Economic And Geopolitical Importance Rising; March Elections In Focus

BMI View: Greenland's economic and geopolitical i mportance is rising, as Arctic C ircle countries and several Asian nations seek to tap the region's extensive natural resources, which are becoming more accessible due to global climate change . However, the Greenland government faces a dilemma over how rapidly it should open the door to foreign investment, especially amid local concerns abo ut environmental issues and the possibility that new jobs could go to foreign workers. General elections in March 2013 will provide greater clarity on these matters.

Greenland's economic and geopolitical importance will continue to rise over the coming decades, as the thinning of the Arctic's ice sheets makes its extensive natural resources more accessible to extraction. Greenland is an autonomous territory of Denmark, having come under Danish control in 1814 . Home rule was established in 1979, and Greenlanders voted for greater autonomy in a referendum held in November 2008, with the changes taking effect from June 2009. Nonetheless, Denmark retains c o ntr ol over Greenland's foreign, defence , and monetary policies , and contributes substantially to the island's budget. Many Greenlanders hope that the territory will eventually become an independent state.

Arctic Ice Melting Leads To Hopes For Resource And Shipping Route Development

During the 2000s, speculation grew that the Arctic Circle c ould become the focus of a new 'great game' between major powers for influence in the region. The countries with the most direct interests in the Arctic are the USA, Canada, Norway, Denmark (all of which are members of NATO), and Russia, since they all have territory within the Arctic Circle itself. In recent years China and several Asian nations have also been seeking to step up their involvement in the region.

The main attraction of the Arctic Circle from an economic point of view stems from its massive natural resources. Essentially, the shrinking of the North Pole's ice caps due to global climate change has led to hopes that the Arctic's commodities and shipping routes can be developed commercially. The US Geological Survey estimates that the Arctic holds around 13% of the world's undiscovered conventional oil and 30% of its undiscovered natural gas resources. In addition, the Arctic has considerable quantities of minerals such as lead, magnesium, nickel, uranium, and zinc, as well as fishing stocks and freshwater reserves - all of which are likely to experience higher demand as emerging markets industrialise and become more prosperous. Greenland is also believed to possess some of the world's largest reserves of rare earth metals, which are used in advanced electronic goods ( for an overview of the mining sector, see November 6, 2012, ' Greenland - Much Promise, But Will It Materialize? ' ) . At present, China dominates the production of these metals, raising concerns about its virtual monopoly status in countries such as Japan , which is at odds with China over several geopolitical issues .

T he thinning of polar ice caps has also opened the possibility of new, shorter shipping routes between Europe and Asia and Europe and the west coast of North America via the Arctic region . The journey from Rotterdam, Netherlands, to Yokohama, Japan, is 11,200 nautical miles via the Mediterranean, Suez Canal, Indian Ocean, Malacca Straits, and South China Sea, but only 6,500 nautical miles via the Arctic Ocean - the so-called Northern Sea Route (NSR) . Similarly, Rotterdam to Seattle is 9,000 nautical miles via the Atlantic Ocean and Panama Canal, but only 7,000 nautical miles via the Northwest Passage adjacent to Alaska. At present, the Northern Sea Route is not readily usable, because it is only ice-free for four to five months of the year and reliant on Russia's fleet of icebreakers. In addition, investors have yet to become convinced about the attractiveness of the route ( see December 13, 2012, ' Investors Not Yet Convinced By NSR ' ) . However, that could change over the coming decades , if Arctic ice continues to recede and infrastructure along the NSR is improved . China is certainly interested in the NSR, and last September a Chinese ice-breaker became the country's first vessel to traverse the Arctic Ocean.

Great Powers Preparing For New 'Great Game'

Unsurprisingly, the world's major powers have been stepping up their claims to the region, mainly by bolstering their military activities or presence in the area, or making greater provisions for the Arctic in their defence planning. Russia clearly recognises the significance of the Arctic, as evidenced by the fact that its latest security strategy document for 2020, published in March 2009, indentified the region as one of several areas where it could face energy wars. In addition, in July 2011 the Russian Defence Ministry announced that it was planning to create two new brigades of Arctic troops. The US, Canada, and Norway have also talked up the importance of the region to their security and are stationing more military assets there. However, perhaps mindful of the risks of misunderstandings or confrontation, defence officials from the eight Arctic Council nations - Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden, and the USA - held a meeting in April 2012 in which they agreed to cooperate more closely to deal with disasters and search-and-rescue operations in the polar region, and to meet once a year going forward.

