Russia is making big moves in the Arctic, expanding its oil and gas operations despite global sanctions from its invasion of Ukraine. A new 300-foot extension to a massive hangar in the Arctic highlights Russia’s push to use the Northern Sea Route (NSR) for shipping oil and gas to China. This route and its resources are crucial for Russia, not just for energy exports but also for gaining China’s support on the international stage. With plans to dramatically boost Arctic oil and gas production, Russia is positioning itself to challenge the U.S. dollar’s dominance in global energy markets, making the Arctic a key battleground in geopolitical and economic power plays.
Why the Arctic Sea Route is Vital for Russia and China
Since Russia’s invasion of Ukraine in February 2022, the Arctic Northern Sea Route (NSR) has become crucial for Russia’s oil trade. This route allows Russian oil tankers to travel through the Arctic to reach markets like China. This is especially important to President Vladimir Putin, who has been keen on expanding the NSR and Russia’s Arctic operations since Russia’s earlier annexation of Crimea in 2014.
China plays a key role in this strategy. As a permanent member of the United Nations Security Council, China holds significant influence. The Security Council can block major resolutions, including those that might lead to military action or peacekeeping missions against Russia. China has used its power to prevent such actions against Russia following its invasions.
In return, Russia offers China discounted oil and gas. Much of this energy is transported through pipelines, such as the ‘Power of Siberia,’ which is expected to deliver 30 billion cubic meters of gas this year and increase to 38 billion by 2025. Additionally, Russia plans to provide China with more liquefied natural gas (LNG), which is a flexible and quickly transportable form of energy, especially important since traditional gas flows from Russia were cut off due to sanctions.
LNG has become a crucial energy source as it can be quickly bought and shipped without the need for extensive infrastructure. This flexibility makes it even more valuable if global tensions rise, such as potential conflicts involving China over Taiwan.
For Russia, keeping the NSR open year-round is vital. Due to the harsh Arctic conditions, ships have struggled to navigate this route during the colder months. To overcome this, Russia is investing in keeping the NSR operational throughout the year. The goal is to increase cargo transport from 36 million tonnes last year to 100 million tonnes by 2026 and 200 million tonnes by 2030.
Russia has significant Arctic resources, including vast reserves of gas and oil. The Yamal and Gydan peninsulas alone hold enormous amounts of these resources. President Putin has indicated that the extraction of these resources and the development of the NSR will expand significantly over the next 10 to 15 years.
One major discovery was a huge new gas field in the Kara Sea, named after a Soviet hero, with estimated reserves of 800 billion cubic meters of gas. This field is part of Rosneft’s extensive projects in the Arctic, which are expected to create a new oil and gas hub in Siberia.
Russia’s push in the Arctic also ties into broader efforts to challenge the dominance of the U.S. dollar in global energy markets. Russia and China are exploring alternatives, including pricing energy in Chinese yuan rather than U.S. dollars. This shift aims to reduce dependence on dollar-based trading, which has been a goal since Russia faced Western sanctions in 2014.
In summary, the Arctic Northern Sea Route is more than just a shipping lane for Russia and China. It represents a strategic advantage in global energy markets and a key component in both countries’ efforts to assert influence and challenge existing economic power structures.
