The Northern Sea Route: An Iceland-China Link

Coming on the heels of a UCLA study reporting that new trans-Arctic routes could be open to shipping by mid-century, Huigen Yang, the Director Polar Research Institute of China, met with Iceland’s Minister for Foreign Affairs, Össur Skarphéðinsson, on March 15 to discuss northern shipping. Both countries stand to benefit if the Northern Sea Route is developed: China, which has a higher throughput of cargo than any other country in the world, could have a potentially faster shipping route, while Iceland could profit from building a transshipment port.

During discussions, Yang suggested that China might ship 10 percent of its freight to Europe via the NSR. Some publications are reporting that this could be worth $700 billion, but this appears to be a mistake: daily trade between China and the EU is worth €1 billion a day, so if that is approximately €365 billion a year, then 10% would be €36.5 billion – still a sizable amount.

As reported by News of Iceland, Skarphéðinsson stated, “Singapore, Dubai and European port companies have already visited Iceland and showed much interest in these possibilities. We have always believed in this sailing route, both because of the ocean currents and because of the ice thickness, and it is important that a large nation like China agrees with us, and they have already prepared to use the route. Huigen Yang said that the Chinese are already preparing to build reinforced container ships, that are designed by the Finnish, and they have already demonstrated in the Kara Sea that these ships can sail through meter thick ice and would not need the aid of icebreakers.”

A few points to make here before people, including the Icelanders, get too excited:

1. The Singaporeans, who possess the world’s busiest transshipment port, are keeping their eyes on the NSR, but I think it is more to monitor potential competition rather than to use the route as a real alternative. Based simply on a time factor, Singapore would not experience any savings by shipping to Europe via the Russian route instead of the Suez Canal. From Hamburg to Singapore, the distance via the NSR is 9,730 nautical miles, while it is 8,377 nautical miles via the Suez Canal.
2. I had not previously heard of Dubai – home to the Jebel Ali Port, one of the world’s top 10 container ports – being interested in shipping cargo to and from Iceland. I’m not sure how the emirate city would stand to benefit from shipping along the NSR, but there is a chance that shipping services companies  based in Dubai such as GAC-ORO that happen to have experience in polar shipping could sell their knowledge to Reykjavik businesses. For instance, GAC-ORO helped manage the departure of the first ever loaded LNG tanker from Snøhvit, north of Hammerfest, Norway last October.
3. Even if the Chinese think that the reinforced container ships would not need icebreaker escorts, the Russians, and possibly even shipping insurance companies, could still mandate that shipping companies use them in order to sail the Northern Sea Route.

Skarphéðinsson continued: “This can revolutionize the geopolitical position of Iceland against Europe, Asia and the US, because Iceland is at an important location in this sailing route between continents. The Americans did not understand this some time ago, but most people are starting to realize this now.”

One of the reasons Iceland may be trying hard to sell the strategic nature of its geopolitical position is because it is seeking membership with the EU, which, in turn, desires permanent observer status at the Arctic Council. A decision on the EU’s status might be taken in May at the Arctic Council ministerial meeting in Kiruna, well before any vote will be held on Iceland’s membership in the EU. Still, it would bolster the EU’s credibility as an Arctic “supranational organization” if Iceland were eventually in its fold, even though Iceland is generally not accepted as an Arctic coastal state, as its EEZ does not extend into the Arctic Ocean. Right now, Denmark is the only coastal state in the EU, yet Greenland — the country’s claim to being in the Arctic littoral neighborhood — is not formally a member of the organization. Greenland is instead counted as an Overseas Country and Territory.

Icelandic-Chinese relations continue to grow just as Norwegian-Chinese relations warm as well. In the build-up to the likely decision in May on permanent observer status, ties between Asia and the Nordic countries will likely remain cozy.