The Arctic is not a frozen peripheral, particularly after the spat between the U.S. and Europe over Greenland. The High North is becoming a strategic hub for minerals, energy and shipping as the sea ice begins to melt.

The Arctic is heating up four times faster than other parts of the world, but the debate is also heating up over who will control the routes, rules, and resources which will influence global markets for many decades.

Western policy has just begun to catch up with Russia and China, who are building their influence in the Arctic in order to increase?their?economic leverage.

RUSSIA'S ARTIC FOOTPRINT

Geographically and in terms of infrastructure, Russia dominates the Arctic. According to the Arctic Institute, about 80% of Arctic gas and oil production is produced on Russian territory. Arctic fields account for one-fifth or more of Russia's total oil output, and an even larger portion of its potential export growth.

Concentration, not size is what makes Russia unique. The Arctic region of Russia is estimated to hold 35.7 trillion cubic meters (tcm), which is nearly 75% more natural gas than Russia's entire proven reserves.

In the Arctic, Russia has around 95% of its platinum group metals reserves and two-thirds its rare earth deposits. According to Nornickel's data and government statistics, Russia produces 92% of the?cobalt and 100% of the nickel in its Arctic territories.

The West's Arctic assets, on the other hand, are substantial but fragmented. Alaska has the largest oil reserves of the entire region. According to the U.S. Department of Energy, Alaska accounts for 3.5% or the total U.S. crude production. Energy Information Administration. According to the Swedish state-owned LKAB, the city of Kiruna contains the largest deposit of rare earths in the European Union. If developed, it could provide 18% of the needs of the EU.

Finland will become the EU's 1st integrated lithium producer in this year. Greenland is an autonomous territory under Danish jurisdiction. The vast mineral potential is there, but logistical difficulties make it unlikely that major investments will be made in the near future.

NORTHERN SEA RES-ROUTING

Arctic energy flows had been deeply integrated into European markets before Russia's invasion of Ukraine. However, since 2022 sanctions have forced the rerouting for Russian fossil fuel exports. Arctic crude and condensate is now being shipped east via Murmansk, and the Northern Sea Route. This is often done by an aging "shadow fleet" that operates outside of Western insurance regimes.

Liquefied Natural Gas (LNG), from the Yamal Peninsula, continues to be sold in both Asia and Europe. This is because Russian LNG is not fully sanctioned.

The EU is now attempting to ban all Russian gas imports as of January 1, 2027. This will make the NSR even more crucial for Russia, which will reroute its exports towards Asia. The NSR reduces the distance between Europe and Asia by almost half compared to the Suez Canal. This gives Moscow more leverage in a trade route that bypasses the traditional choke points.

Also, the Arctic continues to serve as a test ground for sanctions evasion. Ship-to ship transfers, opaque ownership and the mixing of Arctic oil with other oils have undermined Western measures that target the shadow fleet or Arctic LNG projects.

CHINA'S POLAR CALCULUS

China's Arctic footprint is smaller than Russia's, but strategically located. Chinese companies own almost 30% of the Yamal LNG Project through the national energy giant CNPC, and the Silk Road Fund. Policy banks are also helping to finance the $27 billion venture. This investment ensures LNG supplies for the long term, access to polar energy technologies and future Arctic shipping routes.

Beijing's interests go beyond hydrocarbons. Chinese companies are pursuing stakes in Arctic mineral deposits, such as rare earths and nickel in the High North and iron ore in Greenland. These resources are at the core of global supply chains for clean energy, so China's dominance in low-carbon manufacturing is reinforced by access to these resources.

China's Arctic ambitions have to do with resilience. The "Polar Silk Road", a new route in the Arctic, offers protection against disruptions at the Red Sea or Suez Strait. Even a limited use of Arctic routes for commercial purposes can increase China's bargaining strength when it comes to negotiating contracts for port infrastructure and shipping. Both are central to China's global economic strategy.

LONG-TERM MARKET IMPLICATIONS

Although the geoeconomic rivalry for Arctic resources and trade routes is likely to continue into the future, its impact on global markets has already been felt. The Kremlin has been able to maintain a foothold in Asian LNG markets by tightening its control over Arctic routes. This has undermined the effectiveness of U.S., EU and other sanctions. In the future, a concentrated control of Arctic sea lanes could splinter trading routes and make the High North an entirely separate corridor, with different rules, costs, and political risks.

The Arctic is now a reality for both the EU and US. The Arctic is the gateway to energy flows, data cable and shipping lanes which underpin transatlantic economies. Cyberattacks, sanctions evasions, sabotage of critical infrastructure or the heavy-handed regulation affecting Arctic navigation could all have a ripple effect on global supply chains.

As melting ice creates new opportunities for trade, it also exposes a new fault-line in the global economy - which markets cannot afford to ignore.

The views expressed are those of Martin Vladimirov (Director of the Geoeconomics Program of the Center for the Study of Democracy, CSD) and Vanya etrová, Senior Analyst at the CSD. This column is interesting to you? Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)