- The Washington Times - Thursday, April 18, 2013

China and other Asian nations have been moving aggressively to exploit the commercial potential of the Arctic as more of the region becomes accessible for development and shipping in the increasingly ice-free summer, while the U.S. appears to be dragging its feet, Icelandic President Olafur R. Grimsson told editors and reporters at The Washington Times.

Chinese companies are building tankers that can carry Chinese goods to Europe and U.S. East Coast ports through the Arctic Ocean over Canada, potentially cutting China’s transport costs by 40 percent and providing an advantage in trade, he said.

South Korean officials are in discussions to start mineral development projects in Greenland, while the tropical city-state of Singapore is searching for locations to build an Arctic shipping port, all with an eye toward moving in quickly to take advantage of the rapid warming that has led to record low levels of Arctic sea ice in recent summers and made increased commercialization possible.

“It will fundamentally transform the global trading system, and China is clearly preparing for the time when they will be the leading trading country in the world,” he said.

By contrast, the U.S. has seemed distracted by the wars in Afghanistan and Iraq and other conflicts around the world, and has been slow to respond to the fast-moving changes up north, he said.

The U.S. seems unaware even of the dramatic changes within its own borders, as the disappearance of sea ice has opened up large swaths of the Alaska coast to unexpected visitors from abroad, he said, recounting how a cruise ship carrying German tourists landed unannounced last summer at a coastal town in Alaska.

The German passengers disembarked and went shopping, apparently unbeknownst to U.S. customs and border security agents who were 1,000 miles away, he said.

“Anybody with a boat can arrive. The melting of the ice in Alaska has created an enormous open-border question,” he said. “The so-called political establishment in Washington has been otherwise engaged” though the Arctic is “America’s backyard, its homeland.”

Governing the Arctic

While Russia and other nations in the eight-member Arctic Council for years have sent their top foreign ministers to council meetings to debate governance of the Arctic, the only high-level delegation from the U.S., led by Secretary of State Hillary Rodham Clinton, was two years ago. Current Secretary John F. Kerry has not decided whether to attend this year’s meeting, he said.

Though the U.S. has large unexploited Arctic reserves of oil, gas and other minerals, environmentalists have prevented most development. The U.S. has vacillated between allowing some tentative, first-time drilling in offshore Arctic waters recently to maintaining an all-out prohibition against development in the Arctic National Wildlife Refuge.

Resource-hungry Asian governments, by contrast, are finding fertile ground for development in Greenland and Iceland.

“I think it’s important that America maintains a high level of engagement” to act as a counterbalance in the region, Mr. Grimsson said. “The guiding spirit of the Arctic Council is we don’t want this to be a race for resources. On the contrary, the model of the Wild West has been refuted” by the nations bordering the Arctic.

Though it hasn’t gained much attention, Mr. Grimsson said, the council has become a model of cooperation among competing nations, with even Russia surprising the others with its willingness to work together to address potential problems. The group negotiated a treaty for dealing with search-and-rescue emergencies, and others are on the way.

Despite concerns about what the increasing commercialization of the Arctic will bring to the pristine environment and age-old native cultures in the region, Mr. Grimsson said, he welcomes the overtures of China and other Asian nations that want to exploit the region, and supports including nations as far afield as France, Germany, China and India as official observers at council meetings.

He dismisses concerns about China’s recently attained status as the world’s largest and fastest-growing source of the greenhouse gas emissions that are thought to be causing the warming in the Arctic, saying that is just a function of its large population and expressing belief in the sincerity of its efforts to curb emissions. Coastal cities such as Shanghai and Hong Kong are threatened by rising sea levels, just like cities elsewhere, he said.

“Countries beyond the eight Arctic countries are already predominant trading countries and are affected by the melting of the ice,” he said. “It is to everybody’s advantage that they should be a part of the dialogue.”

Development and increased shipping in the Arctic will occur, and bring with it pollution and other problems, no matter what, he said. “We have an open international regime. The ocean is an open highway” for all ships outside the 200-mile zone that belongs to national governments along each Arctic nation’s coasts, he said.

Mr. Grimsson said he worries about accidents like the 1989 Exxon Valdez oil spill in Alaska’s Prince William Sound, which killed sea life, fouled 1,300 miles of beaches and took decades to clean up.

“The risk of oil spills does not just come from Shell or Exxon or BP; it could come from a cruise ship or big tankers. We already have enormous cruise ship traffic,” he said. “Many of us fear the first accident that will happen will be a cruise ship that will test the abilities of the U.S. or Russia in coming to the rescue.”

Surviving bank crisis

Mr. Grimsson is the only European head of state who successfully steered his country through a monumental banking crisis even worse than the one in the U.S. in 2008 and 2009 without being unseated by an economically stressed populace.

After the nation’s oversized banking system collapsed, he steered his country and its economy away from an overreliance on international banking and back to traditional endeavors such as fishing, tourism and aluminum smelting, while exploiting Iceland’s unique volcanic features to create the most extensive geothermal energy system of any nation.

Reflecting on his decision to allow big Icelandic banks to collapse without bailing out depositors in Britain and the Netherlands, Mr. Grimsson claimed vindication by the revival of Iceland’s economy while the rest of Europe fell back into recession.

“It is the most difficult decision I’ve ever taken. We let the banks fail. We didn’t pump money into the banks,” he said, after putting a bailout bill passed by the parliament before Icelandic voters in a referendum. “Why do people consider banks so holy that they cannot go bankrupt? What’s the difference between them and other major global corporations?”

The deep trauma experienced by Iceland’s small population of 322,000 is what led him to defy the wishes of other Western leaders and fly in the face of conventional wisdom in Washington.

He said it would have taken decades for Icelandic taxpayers to pay back all the banks’ debts. As it turned out, the bankruptcy estates of the banks held sufficient funds to make whole all the insured depositors eventually.

Mr. Grimsson viewed it as a choice between democracy and Wall Street. “It was not just a major economic collapse and financial crisis, but also a fundamental threat to our democratic institutions and harmony of our society. There were riots, protests; the police had to defend the parliament, the central bank,” he said.

With the economy now growing solidly and unemployment down to 6 percent, Iceland has become something of a marvel in economic circles.

“Every doomsday scenario turned out to be wrong,” he said. “It’s almost fascinating to see how democratic empowerment somehow became an economic stimulant. It gave people confidence. They saw they could move forward” and start to rebuild the economy after voters rejected the bailout.

Even officials at the International Monetary Fund who at the behest of European leaders held up emergency funding for Iceland for a year because of the dispute over the banks now acknowledge that he was right.

The IMF and European Union appear to have relied somewhat on the Icelandic playbook in their handling of the banking crisis in Cyprus, where major banks also were allowed to fail and big foreign depositors were forced to take a haircut while small domestic depositors and taxpayers were protected from major losses.