Welcome to Over the Circle (OtC), a site dedicated to news, politics and foreign policy in the Arctic region. With the ongoing changes in the circumpolar north due to climate change and ice erosion, the region has become the focus of much greater attention on a global scale, and as a result the politics of the Arctic are also undergoing rapid changes. This site will look at the politics of the ‘Arctic Eight’ (Canada, Denmark [Faroe Islands / Greenland] Finland, Iceland, Norway, Sweden, Russia and the United States), but also of non-Arctic states, including in Western Europe and East Asia, which are also quickly developing their own Arctic diplomacy policies.
Among the major topics in Arctic politics are economic development, environmental concerns, energy (oil and gas), shipping and new Arctic sea routes, and new and existing regional organisations, (like the Arctic Council). While there is much discussion about the opening of the Arctic, this site will examine regional and international news with an eye to examining just what this ‘opening’ really entails.
Early in the new year, Over the Circle will be moving… Over the Circle. The blog, (and not coincidentally, its editor), will be moving shop from that unsung Arctic state (New Zealand) to Tromsø, Norway (69°40′58″N) in the coming weeks. Once settled, (and acclimated to the polar night!), OtC will continue to provide news and commentary on Arctic affairs during what is shaping up to be an eventful 2019 for the region. Watch this space!
This week, the government of Iceland published a white paper [In Icelandic] on the country’s financial system, a move which widely viewed as signalling a long-awaited conclusion to ten years of economic recovery from the country’s devastating banking crisis, commonly known in the country as the kreppa.
Among the recommendations of the report were improved regulation and oversight of the country’s financial sector, steps to rebuild public trust in Icelandic financial institutions, greater efficiency in banking practices in the wake of financial technologies (‘fintech’), and select lowering of taxes. It was also argued in the document that Iceland should have a minimum of three separate banks to ensure healthy competition. As well, transparency and engagement were stressed, along with reducing the number of state financial holdings.
The Icelandic economy became the first major casualty of the global financial crisis, and was arguably referred to as the ‘canary in the coal mine’ which would eventually portend a debt emergency which affected much of Europe over the following years. After the crumbling of banking and financial services giant Lehman Brothers in September 2018, forcing the firm to apply for Chapter 11 bankruptcy protection, debt strains on Iceland’s three largest banks, Glitnir, Kaupthing (Kaupþing) and Landsbanki, resulted in their inability to service their own short-term debts, leading to their collapse and one of the worst economic downturns in modern history.
The bank failures also placed massive downward pressure on the value of the Icelandic króna, and despite an ill-fated attempt to peg the value of the currency to the euro, the króna continued to fall. Discussions began about whether Iceland would need to abandon its previous wariness about joining the European Union in order to make use of the euro instead, as a means of exchange, as well as to provide needed shelter from the developing global debt crises which would eventually affect the United States and other Western economies. This would mean, however, that Iceland would have lost much of its existing trade policy sovereignty, including endangering [paywall] landmark free trade negotiations with China.
In the short term, capital controls were required in order to prevent a further fall in the currency. Other effects of the crash were a spike in unemployment, a rapid drop in imports, an 85% plunge in the stock market, and a political crisis which would bring down the government of Prime Minister Geir Haarde [video, in Icelandic]. After a series of public protests, collectively referred to as the ‘pots and pans’ revolution (‘Búsáhaldabyltingin’) due to the use of kitchenware increasing the noise level during the demonstrations, a new centre-left government under PM Jóhanna Sigurðardóttir was constructed in January 2009 and was given the daunting task of setting the Iceland economy back to rights. Foreign assistance was needed to accomplish this.
After receiving a tepid response from many Western governments to requests for foreign assistance to resolve its debt problems and prevent the krona from falling further, Iceland accepted a loan from the International Monetary Fund (IMF) worth US$2.1 billion. This was the first time that a Western economy required IMF assistance since 1976, when the United Kingdom arranged a US$3.9 billion loan from the organisation. Iceland’s Nordic neighbours, including the Faroe Islands, as well as Poland, also agreed to provide emergency loans to Reykjavík. In exchange for the IMF bailout package, Iceland was prompted to increase interest rates and implement other austerity measures, but unlike in other Western economies hit by the post-2008 financial woes, Iceland opted [pdf] not to fully rescue its three main banks from liquidation.
Despite originally being saddled with a reputation for financial carelessness, the perception that Iceland had allowed its banks to ‘fail’ received grudging global support, especially when replacement banks began to re-emerge during the following years. However, in reality, the situation was that the banks were not permitted to fail per se but rather were extensively regulated and divided into domestic holdings, which were supported by the government to avoid further financial trauma to Icelanders, and international assets which were allowed to become insolvent.
