Yukonomist: War and Economic Development in the North

Yukonomist Keith Halliday

It’s not polite to say at economic development conferences in the Canadian North, but war has often been a major driver of northern growth.

Canada owned the Yukon for 70 years before Japan’s attack on Pearl Harbor prompted the construction of the Alaska Highway and the Canol oil pipeline. They didn’t build the big runway at YXY, or expand it during the Cold War, so you could fly to Vancouver on vacation.

We may be reminded of all this if Russia reacts to Western sanctions by doubling down on northern resource development.

Bloomberg says oil and gas contributed half of Russia’s exports and around 40 percent of national government revenues last year. However, most of Russia’s pipelines go to Europe. It will need new production facilities, pipelines and Arctic tanker ports to pivot its exports to Asia.

Nor are Russia’s exports limited to oil and gas. The country is also a top global exporter of wheat, potash and nitrogen-based fertilizer, as well as critical minerals such as nickel, palladium, cobalt, platinum and tungsten.

A friend in Toronto, Ontario just had the catalytic converter stolen off her car. Sound weird? Well, catalytic converters contain palladium and prices spiked to over US$100,000 per kilo after Russia’s invasion of Ukraine. Russia has lots of palladium deposits.

Geopolitics and Russia’s north have a long connection. In the 1930s, Stalin’s massive industrialization program aimed to demonstrate that Communism could deliver better living standards as well as make the Soviet Union economically self-sufficient in its struggle with capitalist countries.

The first wave of megaprojects included northern locations such as a huge nickel mine at Norilsk, a forced labour project located even farther north than Old Crow. Norilsk still produces nickel, and the city has a population almost double all three northern Canadian territories combined.

Although Stalin’s death allowed some megaprojects to be discontinued, such as the “Railway of Death” over the permafrost in Yamal, Siberian development continued to be a priority. In parallel with megaprojects in our part of the world such as the Trans-Alaska Pipeline, or the cancelled Mackenzie Valley Pipeline, the Russians built a huge oil and gas industry and the pipelines to Europe that are in the news today.

After the collapse of the Soviet Union, industrial Siberia crashed into economic uncertainty. Some of the facilities were wildly uneconomic in a market economy. Intellectuals such as Fiona Hill in The Siberian Curse debated whether Siberians needed to relocate to economically viable jobs in European Russia.

Since the first wave of sanctions after Russia’s invasion of Crimea in 2014, however, the Russian government refocused on the traditional narrative: develop Siberian resources to make Russia self-sufficient and boost export earnings. Nazrin Mehdiyeva in a paper from Nato Defense College points out that it was directly after the Crimea sanctions that Moscow officials launched new economic development programs in the far north.

Even before the latest wave of much more stringent Western sanctions, Moscow’s plan was to rapidly grow exports from Siberia via the Northern Sea Route; Russia’s equivalent to our Northwest Passage. The plan identifies 21 major mining and energy projects. Ice-hardened tankers are already carrying liquefied natural gas to global markets, supported by the first of a planned fleet of nuclear-powered icebreakers, upgraded ports and airports, and new fibre-optic cables. Even reconstruction of part of the Railway of Death is on the agenda.

Some of those 21 projects are massive. After the Crimea sanctions, Russia and China signed a $400 billion deal to build the Power of Siberia pipeline to supply gas to Chinese markets. It opened in 2019. Three weeks before the invasion, Russia and China signed a 30-year deal to ship 10 billion cubic metres of natural gas a year from Sakhalin to China. Negotiations are underway for Power of Siberia 2.

The Baimskaya copper mine near Pevek in Siberia is another example. It is about 2000 kilometres west of Old Crow and would be one of the largest producers in the world. It will require a 400-kilometre all-weather road, a new port on the Arctic Ocean and will be powered by small modular nuclear reactors.

Undersea mining in the Arctic is not an immediate prospect, but Russian planners have it in mind as a long-term option. This is one reason Russia has been mapping the Arctic seabed and making expansive territorial claims to the continental shelf.

Many of the planned facilities are “dual-use,” designed for both economic and military activities. Russia has been ramping up its air, naval and army capabilities in the North for several years.

There will be consequences for this development. With the needs of the state paramount, projects that would not pass muster with Canadian investors or socio-environmental assessment agencies will get the green light in Russia. Thanks to Russia’s shrinking economy, there will be trade-offs to be made between northern military spending, big northern infrastructure projects and the needs of the rest of Russia.

Militarily, the Yukon has little to worry about. The air force base at Fairbanks recently received a half-billion-dollar upgrade, 3,500 new personnel and 54 cutting-edge F-35 fighter jets. That’s on top of the F-22 fighter squadrons already based at Anchorage. Meanwhile, as part of the US Army’s Arctic strategy, about 12,000 troops in the Alaskan army brigades have been reorganized into the new 11th Airborne Division. One American general said this force “will be the most highly trained, disciplined and fit Arctic warfighting unit in the world.”

Economically, it means that Yukon mines will be in competition to serve Asian demand with highly motivated and probably highly subsidized Russian competitors.

It is on the environmental front where a big concern looms: new mines and gas wells, heavy tanker and bulk shipping traffic, and large numbers of nuclear power plants in the relatively confined Arctic Ocean.

More resource development in Siberia may be an unintended consequence of Russia’s invasion of Ukraine. And that unintended consequence may have unintended consequences of its own.

Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He is a Ma Murray award-winner for best columnist.

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