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Economic Forecasts

A Cold, Cold War over
Arctic Oil and Gas

The U.S. is in the thick of a fight to access huge reserves at the top of the world.

A cold war, literally and figuratively, is brewing over huge energy reserves. The U.S., Russia and Canada are jostling in the frigid Arctic to stake claims to develop what may be the world’s largest untapped supply of oil and natural gas.

Up for grabs: about 90 billion barrels of oil and 2 trillion cubic feet of gas -- around 25% and 30%, respectively, of the world’s undeveloped reserves of the two fuels. For perspective, the oil pooled beneath the Arctic Ocean and tundra amounts to nearly seven times the oil bonanza contained in Alaska’s Prudhoe Bay field, the largest in the U.S.

The three nations plus Iceland, Norway and Denmark -- through Greenland, which is part of the Danish kingdom -- are hoping to lay claim to big stretches off their continental shelves before the United Nations Law of the Sea treaty kicks in late next year. Once it does, it will be tough for any country to legally challenge claims.

A rapid melting of ice in the Arctic has made the reserves more accessible, although full-scale production is at least a decade away, given the vast investment that will be needed to build and set up drilling platforms, pipelines and infrastructure. But with the claims deadline nearing, U.S. and Russian ice cutter survey ships are already busily crossing each other’s paths to do sonar mapping. Moreover, Russian submarine exercises in the Canadian Arctic prompted Ottawa to stage military maneuvers in the area.

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The war of nerves will heat up in the spring. Moscow’s pledge to send paratroopers on a training mission in the region has prompted Canada to warn that it will scramble fighter jets to shadow Russian aircraft. “It’s unlikely any of the maneuvers will go much beyond an eyeball-to-eyeball confrontation,” says Peter Zeihan, a vice president for analysis with Stratfor, a global intelligence company. “Even if there is a collision between ships on patrol, the Russians’ first reaction would not be to push the big red button, but to fire off words,” he adds.

Meanwhile, the northern tier nations are also vying for another lucrative prize: control over sea-lanes that will open up as Arctic ice continues to melt, enabling ships to transit an all-water route that will link Europe, the Americas and Asia. This Northwest Passage has been the dream of the world’s merchants since the 16th century.

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