The collapse of Landsbanki’s online banking service, the now-notorious Icesave, not only created further economic trauma in Iceland but also affected numerous British and Dutch clients of the savings scheme. Then-British Prime Minister Gordon Brown was prompted to take the extraordinary step of invoking a 2001 anti-terrorism law to seize UK-based financial assets owned by Landsbanki, worth an estimated £4bn (US$5.1 billion), after the Icelandic government revealed it could not reimburse Icesave’s foreign customers. Britain’s move, which was widely seen in Iceland as excessive, chilled political relations between London and Reykjavík for months afterwards. The final reimbursement payment from Iceland to Britain was ultimately transferred in January 2016.
The worst of the crisis had subsided in 2011 with economic recovery becoming stabilised. Talk about potentially joining the European Union had begun to fade at that time, especially in the wake of the Eurozone debt crisis and concerns about a potential departure from the EU by Greece (‘Grexit’). Iceland’s bid the join the EU was quietly withdrawn in March 2015, although debate remains on whether that subject should be brought to popular vote. Iceland was also able to complete its free trade agreement negotiations with China in 2013, becoming the first European economy to complete such an agreement with Beijing. Iceland lifted its capital controls in May 2017, further indicating that the country’s financial health had been completely restored.
With banking and finance having been largely discredited and facing a long rebuilding process, other economic sectors in the country needed to fill the void. Fishing was the first obvious choice given the longstanding prominence of that industry, and there has been much recent discussion about how global warming might affect local fish stocks as larger numbers of species move northwards with warming Arctic temperatures.
Tourism has also contributed substantially to Iceland’s rapid economic recovery, with numbers reaching 2.2 million [pdf] in 2017, compared with about 673,000 five years earlier, (Iceland’s population is about 339,000). However, the growth of this sector has been seen as a mixed blessing, since there are concerns about whether expanded tourist numbers are placing strains on infrastructure and the local environment as well as questions about whether the boom is sustainable or might turn out to be another form of ‘bubble economy’.
The condition of the Icelandic currency remains a question as well due to its recent volatility, as well as recent rises in inflation, and there are ongoing questions about the long-term trajectory of the country’s welfare state. The question of Iceland’s future relations, economic and political, with the EU also persists, and the country might be facing greater competition for the EU’s attention should the stumbling Brexit process eventually reach an endpoint.
The kreppa continues to be debated both within Iceland and outside, amid questions about whether such a unfortunate chain of events could happen again, especially given the uncertain state of other European economies today. However, what has happened in the past decade is that Iceland has however unwittingly pushed forward a potential alternative model of how to address an abrupt financial downturn.
Among the growing list of non-Arctic states with extensive interests in the circumpolar north, the Netherlands stands out, not because of its size but rather due to its considerable contributions to the study of the region over a period of several centuries. In recent years, the country has begun to pay greater attention to the emerging economic benefits of the Arctic and especially to the shipping potential of the Northern Sea Route (NSR).
With several countries, including large Asian economies as well as Western European governments, and of course Russia, developing plans to better utilise the NSR for expanded cross-regional shipping in the coming decades, the Netherlands is seeking to ensure its participation in a potential scramble to develop Arctic shipping routes. As with other non-Arctic states, Holland is seeking to construct a policy balance between supporting scientific diplomacy in the Arctic, while also being mindful of the growing economic opportunities appearing in the region.
The country is hardly a newcomer to the Arctic. Representatives of the Netherlands were present at the initial founding of the Arctic Council in 1996, with the country becoming a formal observer two years later at the organisation’s Ministerial meeting in Iqaluit, Nunavut. Like its Western European neighbours, including Britain, France, Germany and Switzerland, Holland was able to point to a long history of polar exploration and research in justifying its distinct Arctic identity. Indeed, even a brief glance at the Netherlands’ engagement of the Far North is sufficient to confirm the country’s Arctic credentials.
One of the most famous European explorers of the Arctic, Willem Barentsz (c.1550-1597), hailed from the Dutch island of Terschelling. Like many other pioneers of the time, Barentsz, also distinguished as a cartographer and navigator, was interested in discovering a shorter sea route to Imperial China, and thought the waters north of Siberia might represent such a pathway. At the time, both England and Holland were looking to Arctic waters as a northeast passage to Asian markets. During Barentsz’s three Arctic Ocean voyages, the ships under his command explored the region around Nova Zemlya and the Kara Sea, and were lauded for the official discovery of the Svalbard Islands, including the main island of Spitsbergen, in 1596.
Barentzs’ journeys were also credited with the first recorded instance of the ‘Novaya Zemlya Effect’. This is defined as a mirage seen in the polar regions which suggests a false sunrise, caused by the high refraction of sunlight between thermal layers of the atmosphere, and creating an illusion of the sun appearing as a squashed rectangle, with the rectangle itself sometimes appearing to be sliced into strips as part of the illusion. As well, the Barents Sea, which sits astride the Arctic maritime frontiers of Norway and Russia and was previously known as the Murman Sea, was named for him.
