How Putin’s Pursuit of Stalin’s Arctic Dream Lost Global Appeal

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Vladimir Putin and Dmitry Medvedev in the Arctic on March 29.

Photographer: Anna Andrianova/Bloomberg

Vladimir Putin wanted to remake Josef Stalin’s quest for a greater foothold in the Arctic into a global shipping bonanza that could compete with the Suez.

For now, however, Russia will have to be content to go it alone.

While cargoes flowed through the Northern Sea Route in 2016 at a pace not seen since the twilight years of the Soviet Union three decades ago, few foreign vessels were in sight. Instead of waiting for global shippers to make a port of call, Russia is domesticating the transpolar conduit that could slash up to 12 days of travel time between Europe and Asia when it’s open four-and-a-half months each year.

“It is all about the cost of goods delivered,” said Felix Tschudi, chairman of Tschudi Shipping Co AS in Norway. “In the present low oil and freight-market environment, the attraction of the NSR is diminished.”

Coastal shipping at the top of the world, first tested in the 19th century and made increasingly viable by global warming in the summer, is losing its international shine in an era of cheap oil. 

The crash in commodities prices means freight rates aren’t sufficiently competitive to wrest traffic from the established routes through the Indian Ocean, the Suez Canal and the Mediterranean. And even with the Arctic ice melting, shipping conditions are still unpredictable and expensive enough to put off Russia’s own companies like MMC Norilsk Nickel PJSC, which now prefers the traditional southern passages for exports to Asia.

Transit cargo contributed less than 3 percent to last year’s volumes through the Northern Sea Route, down from more than 30 percent in 2012-2013, according to government data. That didn’t stop the passageway from breaking a record for shipments set in 1987, with Russia expecting the streak to continue once deliveries from the Arctic’s biggest liquefied natural-gas development start this year. 

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Russia, which boasts half the Arctic coastline and depends on the region for almost 60 percent of its hydrocarbon resources, has adapted the sea link to domestic use, with most of last year’s increase coming from equipment supplies to the construction site of the Novatek PJSC-led Yamal LNG plant, according to Sergey Balmasov, head of the NSR Information Office, a consultancy in Murmansk.

Coal, metals, food and fuel coursed along the coast last year, powering cargo flows to 7.48 million tons, an increase of 38 percent from 2015, according to a state agency that administers the route. The Novatek-led LNG venture is set to remain the locomotive behind the traffic in the years ahead after it starts producing fuel destined primarily for Asian clients by end-2017. Total shipments may reach 40 million tons by 2022, according to Deputy Prime Minister Dmitry Rogozin.

Instead of opening a new frontier for shipping, as Putin set out to do in 2015, the Russian president is inadvertently circling back to the more insular goals pursued by his Soviet predecessors. Under Stalin’s stewardship in 1934, the Communist party laid out its strategy for developing the Northern Sea Route that ranged from building Arctic ports to running local deer farms. 

Turning the route into a global link capable of competing with the Suez is a “realistic task,” Novatek’s billionaire Chief Executive Officer Leonid Mikhelson said on Wednesday at the International Arctic Forum in the northern port of Arkhangelsk, where Russian and Scandinavian officials convened this week. “It’s just a matter of time,” he said.

Ice-class ships built specifically to transport LNG from the Yamal project will be able to make the Arctic passage during seven to eight months a year, according to Mikhelson. The first such vessel made a test docking on Thursday at the peninsula above the Arctic Circle, a ceremony that Putin oversaw by video link from Arkhangelsk.

The transpolar passage is a “legendary” route with a “huge potential for Russia’s and the global economy,” Putin said at the forum. As more ice-class vessels are built, it could operate “practically year-round,” and Russia “invites its global colleagues” to use it, he said.

For global shippers, which started to use the passage in 2009, the Arctic still presents enough challenges to make the longer detour worth the time. While the distance is up to 50 percent less than the links to the south, the shortcut is only navigable during the summer and autumn months, with sea conditions varying from year to year. It also still makes for harsh sailing, despite the thaw, complicating scheduling for container cargo ships and adding to the cost.

“The NSR could already be an interesting alternative route for some shipment segments during the summer-autumn season, depending on the ports and presence of homeward cargo,” Balmasov said. Yet year-round trips to Asia will remain “akin to a heroic act” in the foreseeable future, he said.

It’s a sentiment echoed by shipping consultant Drewry Maritime Research and broker Fearnleys A/S, who say transit volumes will likely remain low due to limited navigation time, harsh climate and lower freight rates for more traditional routes. 

“The Arctic as such is high on the agenda in the Kremlin,” said Sverre Bjorn Svenning, research director at Fearnleys in Oslo. But for now, it’s “in-out voyages rather than transit.”

Lower oil prices have diminished the route’s attractiveness for international shippers, yet Russia is hopeful “transit volumes will rebound just as quickly” if crude comes back, Transport Minister Maxim Sokolov said in Arkhangelsk. “Everything changes and nothing stays the same.”

— With assistance by Yuliya Fedorinova, Hayley Warren, and Anna Andrianova

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