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DEEP DIVE: War, climate and energy crises are destabilising Russia’s grand plans for Arctic oil
War has shattered the Arctic region’s consensus-based system of governance, raising fears that long-simmering resource disputes could boil over. Will the energy crisis put Russia’s Arctic drilling programme on a war footing, or thwart Moscow’s ambitions? And with geopolitical relations in flux, what are the risks of building supersized fossil fuel infrastructure in a thawing Arctic without Western expertise?
This is the second instalment in a mini-series on Russia’s Arctic energy resources in a time of war and rising temperatures. Part one is free to read here. This post is for premium members only.
Article stats: 2,700 words / 13-minute reading time
“The Arctic’s profound mineral wealth, geopolitical importance and fragile system of governance make it fertile ground for either cooperation or conflict.” — Ingrid Burke Friedman
In the years since Russia’s 2014 annexation of Crimea, a hyperbolic narrative took hold describing the Arctic as the next ‘great game’ in a deglobalizing world. The US under the presidency of Donald Trump was retrenching from the global stage, creating openings for America’s rivals to plunder the Arctic’s vast resources — enabled by receding sea ice and thawing permafrost. The Arctic was up for grabs and emerging powers were angling for a slice.
That narrative was not entirely wrong. Geopolitics certainly became more fractious and confrontational as the 2010s progressed, but reality tempered Eastern designs upon Arctic oil, gas and coal. Drilling in harsh icy conditions to extract expensive resources in extremely remote and underexplored oil provinces with scant existing infrastructure made little sense in a world awash with shale oil.
While Arctic hydrocarbons have always been coveted, fears of a zero-sum resource grab proved misplaced — or perhaps premature. All stakeholders (even Moscow) took a multilateral approach to pursuing geostrategic goals in the region, albeit while beefing up Arctic military presence. Aspiring non-Western powers played largely by international rules and sought to resolve conflicting territorial claims via the United Nations. Against the odds, consensus-based governance was prevailing.
War in Ukraine and a global energy crisis are reviving those fears. The shock of Russia’s full invasion of Ukraine by land, sea and air is redrawing the post-Cold War security map, pushing neutral Arctic states towards NATO membership. Soaring energy and commodity prices are giving renewed impetus to developing high-risk, high-cost resource projects. Is the politico-economic calculus of Arctic expansion shifting?
The Arctic is back in play
Russia’s actions in Ukraine are shattering the delicate foundations upon which Arctic peace rests. The invasion prompted the seven non-Russian members of the Arctic Council (Canada, Denmark, Finland, Iceland, Norway, Sweden and the US) to suspend all council activities in early March until further notice.
The Council — described by some as ‘the shadow government of the Arctic’ — serves as a quasi-umbrella organisation for a medley of overlapping Arctic governance initiatives. Its remit is decidedly non-military, allowing members and observers to focus on trade, fisheries, environmental and scientific issues while avoiding divisive questions of regional security.
The Arctic Council is far from perfect, but it managed to keep the peace among truculent rival members since it was founded in 1996. Sovereignty of Arctic states was respected, and in return they (ostensibly) respected the rules-based order and took their stewardship responsibilities seriously. Cooperation and trust proved more beneficial than the alternative.
The “boycott” by a non-unanimous majority midway through Russia’s two-year rotating chairmanship of the Arctic Council marks a turning point, says Ingrid Burke Friedman, a fellow at Harvard University’s Davis Center for Russian and Eurasian Studies. She sees a return to normality as strewn with difficulties:
“If there were gaps in governance before, they have now become glaring abscesses… [Vulnerabilities] are only heightened by the fact that a breakdown at the Arctic Council could provide strategic opportunities for non-Arctic states such as China to expand their influence in the region.”
Beijing emboldened
China's growing economic and political involvement in the Arctic is one of six catalysts that could bring the Arctic to a “brink-of-conflict situation by 2030”, according to a RAND Corporation research paper published last year. China began describing itself as a “near-Arctic state” as early as 2012, the year before it attained Arctic Council observer member status.
Beijing issued its first formal Arctic policy in 2018 articulating its intention to build a ‘Polar Silk Road’ stretching from Shanghai to Hamburg. This was shortly after Chinese state energy companies began investing heavily in liquefied natural gas export projects in the Russian Arctic (see part one), saving Novatek’s Yamal LNG project from ruinous Crimea-related Western sanctions.
China’s designs upon the Arctic are succinctly captured in this oft-repeated quote from Li Zhenfu, director of Dalian Maritime University's research center for polar maritime studies:
“Whoever has control over the Arctic route will control the new passage of world economics and international strategies.”
Li described in a 2010 paper the “huge benefits” that come with the melting of the Arctic Ocean, warning mandarins in Beijing:
“China cannot lose the right to speak on this issue.”
He was talking specifically about rights to Arctic shipping routes, but the thinking explains China’s long-running efforts to gain regional influence by encroaching upon Greenland and Iceland. It all boils down to access to resources and markets.