As part of its deepeningArctic policy, the Netherlands appointed its first Arctic Ambassador, Kees Rade, in 2016, and he was succeeded by Carola van Rijnsoever [In Dutch] in October of last year. Among the priorities [pdf] for the Dutch government in the Arctic have been the preservation of regional legal institutions, (including upholding the UN Convention on the Law of the Sea / UNCLOS), monitoring the effects of climate change, including on local fauna, and seeking out economic opportunities for the Netherlands and the greater European Union.
The country has also produced governmental policy papers on its Arctic policies, including a 2014 statement [pdf] from a committee chaired by Jaap de Hoop Scheffer, former Secretary General of NATO, which acknowledged the growing strategic importance of the circumpolar north, especially in the wake of the Russian annexation of Crimea and subsequent security crisis in Eastern Ukraine, and concerns that deteriorating relations between Moscow and the West might spill over into the Arctic. However, the changing climate conditions in the Arctic were also seen as an opportunity for Dutch interests, especially for shipping interests. The Port of Rotterdam, the largest such facility in Europe, was noted in the 2014 report as potentially benefitting from emerging Arctic shipping as well as increased exporting of northern Russian oil and gas.
The current Arctic scientific policies of the Netherlands were outlined in the December 2014 ‘Pole Position – Strategy for the Netherlands Polar Programme 2016-2020’ statement published by the Netherlands Organisation for Scientific Research, based in the Hague. The report noted the opportunities for research in both the hard science areas of climate change as well as in social and economic areas. In April 2016, these pledges were enhanced by an announcement that the Dutch government would be contributing a budget of €4.1 million (US$4.7 million) for each year between 2016 and 2020 for research at both poles. The University of Groningen houses a dedicated multidisciplinary Arctic Centre with a specific focus on the interactions between regional ecosystems and human activity, and the Netherlands also maintains a research station at Kongsfjorden on the island of Spitsbergen, approximately 115 kilometres from Longyearbyen, the capital of Svalbard.
Energy and shipping interests are also shaping Dutch Arctic interests, as in addition to the country’s port facilities, the country’s flagship oil and gas firm, Royal Dutch Shell, had also expressed interest in the Arctic Ocean. However, despite initial optimism about the fossil fuel prospects of the Arctic, by 2015 the firm had withdrawn from the region in the wake of disappointing initial findings, environmental pressures and depressed global energy prices.
There remain greater prospects for Dutch interests in Arctic shipping, especially since China identified the NSR last year as an emerging branch of Beijing’s ‘Belt and Road’ trade route network. In mid-2013, China successfully sent its first cargo vessel, the Yongsheng (永盛), owned by China’s Cosco shipping firm, through the NSR from Dalian to arrive at the Rotterdam port in September of that year, and the Dutch facilities have been identified as a potential European hub for the ‘Maritime Silk Road’ which China is now hoping to construct and involving many regions, including the Arctic.
In October 2015, the Rotterdam Port Authority signed an agreement with the Bank of China to jointly develop investment and infrastructure opportunities. Cosco announced in May 2016 that one of its subsidiaries, Cosco Pacific, purchased a thirty-five percent stake of the Euromax Terminal at the Rotterdam Port, part of a larger trend of Chinese investment in European ports over the past few years. In October 2018, another modified Chinese cargo ship operated by Cosco, the Tian’en (天恩), specifically built for Arctic operations, docked in the Dutch port of Eemshaven en route to Sweden after crossing the NSR.
Debates in the Netherlands about closer economic cooperation with China, including in shipping, continue in the country. A February 2018 editorial via the Dutch research institute Clingendael suggested the Netherlands take a more active approach to cooperation with China via the new trade routes, but Dutch Prime Minister Mark Rutte has argued that while the Belt and Road provides many opportunities for Holland and Europe as a whole, there must be improved space for foreign companies, including Dutch firms, to more fully participate in the construction of the trade routes.
In addition to China, Russia will also be a wild card in Holland’s developing Arctic policies. As with other NATO members, the Netherlands has become increasingly concerned about Moscow’s expanded military presence in the Arctic, and Dutch forces played a major role in the recent ‘Trident Juncture’ military manoeuvres in Northern Europe overseen by the alliance. Last month, a senior Dutch military official accused Russia of deliberately attempting to interfere with a joint UK-Netherlands exercise north of the Arctic Circle, and Russian nationals were detained by the Dutch government during the same month for allegedly seeking to carry out cyber-attacks on the Organisation for the Prohibition of Chemical Weapons (OPCW), a group which had been investigating the recent use of chemical agents in Britain against former Russian spies.
Nonetheless, Rotterdam remains a primary destination for Russian oil tankers, including the Prospekt Gagarina (Проспект Гагарина), the first of a new class of liquefied natural gas-powered vessels operated by the Russian firm Sovcomflot (Совкомфлот), arriving in Rotterdam[In Russian] late last month, with its sister ship, Prospekt Lomonosova (Проспект Ломоносова), currently en route to the Netherlands. As the strategic relationship between Russia and Western Europe continues to be difficult, this certainly will continue to factor into Holland’s developing Arctic engagement.