As the geopolitical importance of the Barents Sea region grows over time, so too will the potential for economic disputes between the primary players in the region, Norway and Russia. The countries' foreign ministers, Sergei Lavrov of Russia and Borge Brende of Norway, met Jan. 20 in Russia and discussed, among other things, collaboration in the Barents region. The stakes are high given the area's natural resources and potential growth in maritime traffic, and tensions will likely grow as Russia tries to strengthen its influence in the region.
The Barents Sea region spans across northern Norway, Sweden, Finland and northwestern Russia. Although the region is roughly the size of Poland, Germany, the Netherlands, Belgium, France and Spain combined, it is home to only about 5.2 million people. Most of the population and territory is Russian, as are the largest urban centers, which host most of the population.
The Barents region has historically been an important area of integration and confrontation between Russia and the West. Centuries ago it was the scene of cross-border economic development as Western Europeans tried to access Asia via the Barents Sea and Russian rulers promoted the establishment of trade posts to secure influence. (For example, Arkhangelsk on the White Sea was founded by Ivan the Terrible and further developed as a trade hub by Peter the Great.) The trade ties dropped off when tsarist Russia collapsed and transitioned into the Soviet Union in the early 20th century. During World War II, the Barents region was a battleground between Germany and Russia (Germany occupied Norway during the war), and during the Cold War it was an important area of confrontation between the Soviets and the West. It retains its military significance today, serving as the primary operating area for Russia's largest and most powerful fleet, the Northern Fleet.
Norway and Russia are the most relevant actors in the region because of their dominance in its oil and natural gas sector. With dwindling oil and natural gas reserves in the south, the defense of Norwegian interests above the Arctic Circle has become increasingly important for Oslo — as has Norway's relationship with Russia. Nordic countries and Russia view each other with suspicion, but as neighbors they also see the benefits of economic cooperation. For instance, Norway emphasizes its NATO membership and strong defense ties with other Nordic countries while at the same time collaborating with Russia in the energy sphere. In turn, Russia benefits from this collaboration by getting access to Norway's technical expertise, particularly in deep-sea drilling. Meanwhile, Moscow is fortifying its interests in the Barents region and wider Arctic with plans of expanding transport infrastructure and a greater military presence.
Since the fall of the Soviet Union, cross-border relations on an institutional level, as well as in terms of trade and the movement of people in the Barents region, have improved.
Several arenas for intergovernmental and regional collaboration regarding the Barents region exist, such as the Arctic Council, the European Union's Northern Dimension and the Nordic Council. However, the most important is the Barents Euro-Arctic Council, which was established in 1993 and seeks to strengthen collaboration on social, infrastructural and economic issues among mainly Finland, Sweden, Norway and Russia, which rotate the chairmanship. (Denmark, Iceland and the European Commission are also members.)
Beyond institutions, cross-border social exchanges have increased. There were a record number of transits at the border crossing between Norway and Russia in 2013, mainly as a result of a regional visa-free travel agreement between the countries that was introduced in the middle of 2012. According to the Barents Observer, cross-border traffic between Norway and Russia has increased threefold in the past four years.
The increased transit between Norway and Russia can be expected to increase as a result of the growing importance of the Barents region and because of the growth of the Russian middle class. However, the competition between the countries — and between various cities vying to serve as regional hubs for the main economic sectors — will also intensify, and control over transport infrastructure will be increasingly contentious.
Oil and Natural Gas Exploration
Because of its small population and distance to consumers, the Barents region has a relatively small manufacturing base. While forestry and fishing are still important, economic activity is increasingly concentrated in mining, hydrocarbon extraction and shipping. All of these sectors have the potential to grow — and the overall economic prosperity of the region will be greatly affected by their growth — but the pace of development will depend on fluctuations in global commodity prices.
European countries are heavily dependent on hydrocarbon imports to fuel their economics. Resources in the North Sea are being depleted, and thus access to the vast natural resources farther north is gaining importance. U.S. Geological Survey estimates from 2008 suggest that 13 percent of the world's undiscovered oil and 30 percent of its natural gas reserves are located in the Arctic Circle. A significant percentage of those estimates is believed to be in the Barents region. Aside from oil and natural gas, iron ore, diamond, bauxite, nickel, gold and coal deposits are located in the region.
Numerous large oil and natural gas extraction projects involving major global energy companies pooling financial and technical resources are underway in the Barents Sea region, with varying degrees of success. Coupled with the boom in shale gas exploration — especially in the United States — technical and environmental challenges in the Arctic raise questions about the economic viability of the projects. However, that is not to say that the natural resources in the Barents region will not gain greater significance in the long term.
The two leaders in exploring for oil and natural gas in the Barents region are Norway and Russia. While they compete for customers and supplies in the Arctic, collaboration is taking place to further develop the sector. Norway's Statoil has worked with Russian natural gas company Gazprom and agreed in 2012 to step up collaboration with Russian oil firm Rosneft in order to jointly explore Norwegian and Russian territory in the region. In 2010, Russia and Norway settled a border dispute in the Barents Sea that had lasted for four decades. Since then, oil and natural gas exploration, particularly in the border region, has increased. In addition, fields that cross the border will be jointly developed.
The extraction of natural resources in the Barents region goes hand in hand with the development of transport infrastructure. Apart from the harsh environment, the distance to consumers is an important hurdle to natural resource extraction projects.
Due to the region's small population, transport infrastructure in the Barents region is relatively scarce compared to other parts of Europe. While Norway, Sweden, Finland and Russia all have transport links from their core areas in the south up to the north, cross-border connections in particular are weak. A number of cross-border transport infrastructure projects have been discussed, but nothing has solidified. Improving the rail connection between Nikel, Russia, and Kirkenes, Norway, as well as extending the Finnish railway farther north either into Russia or Norway, are projects that will greatly depend on natural resource extraction companies' interest in contributing financially to the development of the plans; the commitment of Norwegian and Russian funds; and further development of the most important ports in the region.
Port cities are the main transportation hubs in the Barents region and are expected to grow in significance. Due to climatic changes, traffic in the Arctic is expected to increase, and even if the Northern Sea Route does not become an important international shipping route, stretches of the route can be expected to see increased regional traffic due to ongoing oil and natural gas exploration.
Greater interest by shipping companies will also increase the competition between Norwegian and Russian ports. The most important port in terms of tonnage handled in the region is Murmansk in Russia. (The next most important port, Arkhangelsk, is also Russian.) However, the Russian ports have been struggling over the past few years and face growing competition from Norwegian ports as a result of fluctuations in the transport of natural commodities. The Barents Observer reports that in 2012, Norway's northern ports handled around 41 million tons compared to around 37 million tons handled by the Russian Arctic ports. Over the coming years, Russia will likely try to stop the trend of shipping moving away from Russia by upgrading the port of Murmansk (Rosneft has plans to make it a hub for its operations in the Arctic) and by dominating the Northern Sea Route with its ships and regulation.
Norway is rather well equipped to face Russian pressure. Unlike other European countries, Norway cannot be pressured by Russia easily because it is energy independent and is accumulating capital in its sovereign wealth fund, which offers protection against economic pressure. Coupled with its NATO membership, stronger defense ties with Nordic countries and technical expertise that Russia hopes to profit from, Oslo should be able to negotiate with Moscow on an equal level despite its small population.