Greenland and Iceland

Norway's relations with Russia suggest that the possible presence of large deposits of oil and gas in Arctic waters will create a complicated picture of which cooperation, tension and even a certain level of hostility will each form a part. But this is less true of Norway's relations with its two other Arctic neighbours, Greenland and Iceland, which are likely to remain highly cordial.

Oslo's main source of disagreement with the governments in Copenhagen and Reykjavik has previously focused on a large stretch of water that lies equidistant to the territories of all three countries but beyond the 200-mile limits of their economic zones. This area, which is generally referred to as the 'Herring Loophole' or the 'southern Banana Hole', is important not only because of its extensive fishing stocks but also because it may be where considerable quantities of petroleum are located.

The dispute has been temporarily resolved by an agreement between the three claimants. In September 2006, a few weeks before Norway formally submitted its claim to the UN Commission on the Limits of the Continental Shelf, Foreign Minister Stoere met with his Icelandic and Danish counterparts in New York to sign an agreement not to stand in each other's way when trying to determine how the Banana Hole should be apportioned. The ministers also promised to sign 'three parallel bilateral agreements on the final determination of the boundary lines' at a later stage, when the Commission has had time to consider the limits of the outer continental shelves.17 'This is the first time such an agreement has been reached in our region', emphasized Stoere. 'This will provide clarity and predictability with regard to the future exploitation of resources.'18

But a problem might arise if both Iceland and Greenland decide to make their own claims to this area, submitting their own case to the UN Commission and arguing that their continental shelves overlap with those of the Norwegians. If in this situation the UN Commission accepts the geological arguments of more than two countries, then reaching bilateral agreements to settle all the overlapping claims could prove very difficult. But Norwegian officials remain optimistic and point out that, just as the three countries cooperated to support Oslo's submission to the UN Commission because it would be in their mutual interest to determine the exact extent of Norway's outer shelf, so too are they likely to continue working together in the same spirit. 'After that it would be up to us to sit down and set the boundaries', as Rolf Einar Fife, the head of the legal department at Norway's Foreign Ministry, told one newspaper.19

Like any other country, Iceland has a lot to gain from claiming these and other waters as its own. This is not because it needs to use oil or gas at home. Far from it, Iceland is one of the least oil-dependent countries in the world, since around 90 per cent of its houses are heated with geothermal energy and the vast majority of its electricity is generated by hydropower. Instead it is because its economy is still heavily dependent on the fishing industry, and it could earn huge revenues from auctioning untapped fields of petroleum to the international energy companies that have the expertise and infrastructure that it completely lacks itself.20 But it would nonetheless be quite unwilling to risk any territorial dispute from getting out of hand, partly because it does not have the means to enter into a fight, or even make any meaningful threats of using force, but also because its own economy is highly vulnerable to capital flight: in the autumn of 2008 it was badly mauled by the global credit crisis and the government was forced to turn to the International Monetary Fund for support.

This is why in 1981 Reykjavik reached an agreement with Oslo to settle the status of an overlapping stretch of water that lies west of the Jan Mayen Islands, which are officially Norwegian territory. Having long quarrelled about exactly where the border should be drawn, the two countries decided that the best solution is to draw a line of demarcation and then each take a share of any resources that the other locates within its border: each state is entitled to take a 25 per cent cut of any hydrocarbon discoveries that the other makes.

These waters have become particularly important in the last few years because many geologists feel that the rocks that lie far beneath share the same geological characteristics as important petroleum-rich areas such as western Norway or eastern Greenland. Experts describe the Jan Mayen Ridge as a piece of continental crust that was stranded in the middle of the north-east Atlantic, millions of years ago, by a massive tectonic plate movement deep under the ground, and claim that the manner of its formation is a cause for optimism. 'Both the Atlantic margin and the Jan Mayen Ridge are world class exploration provinces. There is a well documented correlation of source and reservoir rocks between Norway, Greenland, and the Jan Mayen Ridge', as a director of a Norwegian exploration company argues. And referring to the rare 'supergiant' oil and gas fields, known in the industry as 'elephants', he adds that 'there aren't that many places left where you can do elephant hunting. This is one of them'.21

Not surprisingly, the Icelandic authorities are keen to exploit these waters as quickly as they can, and are holding high hopes that the exploration efforts of international companies will strike black gold. 'We have high expectations of finding oil in the Dreki area, since scientific research has indicated that valuable resources may be found there', as Ossur Skarphedinsson, the minister of Industry, Energy, and Tourism for Iceland, has said. The only thing that tempers their optimism is the sheer difficulty of extracting and then moving any oil or gas to market. The most promising waters are not insuperably deep - lying at around 6,000 feet below the surface - but bringing anything to shore would be very difficult and expensive because of a complete lack of any infrastructure in the area.

Despite the clashes between trawlers and the Norwegian coast guard, these controversies are likely to be resolved peacefully, even if they sometimes spark stronger reactions than the Norwegians expect. This is what happened in 1985, when Oslo offered its petroleum industry an opportunity to explore for oil and gas in an area that crossed into Svalbard's 200-mile economic zone. The decision sparked warnings from Moscow and a sharp note of protest from London, prompting Oslo to drop the issue for a few years. In 2003, Icelandic premier David Oddson threatened to bring a case to the International Court of Justice if the 'Norwegian Coast Guard arrests Icelandic vessels fishing herring at Svalbard'. The following year, Magnus Thor Hafsteinsson of the opposition Liberal Party announced that he would raise the issue in Parliament and called for a confrontation with Norway in The Hague.22

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