The Next A5 – Big Oil in the Arctic

It’s the time of year when bloggers indulge themselves by offering predictions, and I shall be no different.  The Arctic’s past belonged to peoples, and the present goes to states, but I will predict that the future will see big oil companies as the primary actor in Arctic affairs.

One of the big stories in Arctic geopolitics in the past four years is the development of the ‘Arctic Five’, or A5 (the five states that have coastlines bordering the Arctic Ocean including Canada, Denmark/Greenland, Norway, Russia and USA) beginning with the May 2008 meeting in Ilulissat, Greenland. 

It has seemed important because, 1) it is viewed by some as undermining the Arctic Council by excluding Iceland, Finland and Sweden and the indigenous Permanent Participants; and 2) it is underlining the fact the A5 states are seeing themselves increasingly as competing not with each other, but with outsiders such as the EU and China.

 From a legal standpoint the A5 have an almost complete lock on the right to use and govern the Arctic Ocean; as such they are seeing the benefit of constructing a united front and sharing the spoils within their small group rather than fighting amongst themselves, thereby providing space for outside interests to have input. 

The future of the A5

I point all of this out because I think the idea that five states ‘own’ the Arctic Ocean will soon become quite quaint, if it isn’t viewed as such already.  My criticism of the prevailing Arctic rhetoric aside, it seems as though a last gasp at territorial conquest is occurring in the Arctic with regards to continental shelf claims.  But in the next decade or so those claims will have been settled, and the rights won will be bought and sold to giant oil companies.  The next A5 will not include Canada and Russia and the United States – it will be BP, Royal Dutch Shell, ExxonMobil, Lukoil and ConocoPhillips.   

My vision of such an Arctic is not apocalyptic.  Governments will not be sidelined but rather diminished in the regulation of Arctic oil exploration and drilling, because no one has a bigger incentive to ensure drilling is done in a responsible manner than the oil companies themselves.  (Already it is the insurance industry that is leading the regulation of polar shipping).  Under existing international customary law, the “polluter pays”.  As an example, BP’s liability in the Deepwater Horizon incident in the Gulf of Mexico in 2010 is in the neighbourhood of $40 billion, a staggering figure.  In the three months that the spill persisted, BP’s CEO, Tony Hayward, became the most hated man on the planet and was forced to resign; the share price of BP tumbled 54%; and the value of the company fell by $105 billion.  Companies will surely work hard to protect themselves from such catastrophic risk in the Arctic.  In any case, the fact that an oil spill or leak is almost certain to occur in the Arctic eventually will not dissuade states from allowing the drilling because the great public (not to mention private) profit that will be made off the sales of such leases is so enticing.

Indigenous groups in better position to negotiate

And what about the inhabitants of the Arctic?  If Greenland offers any guidance in judging the situation, Arctic residents will increasingly seek to capitalize on a growing Arctic oil industry rather than stymie it.  The good news is that most indigenous groups are in a better position to negotiate terms that will provide mutual economic benefit than ever before, and their position is only getting stronger.  In a nutshell, indigenous and industry groups will not be at odds, but in partnership when it comes to resource extraction (dare I use the word ‘complicit’?)     

The inordinate influence that environmentalists and scientists have had on Arctic policy will go the way of the polar bear.  Environmentalists have often found themselves promoting quite different interests than that articulated by indigenous groups in the Arctic, and so long as governments, industry and indigenous groups are on the same page about drilling, they will increasingly find themselves marginalized.  As for the scientists, well the oil companies will have their own scientists, and university professors will not be needed for their geological assessments much longer.   

The irony is not lost that the very source of the climate change that is transforming the Arctic will also be the main outcome of its consequences.  Some may see this as a terrible and slow motion tragedy, while others will be anxious to see the promise of Arctic resource extraction actually come to pass.  The future of the Arctic will be dominated by the way in which this story unfolds.