The Northern Sea Route and Possible Regional Consequences

(By Sverre Hoifodt ; INSROP Working Paper No. 16 – 1995, III.02.1)

The aim of this study (carried out by Vigdis Nygaard, FINNUT, Margrethe Aanesen, NORUT Social Science Research and Sverre Hшifшdt, ACTA Consult) has been to analyse the mutual dependece between the transport activity along the Northern Sea Route (NSR) and the regional activity in the NSR hinterland. The region that has been studied covers the western parts of the route, from the Taimyr peninsula to the Norwegian Sea.

This is indeed a large region, extremely rich on natural resources, but sparsely populated and partly without a widespread basic infrastructure like rails and roads. The Russian isolation during the Soviet Union period tended to slow down the internal economic progress, and left the Russian North with worn-out industries and major environmental problems. However, with the Russian reentry to the global economic system the northern region now appears as an important future supplier of raw materials to the world markets.

The rich natural resources attract potentional investors from all over the world. However, Russian authorities are still searching for optimal economic policies in the north, including policies towards foreign investors. So far, this has partly prevented foreign capital from being invested, and thereby postponed a significant potential stimulus to regional economic growth.

During the past few years industrial activity and output in the Russian North have in fact declined dramatically. Transport volumes are correspondingly reduced. The reason for this development is of course complex, but may in general be attached to the fundamental transition of the Russian economy and society. However, according to our analysis, the future growth potential of this region is quite significant. To release this potential, economic cooperation and integration between the Russian and the Nordic part of the region should be stimulated.

In a future growth situation, transport will be a key factor. Huge areas, scarcely developed infrastructure, and remote markets will call for new and flexible transport systems. Both for transporting the products of the economic base activities out to the world markets, and for bringing industrial equipment and consumer goods into the region, efficient and reliable transport will be needed.

The relationship between supply of transport services and regional economic development can be regarded as being of mutual dependence. On the one hand, the existence of appropriate and efficient supply of transportation makes export industries more competitive. On the other hand, competitive industries demand advanced transportation, and will thereby form the basis for new transport services. Our analyses shows that the latter correlation probably is the most relevant.

Today trains and ships are the main means of cargo transport in the region, with respect to transport of cargo. However, the main transport routes head South, producing limited NSR activity. To investigate how NSR activity might be affected by regional development in the years to come, we have studied the four most important base industries. These industries are:

• Forestry and timber processing
• Fishing and fish processing
• Mining, metal and mineral processing
• Oil and gas exploration

On the basis of these industry analysis we discuss the consequences for the transport directed towards the NSR. In a short to medium time perspective exploration and production of oil and gas probably represent the most promising sector with respect to new NSR activity. Moving north and offshore the companies face new logistic challenges, making seaborne transportation a more competitive alternative.

The NSR activity generated from forestry and timber processing has recently declined, and there is reason to believe that the volumes will stay low for the next few years. In mining, metal and mineral processing the situation is fairly parallel. In the longer run, however, these sectors could contribute significantly to the development of the NSR. The importance of the fishery sector to the NSR has been limited in the past, and so it will remain in the future unless the export of fish and fish based products along the NSR to the Far East is developed. This issue is discussed in more detail in the 1995-program.

The research work carried out under Project III.02.1 is now prolonged under Project III.02.3. In 1995 the work is concentrated to four selected issues:

• The transport of fish and fish products from Norway to Japan and the rest of the Far East, and the competitiveness of the NSR as an alternative transportation route. (Author: Margrethe Aanesen, NORUT Social Science Research)
• The development of the oil and gas fields in the Russian autonomeous "okrugs" Nenets and Yamal, and the possibilities of using the NSR both for bringing in equipment and cargo related to the field development, and for transporting the final products out to the markets. (Author: Vigdis Nygaard, FINNUT)
• The use of the Russian rivers running north to the NSR, related to export of timber and timber based products from the Russian inland. (Author: Sverre Hшifшdt, ACTA Consult)
• The transformation of the Russian economic system and consequences for the Northern areas. (Author: Alexander Granberg, the Russian Academy of Sciences).

A final report, encompassing analyses from all four topics dealt with under Project III.02.3, will be finished by the end of this year.

Sverre Hoifodt, 1995, The Northern Sea Route and Possible Regional Consequences, INSROP.©