Throughout the primaries President elect Donald Trump asserted that he wanted to have a more constructive relationship with Russia. Trump correctly asserted that President Vladimir Putin was not someone that the United States could pretend didn’t exist because he both loves his country and is enormously popular with his own people. Trump suggested that the United States needed to get past the finger pointing and find ways in which the United States could work cooperatively with Russia – especially in Syria. Mr. Trump would likely have also said that the U.S. needs to find ways to assuage Russian concerns that they were being politically and militarily encircled by NATO. The Trump approach was labeled by his political adversaries as coddling an authoritarian dictator. Obama by contrast seemed to believe that the only way to deal with Putin was by “calling him out” and imposing economic sanctions to target the most critical sectors of the Russian economy.    

Finding the right approach to Russian behavior towards Eastern Ukraine is something that cannot be ignored since the United States has legal obligations to Ukraine.  Under the December 1994 Budapest Memorandum, the United States agreed to safeguard Ukraine’s territorial integrity in exchange for Ukraine’s giving up its nuclear weapons.  The United States needs to make good on those security guarantees; however, running to a microphone, as Obama did, and denounce Putin as a dictator who jails his own people and a “jackass” at a 2013 G20 meeting does little to advance the cause of constructive diplomacy.  Even if Obama was right to be critical, his public behavior only alienated Putin and made it nearly impossible to have someone to negotiate with.  

Much work is needed to find ways to accommodate Russian fears of NATO encirclement and its concerns that the heavily ethnic Russian populations in Eastern Ukraine and Crimea have political and social protections.  Work is also needed to find a way to work cooperatively – as Trump has suggested – in Syria to end the conflict.  However, denouncing Russia as propping up the dictator Assad is not a constructive approach because it ignores the fact that Russia has had a military relationship with Syria since 1971 (when it first obtained basing rights at the Tartus Naval Base).  Russia, just like the United States when it comes to its own bases in Japan, Germany, and in South Korea, is not anxious to put its only military warm water port in the Mediterranean and its nearly 50 year defense relationship at risk, however flawed the current regime in Damascus.  Demands that Putin throw Assad under the bus also ignore centuries of Russian policy to have warm water ports for its commercial and military purposes.

President elect Trump is likely to find a way to thread the needle in Syria which leads to Assad’s ultimate ouster while at the same time preserving Russia’s legitimate interest in preserving its only warm water port in the Mediterranean.  But, doing this will take a lot of time and there is more promising low hanging fruit that will jump start a reset. 

The Reset Needs to Start in the Arctic.  

What has not been worked over the past three years has been the relationship between the United States and Russia in the Arctic.  Apart from annual meetings between the two countries coast guards, very little transpires between the two countries on Arctic maters.  Arctic policy has been relegated to the backwater in U.S. foreign policy even though, in many respects, the Arctic holds the keys to the U.S. economic and energy security. An especially worrisome outcome of this benign neglect is China’s unchecked political and economic gains in the Arctic which, if left unchecked, threaten to undermine U.S. and Russia’s political and economic interests the Arctic. Given these developments and parallel interests, the Arctic is a logical place where the United States and Russia can build a robust cooperative relationship.  If successful, then some of the more protracted bilateral problems can be tackled.  

Why the Arctic?

Many in the current Administration view the Arctic as home to cuddly Polar Bears and research centers to document the affects of climate change.  But, the facts on the ground – and water – are far different.  The Arctic is warming twice as fast as the rest of the planet. Rising temperatures are in turn opening the Arctic to increased human activity like never before especially in places like Northern Canada and Greenland where huge swaths of coastal lands rich in minerals are now accessible for exploitation. In many respects, the changes in the Arctic is resulting in the creation of a new ocean that can be used for fishing, oil and gas, and for ship transportation between Asia and Europe.     

The resource projections are breathtaking. Over 80 percent of Russia’s unrecovered natural gas and 70 percent of Russia’s unrecovered petroleum are in the Arctic regions, primarily in the Barents and Kara Seas and in the Timan-Pechora basin. According to a 2008 U.S. Geological Survey (USGS) report: “The extensive Arctic continental shelves may constitute the geographically largest unexplored prospective area for petroleum remaining on Earth.” The USGS estimates that 13 percent of the world’s undiscovered oil reserves (90 billion barrels) and 30 percent of the undiscovered gas reserves (1,700 trillion cubic feet of natural gas, and 44 billion barrels of natural gas liquids) are in the Arctic. These estimates are in addition to more than 240 billion barrels of petroleum reserves that have already been discovered.