Uneasy bedfellows
Russia’s newfound pariah status is accelerating its pivot towards China, but how far will that allegiance enable resource exploitation in the Arctic? There’s not much trust between the two global powers, and there are limits to how deep the relationship can go.
Russia risks becoming overly reliant on Chinese capital, labour, expertise, technology and buying power. China is already a major buyer of Russian energy exports with plans to import more over the coming years as eastward-flowing pipeline infrastructure is expanded.
Moscow’s determination to cut off its primary customer base in Europe risks making itself beholden to a single Asian buyer. And for China, reliance on a single supplier is a security weakness that could cost Beijing more than it saves on heavily discounted Russian crude barrels.
Climate change will test Sino-Russian relations. Melting sea ice elevates the risk that Russia will act to ensure its continued control of the strategically important Northern Sea Route (NSR), perhaps by closing access to non-Russian flagged vessels.
“This could catalyze conflict with China, which increasingly identifies the NSR as a promising … part of the country’s Belt and Road Initiative.” – RAND
Western expertise vacuum
Sino-Russian conflict seems unlikely due to obvious escalatory and destabilising risks, diplomatic sources tell Energy Flux. Arctic resources fuel Russia’s economic engine, and the Kremlin knows it can’t go it alone.
Russian president Vladimir Putin recently invited “non-regional states” — a thinly-veiled reference to China and India — to help deliver Arctic projects. But can these countries fill the void left by Western oil majors and oilfield services companies exiting Russia?
Drilling for Arctic oil and gas is now much more difficult for the likes of Rosneft, Gazprom and Novatek. This poses a major headache for Russia’s portfolio of unfathomably ambitious Arctic mega-projects. Of these, Rosneft’s flagship Vostok Oil development under construction on the remote Taymyr Peninsula in East Siberia is by far the largest.
Rosneft began looking for foreign contractors to build Vostok in 2021, courting companies from Italy, Germany, China, South Korea, Japan and the Middle East. No contracts were signed prior to the invasion and an announcement now would seem unlikely.
Moreover, Rosneft boss Igor Sechin failed to reel in any major international oil companies to help build Vostok. Commodity traders Trafigura and Vitol each took a 10% stake, which Trafigura is now reviewing after halting new investments in Russia.
Traders don’t bring project execution expertise to the table. Their involvement is largely financial, so Chinese or Indian capital might bridge the gap.
India seems happy to turn a blind eye to the Ukraine invasion in return for cheap Russian oil. Energy cooperation between the two countries is strong, centred on trade and investment. Rosneft owns India’s second largest refinery. India’s ONGC Videsh and other state energy companies own stakes in Russian oil projects and want a slice of Vostok Oil.
Asian capability test
There is a template for Sino-Indian-Russian collaboration in delivering big Arctic oil schemes with limited outside help. India’s ONGC Videsh and China’s CNPC are both shareholders in Rosneft’s Vankor oil complex in Eastern Siberia that came online in 2009.
According to Rosneft, more than 80% of equipment for the project was made in Russia. This includes oil and gas processing units and other specialised kit supplied by Russian engineering firm OZNA. However, the Vankor consortium resorted to hiring Canadian EPC contractor SNC-Lavalin to undertake front-end engineering and design (FEED) work.
Vankor is already huge: its 22 million tonnes per annum output accounted for >4% of Russia’s oil in 2015, and is comparable to ONGC’s entire production from all its Indian fields. Now Rosneft plans to expand Vankor and integrate it into the sprawling Vostok project.
The sheer scale is bewildering. The $85 billion project, widely described as the cornerstone of Russia’s Arctic ambitions, will require 400,000 workers at peak construction. Vostok would send up to 2 million barrels per day of low-sulphur crude along the Northern Sea Route to Europe and Asia. That’s comparable with the entire North Sea oil market.
“[P]roject plans include drilling 6,500 wells and installing 5.5 thousand km of pipelines. Construction has already been completed for two airfields, a sea terminal with oil transfer capacity of up to 100 million tons per year, electric power supply lines and highways.” – Russian Federation Arctic investment portal
Tough sell
Delivering a project the size of Vostok without Western expertise is all but impossible, industry sources tell Energy Flux. Vankor was a much less challenging prospect, lying just on the edge of the Arctic circle due south of the West-Irkinsky, Payakhsky and Taimyrsky clusters that constitute the vast northerly Vostok complex.
Difficulties in attracting skilled workers to the Russian Arctic was already holding back development. A 2021 research paper identified an “acute personnel problem in the field of mineral resource extraction in the Arctic… characterized by an outflow of human resources”. This is due to:
“…low temperatures, long and dark winters that provoke a depressive emotional state, a large number of physically stressful tasks, weak infrastructure, lack of social life, and so on.”
Even if enough skilled labour can be lured to work in inhospitable conditions and Vostok proves to be financially and operationally feasible, it faces similar obstacles to Arctic LNG 2 (see part one). Rosneft wanted to send its light grade of crude to refineries in the EU — which is mulling a ban on Russian oil imports.