Asian States Queuing To Join Arctic Council

Meanwhile, several Asian states are keen to receive permanent observer status in the Arctic Council, an intergovernmental body that was founded in 1996 for the purposes of addressing the issues facing the region. Chinese Premier Wen Jiabao visited Iceland in April 2012, where he signed deals on energy cooperation, and President Hu Jintao visited Denmark in June, signalling Beijing's interest in the northern polar region. There is speculation that China may soon gain observer status in the Council. China, Japan, and South Korea are currently ad hoc observers at the Council, but all three, along with India and the EU, are seeking to become full-time observers of the body, a status already held by France, Germany, the Netherlands, Poland, Spain, and the United Kingdom. Nonetheless, the expansion of the Arctic Council has been delayed by disagreements between its members over which countries should be allowed to join. For example, Canada favours the inclusion of India, whereas Greenland favours South Korea, and Norway is now willing to allow China to join it, having previously opposed Beijing's bid. A decision on new members will take place in Stockholm in May 2013, before Sweden passes the two-year rotating chairmanship of the Arctic Council to Canada.

Arctic Transformation A Mixed Blessing For Greenland

As the largest landmass in the Arctic region, Greenland stands to see major changes from rising interest in its natural resources. Its main concerns are environmental pollution caused by increased resource extraction, and the probable influx of large numbers of foreign workers to a territory whose population is only 57,000. Greenland Prime Minister Kuupik Kleist's government on December 7, 2012, passed a new law outlining the framework for foreign mining and exploration in its territory, but this has already attracted criticism at home for potentially paving the way for an influx of foreign workers on lower wages than would be paid to local Greenlandic employees. New workers brought in from abroad (China has been cited as an example) could transform Greenland's demographics and prevent locals from benefiting from employment created by the anticipated resource bonanza. Recently, attention has focused on London Mining's proposed US$2.3bn iron ore mine, which would bring in 2,000 Chinese workers, thus raising Greenland's population by 4%. In addition, the indigenous Inuit population, which comprises around 88% of the total, have concerns about socioeconomic changes that could be brought about by a surge in foreign investment and workers.

March General Election Should Provide Greater Policy Clarity

Against this backdrop, Greenland is preparing to hold a general election on March 12, 2013, some three months ahead of schedule. The new mining law is likely to feature prominently, with Aleqa Hammond, leader of the opposition social democratic Siumut (Forward) party, having threatened to revoke the legislation if her party wins the election. Eighteen out of the legislature's 31 members, including the nine Siumut parliamentarians, abstained in last December's vote on the mining law, which was passed by the 13 members of the governing IA (Inuit Ataqatigiit, Community of Nations) party. Greenland will also need to consider carefully its policy towards rare earths extraction, since these metals are almost always massed with uranium, and the island has a prohibition on mining radioactive materials that was established by Denmark. The issue of whether to repeal the ban continues to divide Greenlanders, but in any case the final decision lies with Copenhagen, because it falls under the remit of security policy. On January 29, reports emerged that a majority of Danish legislators would now be willing to lift the ban, if Greenland requests this.

Overall, Greenlanders face a major dilemma over how much foreign direct investment their nation ought to attract. Clearly, FDI would pave the way for greater resource revenues, but potentially at the cost of environmental degradation and demographic change. There would thus be a risk that in its 'dash for cash', the government could approve more investment than Greenland is capable of absorbing. Because Greenland's population and economy is so small, even a single major project can bring a disproportionate change to the island.

Beyond the forthcoming elections, attention will turn to whether Greenland will eventually become independent. This would allow Greenland greater leeway in its foreign relations, although presumably EU and NATO membership would be preserved (the US has operated an airbase in Thule, in the north east of the island, since 1943). There is no formal timetable for independence, but given that 76% of voters backed the referendum for greater autonomy held in November 2008, it would appear that Greenlanders are keen to assume greater control of their destiny.


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