Could the Arctic Be a Wedge Between Russia and China?

The Arctic Council proved to be an early casualty of the war in Ukraine. All of the Arctic states except for Russia released a joint statement on March 3, announcing their intention to temporarily suspend participation in all meetings of the Arctic Council and its subsidiary bodies. The premier forum for Arctic governance, which tended to be immune from geopolitical tensions, can no longer function in its consensus-based format with the ongoing war.

China, though not an Arctic state, has been an official observer on the Arctic Council since 2013 and harbors growing Arctic ambitions. What does the suspension of the Arctic Council — at least for the near future — mean for China? The continuing conflict in Ukraine casts a cloud over China’s Arctic aspirations. Beijing may still want to have it both ways, i.e., to continue its cooperation with Russia without spoiling ties with other Arctic states. But with the ramifications of the war spreading northward, China may find itself more constrained in pursuing its Arctic interests.

Beijing knows it cannot put all its eggs in the Russian basket, and this could be explored by the West as an opportunity to distance China from Russia. But reducing China’s dependence on Russia for advancing its Arctic interests requires keeping China in the game in the first place.

The Polar Silk Road

The Arctic is of growing importance to China in multiple dimensions. A key thrust is economic: namely, how China can leverage new opportunities opened up by the melting ice in the region, especially those in natural-resource extraction and navigational routes, to advance its development interests. China also has long-standing scientific research interests and seeks to tackle the challenges that a warming Arctic poses to China’s own environment. In addition, China has sought to strengthen its ability as a non-Arctic state to participate in and influence Arctic governance.

 

 

Driven by the various Arctic interests, China has outlined an ambitious Arctic strategy with its Polar Silk Road initiative and the 2018 Arctic White Paper. But it is Russia, as rightly noted by Bobo Lo, an expert on Sino-Russian relations, that retains a decisive say on how far Beijing’s Arctic goals can be realized — and Russia does not look kindly on those aspirations. The Russian Arctic counts for the lion’s share of Chinese investments in the region, especially on navigation-related infrastructure and resource extraction projects. China’s National Petroleum Corporation and state-owned Silk Road Fund, partnered with Russia’s Novatek and French firm Total, have successfully developed a liquified natural gas megaproject on the Yamal Peninsula. Production at Yamal started in 2017. Other projects are still in planning or in progress. Construction is ongoing at Arctic LNG-2, which is scheduled to launch in 2023. China’s state-owned oil corporations count for a total 20 percent stake in Arctic LNG-2, along with Novatek, Total, and Japan Arctic LNG, a consortium of Mitsui and the Japan Oil, Gas and Metals National Corporation. China National Chemical Engineering and the Russian firm Neftegazholding signed a contract in 2019 to construct infrastructure at the Payakha oilfield, with a total investment of $5 billion over four years and an expected launch time also in 2023.

In addition to the hydrocarbon projects, Chinese investments in the Russian Arctic have focused on port infrastructure along the Northern Sea Route. China signed an initial agreement with Russia in 2016 to build a deep-sea port near Arkhangelsk on the White Sea in Russia’s northwest, which is still in the stage of planning and expected to be used as a logistical base by China Ocean Shipping Company, Limited, for Arctic shipping. China also expressed interest in the Belkomur railway, which has not yet proceeded further.

Despite these Arctic project collaborations, Moscow views China’s growing presence in the Arctic with distrust. With vast territory and a more-than-20,000-mile coastline in the Arctic circle, Russia has a strong interest in preventing external powers from influencing Arctic affairs, and thus sees China’s claim to “near-Arctic state” status and advocacy for non-Arctic states to have a greater say in Arctic affairs as an unwelcome push for “internationalization” of the region. Tensions between the two nations surface at times. In 2012, for instance, Russia blocked Chinese research vessels from conducting surveys along the Northern Sea Route during China’s fifth Arctic expedition. Up to 2013, Moscow persistently opposed granting China observer status on the Arctic Council. Even after the 2014 Crimea crisis, when Russia began to demonstrate a warmer posture toward China’s role in the Arctic, Moscow’s suspicions remained in place. In 2020, Russia arrested the head of the Arctic Civic Academy of Sciences in St. Petersburg on the charge of passing classified information to China. Beijing clearly knows Russian distrust.