It is also a forgone conclusion that as the Arctic Ocean becomes free of ice for longer periods of time, there will be market pressures for the vast resources in the Arctic to be exploited.   These resources include hydrocarbons both onshore and offshore, minerals, fisheries, and “access” for purposes of tourism and navigational convenience. The problem is that as this area opens up for human activity, the United States has stayed mostly on the sidelines as states like Russia, Greenland, and Iceland and Norway seek to “cash in” on the Arctic’s riches. Indeed, a major casualty of the U.S. sanctions program was Exxon Mobil that had entered into a major joint venture with the Russian Oil company Rosneft to conduct exploratory drilling of seven offshore sites in the Arctic and planning for a major liquid natural gas (LNG) project for the Russian Far East. That Exxon/Roseneft effort resulted in major new oil finds in the Kara Sea. In addition to Rosneft, the American sanctions preclude transfers of oil and gas technology, goods and services to the Russian energy companies Gazprom, Gazprom Neft, Lukoil, and Surgutneftegas. This was a major blow to Exxon to bolster its production in the Arctic and establish a U.S. presence in the Arctic offshore oil market as many of its fields around the world are declining.

At the same time as sanction crippled Exxon-Mobil’s effort to gain a toe-hold in the drilling activity in the Russian Arctic, U.S. officials had second thoughts about its past licenses to Shell Oil to drill exploratory wells in the Chucki Sea. After some initial setbacks due to weather and other factors and huge safety demands levied upon it by the U.S. government, Shell saw the handwriting on the wall and in September of 2015 abandoned the roughly $2 billion it had paid the U.S. Department of Interior to conduct exploration in territories off Alaska’s Coast. Despite the fact that Shell took massive financial losses, the point person in the U.S. government leasing program - Deputy Secretary of the Interior David Hayes – was cited by Forbes as rejoicing in the “huge and welcome” news that Shell was abandoning its multi-billion offshore oil leases in the U.S. Chucki Sea.

Enter the Dragon

Though environmentalists celebrate these setbacks, what they fail to realize is that activities in the Arctic are not standing still since the U.S. only controls a fraction of the Arctic Ocean’s coastline. The vacuum created by the sidelining of these two very large and well-capitalized oil companies is now being filled by Chinese oil and gas and mineral companies that are anxious to extract the Arctic’s vast oil and gas and mineral wealth to fuel the Chinese economy.  

Some, including this author, forcefully argued that the Arctic states - under the umbrella of the Arctic Council - needed to develop rules of the road as relates to shipping, oil and gas, and mining activities to ensure that these industrial operations are sufficiently well capitalized and comply with high safety and environmental standards. This approach has to be on a multilateral level since most of the resource activity will take place in countries like Canada, Greenland, and Russia that share the Arctic Coastline with the United States. Because of the closed nature of the Arctic Sea, high standards are beneficial to all because an accident in one country will likely affect the water column and coastline of other countries. The Arctic Council was suggested as the best place to do much of this because it was the only multilateral entity in the Arctic and because the United States had the power as the Chair of the Artic Council from 2015 through April 2017.  

In the nearly two years since the United States occupied the Chair of the Arctic Council, the Administration published a few glossy publications talking about the rate of climate change in the Arctic and the need to protect the fragile economy and rights of indigenous people. The U.S. also brokered a memorandum of agreement on oil spill response that essentially was an exchange of contract information if the s- - - hit the fan. All of these actions were good; but they were anemic in the big scheme of things.   It was understandable that the United States would not launch a program to encourage offshore oil and gas development or mining in the U.S. Arctic given the political dynamics in the U.S.; however, denying that such development would be occurring in other states bordering the Arctic Sea created a opening for China to make strategic investments in mines and hydrocarbon projects that will use standards that would come close to those that Shell Oil or Exxon Mobil would be using if they were heading these projects.  

What About the China Angle? 

The recent book by the Council on Foreign Relations Scholar Elizabeth Economy in By All Means Necessary:  How China’s Resource Question is Changing the World chronicles China’s worldwide quest for resources and discusses the implications of those activities. China’s dependence on foreign oil imports, for instance, has increased nine times in the past 10 years such that now China is the world’s largest oil importer. China is quite transparent about its aspirations in the Arctic. In a 2014 Strategic Assessment by the PLA’s Defense Policy Research Center concluded that he Arctic could be China’s “new middle east” and its economic “lifeline” for trade and sources of raw materials.  

