Economy /
The time has come for a talk about the Arctic route
An unlucky move by a 220,000 tonne ship traversing the Suez Canal has been successful where the pandemic has failed: to halt the global economy. How the incident could happen is still matter of open debate, but the reason why the consequences spread quickly is easy to understand: some 90% of world trade relies on the sea and a relevant part of such traffic goes through Suez.
This channel, for whose control there have been even wars in the past, keeps playing a pivotal role in the context of globalization and its importance increased hand in hand with the growth of Chinese exposure in the European market. Because the Suez Canal is the “gateway to Europe” for the goods coming from Asia, China in particular, and a look at the data may make the readers understand why the world leaders are worrying about the incident and are working on a joint and fast solution: about 19,000 ships passed through here in 2019 and the same number throughout 2020, that is a medium of 1.25 tonnes of cargo per year and, overall, 13% of world trade.
In short, this artificial sea-level waterway is both the gateway to Europe and a lung of globalization, and in these days, due to the incident, the Lloyd’s List estimated that the world economy is experiencing a damage of about $400 million per hour, with Egypt alone recording a loss of $12–14 million per day.
The incident has been received with fear in the pandemic-hit European Union, whose economic recovery is a long way off and is now at risk of slowing down further, but some countries have taken the opportunity to highlight the urgency to overcome the increasingly anachronistic “Suez format” by boosting up existing routes, like the North-South Transport Corridor, and by betting on the opening of new ones, like Russia’s long-dreamed-of Northern Sea Route.
The Arctic dreams have never been so real
The Kremlin took advantage of the incident to officially promote the Arctic sea route “as a viable alternative to the Suez Canal”. It’s true that the ice obstacle is still present, but Rosatom rightly pointed out that “we have icebreakers” – a reference to the firm’s Arctic fleet based in Murmansk and composed of five nuclear-powered icebreakers specialized in SAR, four service vessels and a container ship – and reminded the audience that the travel times are in favor of the alternative route because a “trip from Murmansk to Japan on the Northern Sea Route is 5,770 miles and 12,840 miles through the Suez Canal”. Written and explained otherwise: the Northern Sea Route means time reduction.
With the ice melting on a fast pace and the Arctic waters being increasingly open to free navigation, against the background of the glaring limits shown by the Suez Canal, Russia’s plans to ship up to 80–95 millions tons of cargo through the polar route by the mid-2020s may not be so unrealistic – and there is the China factor to be taken into account, namely the New Silk Road.
The meaning of the Arctic route
Why Russia is interested in giving fuel to the Northern Sea Route due to several reasons: the will to take advantage of climate change, the positive repercussions in terms of repopulation and foreign direct investments, and last but not least the ambitious goal of recalibrating the world trade from Suez and the String of Pearls to the Russian-controlled (and choke points-free) northernmost waters.
The stakes are high: Russia could become the epicenter of world trade, replacing Egypt as the connection point between Europe and Asia, the route would be wholly controlled and kept safe by the Russian fleet – no risk of piracy and no room for maneuver for the United States and its allies –, and the national economy could benefit dramatically from a new (and permanent) entry, that is the transit fees.
Russia’s trade with Europe might benefit as well in the light of the fact that the country ships 546,000 barrels of oil via Suez on an average day. Stated in other terms, Moscow relies on the Egyptian canal for the delivery to Europe of 5% of its total oil production. Not surprisingly, among the ships waiting for the unlock there are six oil tankers carrying oil worth $290 million.
The long-term gains
The Arctic route may pave the way for increased exports of Russian oil and gas to the Old Continent, that is better energy relations with the European Union – of which the Kremlin keeps being the most important oil and gas supplier. The United States’ energy dominance doctrine could be the first victim of the world trade’s turn to the Arctic, and in the long-term, with the route being more and more traversable due to the higher temperatures and the Russian fleet’s expansion, Russia and China could redesign the global market in their own image and in accordance with their interests.
Naturally, this rosy scenario is only going to materialize provided that a) climate change endures, b) Russia gets to invest enough in expanding the ice-breaking fleet and gets to attract a sufficient number of foreign direct investments useful to develop and expand today’s poor infrastructure network, c) China, Japan, India and other major Asian economies – without forgetting the EU – openly bet on the Arctic route by redirecting here most of their goods.
