Blunder or Opportunity?

Russia has filed a claim for some 463,000 square miles of Arctic Sea “coastal” shelf, extending more than 350 nautical from Russia’s Arctic Sea shore. Russia intends to exploit the vast oil and natural gas deposits below the sea floor.

Senator Dan Sullivan (R, AK) thinks has demurred, thinking this in combination with Russian military force transfers into its northwest coupled with our own military drawdown is a “strategic blunder.”

Aside from Russia’s land claim and the military contrast not being particularly related to each other, Sullivan is badly overstating the implications of Russia’s seabed claim before the UN. In fact, this is a vast opportunity for us, did we have an administration astute enough to take advantage of it.

Certainly, we should oppose the claim itself, if only to retain the accesses to those deposits, along with the rest of the sea bed’s deposits, for ourselves and for our friends and allies. However, Russia’s Exclusive Economic Zone already extends for 200 of those 350 miles; reaching another 150 is significant, but if the territorial claim is blocked, it’s not that big a deal.

Now. Notice that phrase “vast…deposits.” Recall, too, that Russia’s economy is almost exclusively an extractive one, that is, the revenue Russia earns from trading with the world is almost exclusively from selling physical assets—and physical assets have finite supply. In his case, those Russian assets are oil and natural gas (much of it underneath Siberia and as yet undeveloped), and Siberian timber. Finally, recall that Russia needs oil prices to be above $110/barrel in order to balance its budget (as long as it’s as dependent on oil exports as it is), while oil prices following the shale and fracking boom in the US and Canada have been in the $50-$60 range for the last couple of years, and it will remain so for the foreseeable future.

While we should oppose the claim itself, we should be helping Russia develop and extract all that oil and natural gas (while retaining access to the technology itself. Russia already has played out most of the oil and gas that it can with its own technology; it needs western—or Chinese—technology in order to extract the rest, like that below Siberia, for which it’s working on a deal with the PRC). With that large increase in supply, the price of oil (and of natural gas) will remain depressed compared to what Russia needs to balance its budget if the price doesn’t fall further from this supply increase.

This could be a big win for us.

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