Sino-Russian Trade Agreement Highlights the Arctic as an Avenue for Global Supply Chain Vulnerabilities

Key Takeaways 

●      China and Russia have signed an agreement to jointly commercialise and develop the Northern Sea Route, focusing on technological exchange and infrastructure development.

●      As a strategically located maritime route containing vast resources, countries are expressing a growing appetite for investment.

●      Tourism, shipping, mining, development, and various other industries interested in expanding into the Arctic need to account for the significant insurance costs, unpredictable weather, and passage regulations through the Russian EEZ. 

The Sino-Russian Arctic Trade Agreement 

On 18 October 2025, China and Russia signed a deal to jointly commercialise and develop shipping in the Northern Sea Route (NSR). The NSR is the Arctic maritime transit corridor that follows Russia’s northern coastline through the Bering Strait and the Barents Sea. Agreed after the second meeting of the Sub-Commission for Cooperation between energy corporation Rosatom’s Director, Alexey Likhachev, and the Chinese Minister of Transport, Liu Wei, the deal approved an action plan for NSR shipment development. 

Through the agreement, Beijing and Moscow aim to further develop projects in the region as well as establish a sustainable shipping lane by integrating modern logistics and technology to enhance shipment capabilities and speed. The deal is the product of over a year of negotiations and cooperation between the pair. Chinese companies have long sought to connect Asia to Europe through the Arctic. Hong Kong maritime operator Sea Legend Shipping is developing a China-Europe Arctic Express shipping service to operate during warmer summer months when Arctic ice recedes and the transit route becomes navigable. 

According to Rosatom, Russia’s premier Arctic shipping company and nuclear icebreaker fleet operator, the NSR is the “transport artery” of the 21st century. One major reason for such an assertion is that the NSR is the shortest shipping route between Europe and the Asia-Pacific, requiring 20 days of travelling, compared with the route via the Suez Canal. With prolonged seasonal thawing due to climate change, container shipping in the NSR is increasing exponentially every year. 

For China and Russia, this means expanded opportunities for investment and cooperation on capital projects and maritime trade route diversification. In the past, Sino-Russian cooperation in the region has centred on energy investment agreements, collaboration on navy patrols, and icebreaker-led research on sea ice movement and transit route openings. Under the terms of the new agreement, areas of cooperation will be expanded to include logistical areas, including strengthening shipbuilding, crew training, and innovation. Additionally, climate change and the melting of ice caps during longer summer months, as well as improvements in icebreaker technology, allow for a longer navigable time window, making this a forward-looking agreement.

Why the NSR, and What are the Interests? 

The Arctic Circle is coveted for its transnational location and significant oil, mineral, fishery, and gas resources. As such, the NSR has long been a subject of discussion in business and foreign policy-making circles alike, with security concerns persisting in dialogues. The shipping agreement comes amid a tense geopolitical atmosphere, with a wave of recent Sino-Russian joint naval exercises being held in the Sea of Japan in response to similar exercises by the US and its allies in the Arctic.

While defence concerns are poised to increase, economic interests concerning the NSR’s role as an alternative shipping route are taking priority. The NSR stands as a strategic corridor to bypass choke points in Europe and the Near East. It effectively circumvents maritime bottlenecks in the Baltic and the Strait of Malacca, as well as Houthi disturbances around the Suez Canal. It also presents a more cost-efficient alternative in the navigable summer months due to reduced transit times. Due to the remote location, the passage also benefits from limited traffic, piracy, and other disruptions.

