The Arctic – a cohesive region located north of the Arctic Circle – falls under the separate jurisdiction of eight countries with a population of about 4.2 million people and an annual economy of about US$230 billion. Interestingly, the World Economic Forum’s Global Agenda Council on the Arctic draws a nice comparison to “emerging markets” noting: “The Arctic is an emerging market in a well-governed but challenging environment, offering a host of major investment opportunities in the coming years as well as special risks.” The time frame, though, seems a bit optimistic.

Only in February 2014 did the US State Department announce plans to create the position of “Special Representative for the Arctic Region” to highlight the growing importance of the region and adequately represent US interests in the “most rapidly-changing region on the face of the earth.” This follows previous steps by the Obama administration in anticipation of the U.S. assuming chairmanship of the Arctic Council from Canada in 2015. In May 2013, the U.S. outlined its policy approach to the Arctic in the National Strategy for the Arctic Region with special emphasis on international cooperation and responsible development of hydrocarbon resources. In January 2014, the White House followed it up by releasing an Implementation Plan for the National Strategy for the Arctic Region. Additionally, the Department of Defense released in November 2013 its “Arctic Strategy” identifying the DoD’s desired end-state for the Arctic: “a secure and stable region where U.S. national interests are safeguarded, the U.S. homeland is protected, and nations work cooperatively to address challenges.” Importantly, the strategy also articulates the following supporting objectives: “Ensure security, support safety, and promote defense cooperation, and prepare to respond to a wide range of challenges and contingencies – operating in conjunction with other nations when possible, and independently if necessary – in order to maintain stability in the region.”

In light of the severely strained relations with Russia over the annexation of the Crimean Peninsula, the execution of this outlined strategy may prove increasingly challenging. If cooperation, indeed, gives way to confrontation, the US defense budget will have to reflect this new security dynamic. The Arctic used to be viewed neither as a tense region with geopolitical disputes, nor a potential flashpoint for the world’s next armed conflict – i.e. over natural resources (“resource war”). Commentators like to cite the region as a powerful example of international cooperation with the respective countries mostly conforming to international treaties, convening regularly at regional forums such as the Arctic Council and resolving differences diplomatically. In the aftermath of the Ukraine crisis, this may change and outstanding boundary issues – properly governed by the United Nations Convention on the Law of the Sea (UNCLOS) – could create further geopolitical friction among Russia and the other Arctic countries at a level comparable to similar resource-linked disputes in the world, such as those unfolding in the East China Sea and South China Sea.

The following charts show that for Russia the stakes in terms of oil and gas production are especially high. Russia has to take steps – i.e. move further north – to maintain current oil production volumes and, above all, compensate for the depletion of aging mature Siberian oil fields. These charts are sourced from the Council on Foreign Relations’ new interactive guide to the ‘Emerging Arctic’:

Source: cfr.org

The steadily warming climate is making the Arctic increasingly accessible for potential resource development. Various studies estimate vast unexplored oil and natural gas resources, as well as substantial mineral reserves, including deposits of rare earths.

Arctic resource development, however, is both highly expensive and therefore commercially risky and technically challenging. Each obstacle exacerbates the next in ascending order: Harsh climate, limited existing infrastructure, extremely long project lead times, overlapping and thus still competing economic sovereignty claims between adjacent countries in the area around the North Pole itself, and perhaps above all, spill containment and recovery given the immense logistical challenges presented by a potential environmental emergency. Consequently, the Arctic subsoil wealth is not readily available for development or technologically-complicated extraction. Transportation issues are also significant, requiring huge investment to get supplies into remote areas and bring production to global markets via yet-to-be built roads, pipelines, railroads, and ports.

Finally, the Energy Security Initiative at Brookings just published an instructive policy brief titled “Offshore Oil and Gas Governance in the Arctic” authored by Charles Ebinger, John P. Banks, and Alisa Schackmann addressing two critical questions regarding a leadership role for the US in the Arctic:

1) How can the U.S. elevate the region as a priority national interest?

2) How can the U.S. lead in strengthening offshore oil and gas governance in the Arctic?

A final caveat, note that the proposed recommendations for US policymakers are still based on the pre-Ukraine crisis status quo of an Arctic region free of real geopolitical friction. Nevertheless, the call for the establishment of a circumpolar Arctic Regulators Association for Oil and Gas is a sensible recommendation given the high-risk nature of Arctic investment – and at the same time – high environmental risk to the pristine Arctic ecosystem.