Arctic shipping route has several challenges, including the harsh weather conditions, the thickness of the ice, and the lack of infrastructure. As a result, only specialized icebreaking ships can travel through these routes, making the cost of transportation much higher than other shipping routes. Additionally, the estimated time of arrival cannot be predicted when you don’t know how much ice you will break through, and an oil spill or a ship getting stuck in the Arctic can cause environmental and economic disasters.

 

Opportunities of Arctic Shipping

 

Despite the challenges, there is bittersweet news for the world. The melting of ice in the Arctic is providing an alternate and cheaper shipping route. The Northern Sea Route is the shortest option and starts from China, passes through both Koreas, crosses Russia’s vast landmass, the Arctic Ocean, Norway, Sweden, and Finland before reaching England. This route spans a mere 8000 miles, which is 5000 miles shorter than the Swiss route and 10,500 miles shorter than the Cape route. If this melting trend continues till 2030 or 2040, the Russian landmass will be practically free of ice in the summers. While this might be an environmental nightmare, there is an argument that this melting of ice could prove to be an economic miracle for Russia.

 

The Arctic’s Melting Ice and the Climate Crisis

 

The Arctic is warming four times faster than the rest of the world, and the long-term temperature difference has steadily increased, touching plus three degrees. One of the many reasons for the ice melting is the loss of reflective snow, which is a vicious cycle of global warming. The rapid melting of ice in the Arctic is a climate crisis for the rest of the world, but an opportunity for Russia, which is investing heavily in developing its military infrastructure in the Arctic and along the coast of the Arctic Ocean. Russia’s long-term plan is to exert its influence and challenge the West’s dominance by becoming the biggest beneficiary of climate change in the region.

 

The Arctic is home to vast untapped oil and gas reserves, making it an attractive region for energy companies. The melting of ice has made it easier to access these reserves, but at the same time, it also promotes global warming. This poses a significant threat to the rest of the world and highlights the need for countries to take immediate action to reduce their carbon footprint.

 

How Russia Benefits from the New Arctic Trade Route

 

The question at hand is how the melting ice will affect Russia’s trade game and benefit from global warming. The answer lies in the shipping lanes. Russia’s first advantage will be the cost of shipping. Instead of the 13,000 miles it takes to travel via the Swiss trade route, it only takes 8,000 miles to travel via the Northern Sea route. To illustrate, imagine a toy-loaded ship traveling from China to Britain at a speed of 20 miles per hour for 480 miles per day. It would take 27 days to traverse the Swiss Canal route but only 16.66 days for the Northern Sea Route. If the cost of chartering a ship is $160,000 per day, then the Swiss Canal route would cost $4.32 million for 27 days, while the Northern Sea Route would cost only $2.66 million for 16.6 days. The difference in cost for a one-way trip from China to Britain would be $1.64 million. Assuming ten trips per year, it would save $16 million per ship per year. This is the first reason why traders would love to use the Northern Sea Route and this is how it plays into Russia’s Arctic expansion strategy.

 

The second reason has to do with the over-dependence of world trade on the Swiss Canal, which has four major choke points: the Strait of Malacca, Bab-al-Mandab Strait, the Swiss Canal itself, and the Strait of Gibraltar. These choke points can be closed intentionally or unintentionally, blocking the entire shipping route and costing billions of dollars. For instance, a Suez Canal choke in March 2021 caused a huge container ship to block Egypt’s Suez Canal, costing $400 million per hour every hour.

 

The Northern Sea Route offers an alternative to the Swiss Canal, and traders would again love to shift to this route. The Northern Sea Route provides a safer, more secure option for shipping, without the piracy and terrorism issues that ship operators face when passing through the Bab-al-Mandab.

 

From a Global Shipping Route to a Superpower

 

Let’s explore how the Northern Sea Route megatrend could potentially lead to Russia becoming a superpower once again. There are three main reasons for this. Firstly, Russia has an advantage in collecting taxes from companies seeking to use the route, as it passes through Moscow’s exclusive economic zone. By 2030, Russia aims to ship 80 million tons of goods through the route.

 

Secondly, as the ice continues to melt, Russia will have access to a massive treasure trove of natural resources, including 90 billion barrels of oil, 1669 trillion cubic feet of gas, and various minerals and rare earth metals. This would make the Northern Sea Route an energy superhighway for the export of hydrocarbons and other natural resources from the Russian Arctic region, becoming a key alternative to the Swiss Canal for world trade. Lastly, the route is free of chokepoints and piracy, making it the smoothest line of shipping.

Russia’s Arctic Expansion: Is it a good decision?

 

In conclusion, while the world is grappling with the challenges of climate change, Russia sees an economic opportunity in the melting Arctic, and its grand plan to become the biggest beneficiary of climate change in the region could have far-reaching geopolitical consequences. It is important for policymakers and stakeholders to keep a close eye on the developments in the Arctic and work together to ensure that economic growth does not come at the cost of environmental sustainability. It remains to be seen how the world will react to Russia taking advantage of global warming and Russia’s Arctic expansion strategy whether this alternate trade route will lead to the country’s rise as a superpower once again.

 

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About the Author- Dr Muddassir Ahmed

Dr MuddassirAhmed is the Founder & CEO of SCMDOJO. He is a global speakervlogger and supply chain industry expert with 17 years of experience in the Manufacturing Industry in the UK, Europe, the Middle East and South East Asia in various Supply Chain leadership roles.  Dr. Muddassir has received a PhD in Management Science from Lancaster University Management School. Muddassir is a Six Sigma black belt and founded the leading supply chain platform SCMDOJO to enable supply chain professionals and teams to thrive by providing best-in-class knowledge content, tools and access to experts.

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