That’s a key bone of contention being chewed over at this week’s European Council summit. Even if EU leaders fail to strike an agreement, the direction of travel towards ever-lower Russian imports is set. All that is at stake is the pace of the ramp-down.
Arctic ‘gigantomania’ stalls
Vostok is a prime example of “gigantomania”, a phrase used by a senior executive from a European international oil company to describe Russia’s impossibly ambitious approach to Arctic development. The logic of that approach was already being challenged by demand uncertainty fuelled by decarbonisation and global economic fragility, the high-ranking source told Energy Flux:
“Arctic resources won’t be the last barrels standing. There’s a high likelihood that any massive investment in the Arctic right now will find itself stranded. [War] has moved forwards the trends we were already seeing. The EU energy transition will decelerate over the next two to five years [during the current high price cycle] but it will accelerate dramatically thereafter. In Asia, it will benefit coal over gas because this is an indigenous resource, followed by a direct switch to renewables.”
When ice turns to swamp
There is another factor weighing on Arctic infrastructure investments: climate change. Constructing mega-schemes such as Vostok in the rapidly warming Arctic environment is extremely risky. Thawing permafrost is already destabilising infrastructure across Alaska and much of Russia’s far north.
A diesel storage facility on the Taymyr Peninsula spilled more than 60,000 tons of fuel in 2020 after its foundations sank, prompting inspectors to warn more tundra oil depots could collapse across east and west Siberia. This is the same Taymyr tundra where Rosneft wants to roll out 700 km of oil trunklines and a major oil terminal on the Kara Sea coast.
Russia’s determination to supersize its Arctic oil ambitions can only exacerbate its ballooning climate liabilities at existing oil and gas installations. A 2018 research paper found that one-third of pan-Arctic infrastructure and 45% of the hydrocarbon fields in the Russian Arctic are in regions where thaw-related ground instability can cause “severe damage” to the built environment.
“Alarmingly, these figures are not reduced substantially even if the climate change targets of the Paris Agreement are reached.” — Hjort, Karjalainen, Aalto et al (2018)
The Arctic’s marine ecosystems are particularly vulnerable to oil spills from blowouts, pipeline leaks or shipping accidents. Ragnhild Elisabeth Waagaard, global oil & gas transition lead at WWF Climate & Energy, tells Energy Flux:
“The lack of infrastructure and remoteness of the area mean it can take days or weeks to respond to a spill, and clean-up can be ineffective. Local environments can be ruined for decades, effectively wiping out local populations of certain species and affecting local people’s livelihoods and food security.”
So, Arctic thawing is baked in and Russia is more exposed than any other country to its destabilising effects. Hardly an ideal premise upon which to build an immense network of drill pads, pipelines, processing units, port loading facilities, highways and housing for imported Arctic workers.
In from the cold
Nornickel, the company responsible for the 2020 Taymyr diesel fuel spill, was admonished after the accident. President Putin criticised company president Vladimir Potanin, and bosses from its local subsidiary were reportedly detained by police. But all is forgiven now because Nornickel holds the key to Russia’s participation in the next great frontier for energy investment: decarbonisation.
Nornickel is the world's largest palladium and nickel producer and a major player in other crucial energy transition metals. The company was allowed to sign a cooperation agreement with state atomic energy corporation Rosatom in April focussing on lithium deposits in the Murmansk region. Their objective is to create a made-in-Russia battery energy storage industry.

This initiative is likely to run into the same headwinds and market access constraints as Russian Arctic oil developments. Western economies are decarbonising first so are the natural destination for batteries and energy storage technologies. Sanctions will put these markets out of Russia’s reach for many years, maybe into the 2030s.
Besides, the energy transition poses an existential threat to Russia’s export-oriented powerbase. There is no way that nickel, aluminium, copper and rare earth metals can compensate for lost oil, gas and coal revenues. Some observers in Moscow are well aware of this.
Wounded bear
So the question becomes: what does failure to develop Arctic resources mean for a frustrated autocratic Russian regime frozen out of global financial markets, wary of pivoting too far eastwards and bogged down in a messy land war? This prescient quote from a 2020 essay by Geir Westgaard, vice president at Equinor, sums up the uncertain outlook:
“As Moscow grows disenchanted with the lack of rewards from cooperation in oil and gas, shipping and other economic activity, reliance on military instruments of policy is likely to increase. Russia thus becomes a more one-dimensional great power and the geopolitics of the Arctic become less positive-sum and more zero-sum. It’s important to note that this happens not because of the much-hyped scramble for resources but rather because the resource riches have failed to materialize.”
Soon, the Russian Arctic will be fully encircled by a solid front of NATO members. This is a new situation for all Arctic states. The response from Russia — a defiantly militaristic and bellicose state under Putin — remains to be seen.
The Arctic is the next frontier in energy transition geopolitics, and its end-game is still being written. War and sanctions might offer vital reprieve from intensive resource extraction of Russia’s share of this pristine wilderness, but the urge to exploit newly-accessible energy and minerals will be a constant source of tension — and motive for greater militarisation, regardless of the risks and rewards on the table.
Seb Kennedy | Energy Flux | 31st May 2022