China has already made major investments in Canada, Norway, the United States, the Russian Federation, and is especially eyeing Greenland because of recent laws that it has passed to encourage foreign investment to help it with its chronic unemployment.   For example, in 2012 China’s National Offshore Oil Corporation acquired Canada’s Nexen corporation for $15.1 Billion to conduct drilling in the Yukon Territory. China’s Jiangxi Union Mining has acquired rights in Greenland to mine for uranium and rare earth minerals (further exacerbating their worldwide monopoly) and potentially to import thousands of Chinese workers. China has invested over well over $10 billion in many oil and gas projects in Russia; including a major production and refining plant in Russia’s Yamal Peninsula that will be the origin point for LNG ship movements from Yamal to sites in China. But for low oil and commodities prices, it is likely that the number of oil and gas projects would have been much greater; however, low prices will not last for long and China always takes a long-term view when it comes to securing sources for its raw materials.  

There is nothing wrong with Chinese passive investment in these large projects so long as standards are not compromised and the investments do not have political strings attached.  But, according to Ms. Economy, China had an extensive track record in Africa and South America of using its economic clout to get local officials to look the other way when it came labor and environmental standards since many of these cash starved localities – especially in Greenland and parts of Canada - are desperate for outside investment and employment. Often times, promises of local employment were not realized because Chinese firms much preferred to import Chinese workers who are accustomed to substandard wages and working conditions and don’t complain. This can be a major political factor with the many new – and labor intensive – mining operations that are now in the works particularly if the laborers decide to take up residence and exercise their political rights in the very sparsely populated communities bordering the Arctic Ocean.  This can also, of course, set the stage for major industrial accidents because the remoteness of the Arctic means that there will likely be very little monitoring and oversight of what is taking place.      

What Should the President Elect Do?

The United States has no right to tell other countries that they can’t develop their resources but it can work cooperatively with other countries to develop reciprocal regional development and shipping standards to ensure that outside Chinese money doesn’t gravitate to states like Greenland where standards either don’t exist or aren’t likely to be enforced because they simply lack the capacity to enforce them.  

While Russia is probably willing to sacrifice some standards in the short term in order to obtain Chinese capital that isn’t sanction constrained, Russia has made no secret of the fact that it does not want to become beholden to China as a source of capital and technology. In the short term, the crippling sanctions provide Russia little choice to cozy up to China’s largest oil companies (CNPC, CNOOC, and SINSOPEC) to exploit resources in Kara Sea and Yamal Peninsula. Many analysts believe that this marriage of convenience is viewed by skepticism by Russian officials since they fully expect that China will demand a majority stake in these projects and be “more assertive” in regional affairs. Russia, which has been a strong adherent to UNCLOS, also has good reason to distrust Chinese intentions given China’s unlawful behavior in the South China Sea.  

It is probably too late the put the genie back in the bottle when it comes to the recent oil and gas deals between Russia and China.  But, it would be mutually beneficial for both countries to ensure that China is not emboldened to use its economic leverage to reorder the legal and political landscape in the Arctic.

Since the source of China’s power is money, President Elect Trump should first propose to President Putin that the U.S. and Russia, in collaboration with Norway, Greenland/Denmark, and Iceland, establish an Arctic Development Bank to provide an alternative to Chinese money to finance large projects. Second, as suggested by the author three years ago, the United States should help Russia to get its important Northern Sea Route internationally recognized by the International Maritime Organization as a recognized international route for shipping through the Arctic. For various reasons, this will provide Russia with a source of capital to improve its icebreaker fleet and to improve the navigation aids along the route and, in doing so, greatly improve the safety of shipping. Third, the President elect should work with Moscow to find a way to ease the crippling sanctions that are preventing firms like Exxon Mobil from operating in Russian waters. This is both a way to benefit U.S. business but, much more importantly, it is important that first class drilling technology and financially solvent companies are the ones that are being licensed to operate in the harsh arctic environment. The licensing of others that have second-class technologies and questionable financial bandwidth, is a recipe for disaster for everyone. Finally, the United States and Russia can take a leadership role in the Arctic Council to enact regional standards for offshore oil and gas development and to ensure that all visiting ships comply with the recently enacted Polar Code. Russia has just as much interest as the U.S. in the water quality of the Arctic to sustain their massive fishing interests. Reciprocal standards for shipping, oil and gas, mining and other industrial activities is the best way to sustain those fisheries in the long term.  

The Arctic is one of the few places where U.S. and Russian interests are complementary. Building upon those shared interests will build confidence between the two leaders and two countries and hopefully lead to positive developments in other troubled regions of the world. 

Mark E. Rosen, a maritime and international lawyer, is the SVP and General Counsel of CNA and holds an adjunct faculty appointment at George Washington School of Law. The views expressed in this paper are those of the author alone and do not represent the views of CNA or any of its sponsors.

Image: U.S. Navy