When it comes to Arctic oil drilling, all geopolitics are local

The great Arctic oil race is under way. In Russia, where one needs only Vladimir Putin’s signature to drill in the most environmentally vulnerable region on the planet, ExxonMobil a month ago sealed a deal to explore underneath the Kara Sea. Now, the United States may allow Shell to explore the Chukchi Sea offshore from Alaska. At stake are the world’s largest remaining untapped oil and gas reserves, and for Russia a chance to extend its economic and geopolitical power.

In the U.S., these big economics are interwoven with big local politics. A U.S. regulatory agency — the Bureau of Ocean Energy Management — yesterday sided with Shell and against environmental groups worried about whales, polar bears, walruses and fish in the proposed drilling area. A federal judge now can decide whether to allow the permitting process to advance. But significant judicial and regulatory hurdles remain before the company can drill exploratory wells as planned next year, not to mention the rigorously contested U.S. presidential election: President Barack Obama recently lifted a drilling moratorium in the Gulf of Mexico — a key talking point of his Republican critics — but he is also attempting to appeal to his own political base, and that could lead him to a different decision in the Arctic.

The Chukchi lies above a tremendous store of oil — 15 billion barrels of recoverable reserves, according to the U.S. Minerals Management Service. A 1-billion-barrel field is regarded as a supergiant. All in all, there are some 134 billion barrels of recoverable oil and natural gas liquids within the whole of the Arctic Circle, according to the U.S. Geological Survey.

Given that no actual drilling has yet taken place anywhere, it’s not surprising that the industry hasn’t assembled a spill-action mechanism. But given the scale of U.S. environmental activism opposing Arctic drilling, this is a case in which companies wishing to drill on U.S. territory will have to demonstrate proactively that they are prepared for any eventuality, as they more or less have in the Gulf of Mexico.

When it comes to foreign companies, local politics are a feature of oil development in Russia too. Russia’s geopolitical influence is based largely on the 10 million barrels of oil and 1.6 billion cubic meters of natural gas it produces every day, so Putin will want to proceed with development of the Arctic. But he also will force Exxon to take the same steps as Shell when drilling proceeds underneath the Kara.