Meanwhile, China has actively pursued bilateral cooperation with other Arctic states — especially the Nordic countries — on Arctic scientific research. In Sweden, China has operated the Remote Sensing Satellite North Polar Ground Station in Kiruna, north of the Arctic Circle, since 2016. China also signed an agreement with Finland in 2018 to establish a joint research center in Sodankyla, northern Finland, for Arctic space observation and data-sharing services. In Karholl, northern Iceland, the China-Iceland Arctic Science Observatory has been operational since 2018. And on the strategic Svalbard Islands off Norway’s northwestern coast sits China’s Yellow River Research Station.

Over the past decade, while pursuing its Arctic interests through omnidirectional diplomacy, Beijing has in general managed to stay clear of the geopolitical rivalry between Russia and the western Arctic states, especially the NATO countries. Even shortly before the eruption of the war in Ukraine, Chinese experts were voicing cautious optimism on China’s continued engagement with the Arctic. But the war and the latest moves taken by the Arctic Council cast a cloud over the outlook of China’s Arctic aspirations, at least in the short run.

Beijing claimed that it would continue normal trade with Russia and refused to join financial sanctions imposed on Russia by the West. For hydrocarbon trade, it may get around the financial sanctions by using Chinese renminbi. Moreover, the bifurcation between the U.S. energy sanction (which completely bans the import of Russian oil, liquefied natural gas, and coal) and the E.U. energy sanction (which exempted the import of Russian oil), as well as India’s continued purchase of Russian hydrocarbons, may provide room for Beijing to maneuver. But it is unlikely the Sino-Russian hydrocarbon trade will be entirely undisturbed. There are already reports of scaled-back Chinese imports of Russian coal because of payment problems. A more likely scenario is that China will be able to maintain some energy imports but at a lower level than in the recent past.

The U.S.-led restrictions on technology exports could substantially impact Chinese investments in Russia. Under the restrictions, companies that use American machinery, software, or technology to manufacture their products can no longer export these products to Russia. The sanctions may impact both the Yamal project and the Arctic LNG-2. The Yamal project, heavily dependent on foreign technology, may struggle to keep up its operations. The development and launch of the Arctic LNG-2 project also faces uncertainty, as France decided to freeze new investments in it. This project also partnered with South Korea’s Samsung Heavy Industries to build its carrier fleet, but with Seoul joining the sanction regime, it may not have its carriers delivered on time. While Chinese shipyards and energy firms may be tempted to exploit this opportunity, the risk of secondary sanctions loomed large when Washington issued a stern warning on March 8 to Chinese companies against continuing to supply advanced technology to Russia. Washington’s warning was conveyed unequivocally at the top level when U.S. President Joe Biden told Chinese President Xi Jinping during a virtual meeting on March 18 that there will be “consequences” for China should it attempt to help Russia evade sanctions.

In terms of financing, both the United States and the European Union have banned new investment in exploration and production projects in Russia, raising the question of whether the bans could be extended to affect subsequent Chinese investment in Russia’s energy sector. China’s large state-owned banks have quietly complied with the sanctions to avoid hurting their international business, but financing for Sino-Russian energy joint ventures primarily goes through China’s two policy banks, Exim Bank and China Development Bank. Beijing could set up a small bank specifically to handle money flows between China and Russia to evade sanctions — as was the case of the Bank of Kunlun that China used to evade U.S. sanctions against Iran. Meanwhile, China may see the exit of Western oil companies (including BP, Exxon Mobil, and Shell) from Russia as creating opportunities to make good bargains with Moscow.

