Current General Studies Magazine: "Arctic Opportunities" August 2016

Current General Studies Magazine (August 2016)

General Studies - III "Geography Based Article" (Arctic Opportunities)

There has been a surge of global interest in the Arctic because of its vast reserves of oil, gas and minerals, commercial fishing opportunities, and shortened shipping routes that are now accessible because of global warming. In 2013, India was granted observer status to the Arctic, where India joined China, Italy, Japan, Singapore, and South Korea as a non-circumpolar country in the Arctic Council.

According to the MEA, India’s interests in the Arctic region are scientific, environmental, commercial as well as strategic. Even though India has been planning to increase participation in Arctic matters, there is currently no clear path ahead. It is proposed that India should leverage trade talks with South Korea to achieve this goal, especially since we can’t have strategic partnerships with Russia or China going by our current US-leaning foreign policy. Our dependence on oil, especially crude oil, should make the Arctic doubly important when looking at India’s perpetual problem of energy security.

China has succeeded in claiming a big stake in the Arctic by way of investment in research and mega-projects. In 2014, China signed a $400 billion gas deal with Russia. Also, when the Yamal LNG pipeline (mainly Russian held) was in trouble because of US issued trade sanctions, the Export-Import Bank of China and China Development Bank signed two 15-year loans amounting to more than $12 billion for the Yamal LNG project. It is interesting to note that in 2014 ONGC decided to opt out of acquiring a stake in this project despite showing initial interest.

Through all the proposed projects, sanctions and bail-outs, one thing is certain — that traffic in the Northern Sea Route (NSR) will keep increasing which is evidenced by the increasing number of vessels plying through those waters and the increase in the global production of icebreakers.

Currently, oil comes to Asia through the Suez Canal and is stored in Singapore, making Singapore the world’s biggest oil storage hub. When the NSR opens up, it will be a challenge to Singapore because the NSR is a shorter route and piracy issues plague the Suez Canal. Having sensed this opportunity, South Korea is emerging as the next hub for oil storage by planning to add tanks for storing almost 60 million barrels of crude and refined products by 2020 — the same as Singapore’s current capacity. Korea has also come up with a master plan for the Arctic consisting of three policy goals, four strategies and thirty-one projects connected to the Arctic region.

In 2010, India and South Korea signed a Comprehensive Economic Partnership Agreement (CEPA). The Agreement has provisions to liberalise trade between India and South Korea under the auspices of the WTO. Bilateral relations between the two countries were dormant until PM Modi signed seven agreements last year in Seoul with President Park Geun-hye. These agreements, signed under CEPA, look at a wide array of subjects including double-tax avoidance, renewable energy deployment in India, transport including maritime transport and sharing of maritime technologies. Talks to review the Indo-Korean Free Trade Agreement (FTA) are underway, the latest meeting was held a couple of months ago.

Having a stronger trade relation with South Korea is a politically sound judgement. To begin with, should the FTA come through, potential tariff concessions on Arctic oil (storage or transport) could help India immensely in the next 10-15 years. India is still heavily dependent heavily on fossil fuels with oil constituting more than 30 per cent of India’s total imports. ONGC and other domestic oil producers have been facing falling outputs each year, a trend that will most likely continue as India’s crude oil needs rise.

A strategic trade partnership with South Korea presents an immense opportunity in filling this gap. First, going forward India should integrate Arctic resources in CEPA and include provisions for future crude oil trade. And second, as an observer state, India should send delegations and get actively involved in Arctic programmes. This year China, Japan and South Korea held talks on Arctic issues in Seoul. India is also an observer state on the same legal ground as the other three countries but so far, we have been remarkably missing from talks such as these.

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