Russia asserting its ground in the Artic: position of fear or sheer economic necessity?

The Arctic is coming increasingly under the spotlight for reasons other than global warming.

The region, home to some of the world’s largest undiscovered hydrocarbon reserves, is becoming a new frontier for a geopolitical struggle between Russia and the West.

On 24 August, Russia kicked off a series of large-scale military exercises in the Arctic. A week earlier, Moscow informed the United Nations that it had laid claim to a staggering 1.2 million square kilometres of the Arctic shelf.

Russia also plans to reopen military bases it abandoned after the Soviet Union collapsed. Although the Kremlin insists its military moves are purely defensive, they come at a time of heightened tensions with the West over Ukraine that saw Russia increase its air patrols probing Nato’s borders, including in the Arctic.

So, why is Russian President Vladimir Putin i asserting his ground in the Arctic? Is this mere bluster to conceal a position of fear? Or are the Kremlin’s latest moves prompted by sheer economic necessity?

The answer is both, and the West ought to be profoundly worried about it.

Russia in a bind

Russia finds itself in a bind over Ukraine. Contrary to the rapid takeover of Crimea, the conflict in Donbass has been fought to a standstill. Moreover, it looks unlikely that Moscow is in a position to increase the size of the land currently controlled by the separatists. It simply cannot afford it.

The collapse of the price of oil has ransacked the Russian economy, sent the Rouble into a nosedive, and ensured inflation is acting like it is 1999 again.

The Kremlin’s decision to defy Western sanctions by imposing countermeasures of its own such as banning and destroying western food imports did not go down well with the Russian population.

Putin’s approval rating - although at a level US President Barack Obama i could only dream of - dipped due to the country’s sluggish economy and the Rouble’s freefall.

By way of diversion from domestic troubles, what could be better than to demonstrate your country’s might?

Although plausible, there is much more to Putin’s moves than meets the eye. The oil price rout has rocked the financial foundations of Russia’s state apparatus. Moscow’s traditional earning model, built on extensive oil and gas revenues, has come under severe stress as a result.

This situation is amplified by the financial and sectoral sanctions imposed by the West.

Major oil and gas companies, such as Rosneft and Gazprom, are deprived of invaluable technology to explore Arctic and unconventional oil and gas resources; something Russia will desperately rely on in the long term if it wishes to stay a leading oil and gas exporter.

Some commentators openly wonder whether the recession in Russia will result in social upheaval.

The pressure is certainly increasing, and recent reshuffles in the elite around Putin, such as the stepping down of Vladimir Yakunin, the powerful head of Russia’s state railways and long-time Putin confidant, may indeed suggest that changes are afoot.

Rosneft recently saw four out of five of its requests for funding from Russia’s sovereign wealth fund denied. Gazprom, Russia’s national gas behemoth, is hardly in a more enviable position.

China gas deal

Putin heralded the May 2014 gas deal with China as the pact of the century. However, given that the contract provides no protection against low oil prices, the project is already on the edge of loss-making.

With a second pipeline to China postponed, the Middle Kingdom’s economic downturn effectively hammered the final nail into the coffin of Putin’s much-coveted Asia Pivot.

The problem is that if Russia wishes to continue to be a leading oil and gas producer in the future, it must explore new oil and gas finds.

Russia’s traditional Siberian fields are aging and its liquefied natural gas plans are taking a hit, with more and more supplies appearing from competitors. And now that China’s energy appetite has stalled, the prospects of the oil price picking up soon are negligible.

If it is to survive, Russia needs other resources. These are found in the Arctic. For example, in September 2014, Exxon Mobil and Rosneft announced a major oil find in the Kara Sea, but cooperation had to be suspended due to the souring political climate.

In other words, Putin’s sabre-rattling over the Arctic is not just about diverting attention away from a troubled economy at home; it is equally about securing the country’s - and the government’s - long-term future.

Why the West should be worried

On 31 August, Obama embarked on a three-day tour of the Arctic, during which he addressed the Conference on Global Leadership in the Arctic.

“Glacier”, as the conference is known, is a policy event that brings together Foreign Ministers of Arctic nations and key non-Arctic states, as well as scientists and policy-makers to discuss climate change in the region.

Western nations tend to view the Arctic as part of the Global Commons. Given the high stakes described above, it is not clear whether Russia thinks the same. There are ample reasons as to why the West ought to be profoundly concerned about this. Moscow appears to be determined to militarise the region; something Western nations, at least for now, appear unwilling to rival.

Also, should a kind of “arms race for the North” take off, there is a genuine risk that these kinds of demonstrations of might are misinterpreted and could trigger an actual conflict.

More acutely perhaps, a Russia that is cash-strapped may ultimately decide to engage in Arctic oil and gas exploration “on the cheap” with all the associated risk for the safety of this pristine environment.

In touring one of the world’s last true frontiers, Barack Obama would do wise to keep this firmly in mind.

Sijbren de Jong is a Strategic Analyst with the Hague Centre for Strategic Studies (HCSS) and Lucia van Geuns is an expert on international oil and gas markets with a particular interest in the Arctic