However, it remains questionable how far China is willing to risk its economic ties with Europe and the United States, especially at a time when China is grappling with a slowing economy at home and internationally facing a more unified West that has shown its resolve to impose significant costs. China may see the imperative to tread with extra caution. Indeed, China’s state-owned Sinopec’s decision on March 25 to suspend projects in Russia suggests that Beijing is heeding Washington’s warning despite the foreign ministry’s insistence that China has the “right to carry out normal economic and trade exchanges” with other countries. As China’s National Petroleum Corporation and China National Offshore Oil Corporation are reportedly also assessing the potential ramifications of the sanctions, Beijing may watch other international investors that have not yet decided to exit or freeze their projects in Russia, including India’s state-owned energy company Oil and Natural Gas Corp, and Japanese investors in liquefied natural gas projects in Sakhalin and Arctic LNG 2, Mitsui, Mitsubishi, and Sakhalin Oil and Gas Development Co.

Distancing China and Russia in the Context of the Arctic

The loss of the Arctic Council, at least temporarily, as a venue for collaboration and coordination will almost certainly stifle the variety of environmental and scientific exploration efforts that were finally underway after the Trump administration spent years awkwardly avoiding the term “climate change.” But it may also provide an opportunity for the West to distance Russia and China, while reaffirming the value of Arctic cooperation and sustainable investment.

The concept of an “Arctic Council 2.0,” reinvented to tackle the dilemma of having the largest Arctic state being an international pariah, is likely to gain support among non-Arctic states who have a deep interest in Arctic governance. Under this potential new construct, decisions would not be made by consensus, but rather by a majority of interested states. It’s possible that non-Arctic countries such as China, Japan, South Korea, and Singapore — which have growing Arctic interests and have contributed much to Arctic research — would welcome the opportunity for them to establish a more solid role in this region’s affairs. The risks to this approach are obvious, as it would fundamentally undermine the concept of Arctic governance being the exclusive prerogative of Arctic states.

However, at least the United States does not see the “Arctic Council 2.0” as a serious proposal on the table for reformatting or replacing the Arctic Council. As James P. DeHart, U.S. Coordinator for the Arctic Region at the State Department, recently noted, “One thing that has not changed is our commitment to the Council as the premier forum for the Arctic region, as a circum-Polar forum.”

This then leaves open the question of how the western Arctic states, individually and collectively, will respond to the new reality in the Arctic and how they can possibly leverage it to distance China from Russia. The Polar Silk Road does not just run through Russia. It is a broad effort by Beijing to invest across the Arctic and relies heavily on European nations as target markets. This may provide the western Arctic countries with some leverage to shape China’s cost-benefit calculation regarding its Arctic interests.

Norway, a founding NATO ally, will undoubtedly uphold the sanctions regime and ensure solidarity with NATO and E.U. partners, but it also needs to maintain its relations with Russia and China. Norway’s role as NATO’s “listening post” on the alliance’s northern flank makes Norway most vulnerable when relations with Russia deteriorate. Its shared land and maritime border with Russia make dialogue with Moscow essential. On the other hand, Oslo’s ties with Beijing used to be difficult following a kerfuffle over the Nobel Peace Prize in 2010 but have normalized since 2016. The two countries are striving to conclude a bilateral free-trade agreement that could provide China with further access to European markets and Norway’s significant offshore hydrocarbon deposits that can be developed to compensate for some of the loss of access to the Russian Arctic. Norway is also strongly courting Chinese investment throughout their Arctic region and it is unlikely that China would tolerate high tensions along the western terminus of the Northern Sea Route in the very area that links the route with the European market. Moreover, Norway’s control over the important Arctic outpost in the Svalbard Islands gives it a unique leverage with treaty signatories Russia and China, by providing them guaranteed access for economic and scientific purposes. Norway’s unique position vis-à-vis China and Russia could make it a new kind of listening post for Western allies as they navigate the new dynamics in the Arctic.

Finland and Sweden, currently non-NATO Arctic states, have begun reconsidering their stance on the alliance. Should they join NATO, shifting the Arctic state balance from five NATO members to seven would send a strong signal to Moscow on the feasibility of future Arctic cooperation as well as to Beijing on the sustainability of its omnidirectional Arctic diplomacy. It may also embolden NATO as a new forum for Arctic cooperation and increase non-Arctic NATO members’ interest in Arctic matters. In the long run, this may lead to a more militaristic view of Arctic cooperation and one that bodes ill for climate and economic cooperation. For China, having been declared a strategic challenge for NATO, an enhanced NATO presence throughout the Arctic would not be in its interest.

