At a time when the global oceanic supply chain is facing challenges from Houthis attacking ships in the Red Sea, Russia has a new solution that benefits Moscow. The question for Putin is, will it work?
Shipping lines that once used the Suez Canal to shorten their trips are now diverting commercial traffic to longer routes around Africa. Sailors are demanding double pay and insurance companies are raising rates to travel a waterway that typically carried 12% of the world’s maritime commercial traffic. Moscow sees these conditions as a golden opportunity to enhance its geopolitical ties with Asia and promote economic growth in its Artic region.
Putin wants to develop a “hydrocarbon province” in the Arctic using its pipeline delivery method to avoid the Red Sea and Middle East oil states. According to Sergey Sukhankin, writing in the Daily Eurasian Monitor, the mega-project’s goal is to elevate the Northern Sea Route’s competitiveness with the Suez Canal and promote Russian economic growth with India, China, and Southeast Asia. In addition to increasing trade through those regions and the Northern Passage, the project could help jump-start the economic and scientific revitalization of Krasnoyarsk Krai and serve as a tool for economic growth (adding 2 percent per year), says Sukhankin.
Russia needs a large capital investment to accomplish its goal and is turning to China to fund the Vostok Oil project. Other foreign investors have already withdrawn due to concerns over Rosneft’s incomplete data and a lack of Arctic-class ice tankers. Some Russian media sources are already labeling it a Russian-Chinese ventures. Without closing on Chinese financing, however, Putin’s strategy is likely to fail. Rosneft has an 85% stake in the project and is seeking foreign money from Hong Kong and United Arab Emirate companies. If successful, Putin plans to export up to 115 million tons of oil per year using the Northern Sea Route by 2033.
Last October, at the fifth Russian-Chinese Energy Business Forum, Russia openly requested the investment funds claiming it is the only nation-state that is a safe, sustainable, and responsible major oil-exporting county due to the ongoing destabilization and war in the Middle East. China recognizes that a pipeline delivery system is advantageous over ships using the Suez Canal and Strait of Hormuz. Russia, notes Sukhankin, has abundant natural resources, is committed to exploring for new carbon resources, and developing deposits. A Russian-Chinese deal could provide China with a new investment opportunity with China as the primary beneficiary.
According to the Russian publication RU.com, the Northern Sea Route, would not only shorten the trade route between Asia and Europe, but would also be more secure and provide additional opportunities beyond oil and gas. There are a number of challenges that could stop Putin. South Korea’s Hyundai Heavy Industries, which had cooperated with Russia to build the Zvezda Shipbuilding Complex, has discontinued its relationship due to the war in Ukraine. This complex is critical to Moscow’s plan to assist in expanding its carriers of liquid natural gas (LNG) from the Arctic to end users in Asia, according to the Russian publication Neftegaz.
“Mikhail Krutikhin, co-founder and leading analyst of the Moscow-based RusEnergy independent consulting agency, has argued that Russia’s struggles with attracting foreign investors are primarily based on three aspects,” says Sukhankin.
Without investors, Moscow will not be able to deliver the 30 million tons per year to end users through the Northern Sea Route anytime soon. Russia does not have enough ships. In addition, a critical Northern Bay oil terminal does not exist and there are no new pipelines to carry that amount of oil. “Russia may have exaggerated the estimated capacity of the Vostok Oil project” according to one energy analyst who called it “extremely questionable,” says Sukhankin.
As the wars in Ukraine and the Middle East drag on, Putin is left with fewer options for funding. Partners, under the current geopolitical conditions, are unlikely to accept the high risk entailed in dealing with Russia. As Putin’s window of opportunity shrinks over time, some analysts suggest he will become more desperate to fund the war in Ukraine and that will make him a more dangerous adversary.
Daria Novak served in the U.S. State Department