Canada has historically had hesitation about a robust role for NATO in the North American Arctic and has long championed pan-Arctic non-defense cooperation. It is, however, likely to remain in complete lockstep with Washington and Europe on Russian sanctions, clearing the way for NATO to pursue a wider role in the High North. Canada also holds out hope that the Northwest Passage may provide a viable route for future shipping between the Pacific and Europe, offering an alternative to the Russia-controlled Northern Sea Route. The near-term viability of the Northwest Passage as a safe, economical route for major shipping activity remains in question, however, and Russia has invested much more in the development of the Northern Sea Route, which also benefits from uneven ice melt that frees its sea lanes much more than the Canadian alternative. But with the second longest shoreline in the Arctic, Canada’s sea routes retain a future potential for the Polar Silk Road’s maritime trade that China cannot ignore. China has invested in Canadian industry, especially minerals, but the investments have decreased as U.S. warnings on so-called Chinese gray-zone activities using Arctic investment influence have caused more scrutiny. Tensions over Canada’s arrest of Huawei executive Meng Wanzhou and China’s reciprocal detention of Canadian citizens Michael Spavor and Michael Kovrig have also added to Canadian wariness of Chinese motives. Despite this, there remains a strong desire from Canada for foreign investment in the Arctic region and some tribal communities do believe that Chinese investment is “too great to pass up.”

China’s Arctic Outlook in the Shadow of War in Ukraine

China is likely still in the process of assessing the ramifications of the war in Ukraine for its Arctic interests. It would be ideal for China to continue its Arctic engagement as usual. But Russia’s isolation as well as tough sanctions have cast much uncertainty on the sustainability of China’s omnidirectional Arctic engagement. Even if a divided Arctic becomes an inevitable reality in the near future, Beijing may live with it and strive to walk a fine line between Russia and other Arctic countries. Beijing knows that Russia does not want China to have a growing role in the Arctic and that their Arctic partnership is and will likely remain a marriage of convenience. Therefore, China may see a more cautious approach toward its cooperation with Russia in the Arctic best serve its own interests as it navigates through great uncertainty in the region.

The western Arctic states should responsibly leverage China’s desire for increased investment and voice in the region’s development to tilt China away from Russia, even if a complete breakup of the Sino-Russian Arctic partnership is unlikely. Reducing Europe’s and China’s dependence on Russian hydrocarbons will probably present an opportunity. Washington’s recent decision to supply 15 billion cubic meters of liquefied natural gas to Europe this year may mark the first step toward this goal. In the longer term, U.S. domestic energy production needs to be increased to sustain deliveries to Europe and probably China as well. U.S. diplomatic efforts, though bumpy and difficult, may also yield the reopening of Venezuelan and Iranian oil markets in the future.

While the dust is far from settled and much is up to subsequent developments in Ukraine, what seems clear is that Arctic cooperation is about to be transformed. The western Arctic states need a pragmatic, long-term view that acknowledges the benefits of sustainable Arctic development with China playing a meaningful role. In particular, for the Arctic countries, climate change is a national security matter in its own right, but addressing it requires Chinese cooperation. Thus, the western Arctic states should maintain, and when necessary, enhance, cooperation with China while ensuring that controlling interests would remain in local communities or host nations. These countries should also keep China engaged in multilateral Arctic diplomacy, be that through the resuscitation of the Arctic Council or the institutionalization of some alternative platforms, to ensure that China continues to adhere to the agreed international legal framework in pursuing its Arctic aspirations.

 

 

Jeremy Greenwood is a federal executive fellow with the Brookings Institution in Washington D.C. and a U.S. Coast Guard officer with more than 20 years of military service.

Shuxian Luo is a post-doctoral research fellow in foreign policy at the Brookings Institution. Her research focuses on Chinese foreign policy, maritime security in the Indo-Pacific, and America’s relations with Asia.

Image: PRC

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