The Sino-Russian trade agreement also offers the beginning of an alternate trade system that threatens to counterbalance the global supply chain status quo. With the ongoing war in Ukraine repelling Western operators from using the NSR, traffic in the region is now largely Chinese and Russian. Moscow, for one, has expressed an interest in including additional international operators. Approximately 95% of NSR traffic flows from China to Russia, as China is an important buyer of Russian Arctic crude oil.  Two-thirds of Russia’s trade with Europe is now allocated to China post-Ukrainian invasion. The new trade agreement, therefore, signifies a change in the global trade ecosystem from US maritime dominance to a Eurasian, multipolar trade order, as exemplified by the Middle Corridor initiative. Succinctly, the NSR for China means a shorter and more secure transit to Europe, and for Russia, the NSR means regional development, ease of energy exports to the East, and counterbalancing European dominance. To offset Russian and Chinese expansion in the Arctic, the US signed a $6 billion agreement with Finland to collaborate on the construction of 11 icebreakers to strengthen Western capabilities and related industries in the Arctic.

The NSR also facilitates Chinese access to the European market. The Chinese Sea Legend Shipping’s containership, Istanbul Bridge, is illustrating the growing maritime opportunities in the Arctic Circle. It recently completed its first step in port calls in Northern Europe through the NSR, a step towards the full launch of its service by 2026. Planning a stopover in Gdansk, Poland, on 19 October 2025, and then continuing to Rotterdam, allowed for a quicker delivery at a lower cost for the goods to be efficiently transshipped to Eastern, Central, and Western Europe. This is emblematic of the current Chinese regional economic strategy. Indeed, Beijing plans to develop Arctic connections and establish European port contracts. In turn, it will benefit the integration of new energy sectors and high-end manufacturing from the Yangtze Delta in Shanghai with European markets. With China as a growing European trade partner, the NSR is thought to open up a future flow of such goods from Asia to Europe. These goods include lithium electronic exports, photovoltaic products, and new energy vehicles.

Impending Business Opportunities and Challenges in the Arctic 

Although the economic opportunities associated with NSR shipping, infrastructure, and development projects are only just being explored for the first time, the growth of traffic and opportunities is considered inevitable and could lead to beneficial exploitation. Namely, the Kremlin has been open about inviting private investors and partners into the region since the outbreak of the war in Ukraine and the loss of economic partners. The US-China trade war has also led both states to seek out separate development strategies in the Arctic, paving the way for private interests. There are increasing investments in the region, such as pan-Arctic infrastructure development for local populations, projects along China’s Polar Silk Road, or Russian port development ventures. Small, medium, and large businesses alike are implicated in different economic sectors. These include mining, tourism, infrastructure, technology, energy, and bioeconomy. Renewable energies such as wind power pose an attractive frontier for long-term investments. 

Investors project USD $1 trillion to fund Arctic infrastructure in the coming years. This includes roads, airports, hospitals, ports, hotels, schools, and housing.  Both the Trump administration and China’s Belt and Road Initiative express growing interest in Greenland and critical minerals in the Arctic, stemming from their increasing accessibility. Both parties are open about recruiting private input into energy infrastructure development projects in the region; and there are substantial opportunities for private investors to also cooperate alongside local communities and governments. Tourism is an additional increase. North Pole cruises are marketed even more, namely by companies operating out of Murmansk or Norway’s national tourism agency. Norway has been notable in Arctic exploitation ventures. Norwegian and Icelandic salmon aquaculture is a booming industry. Indeed, Norway’s bioeconomy has found value in accepting external international funding and widening the supply chain to on-land reception and transport costs of resources. Norwegian oil and gas are in higher demand from the UK and EU markets, creating opportunities in the Arctic offshore and energy production.

The increasing maritime activity in the region has also pushed formal institutions to call for additional regulation around sustainability practices, pollution, and marine conservation around fish preserves. Multiplying sustainability commitments can also nuance mining and fossil fuel development business initiatives. The demand for increased governance also signposts collaboration with local enterprises and business operations. Local development projects with indigenous communities are increasingly subsidised, and the Indigenous people’s organisations are actively looking for funding opportunities. Initiatives similar to the Canada-Inuit Nuanangat-UK Arctic Research Programme partner with indigenous communities on scientific research. The Álgu Fund is also actively seeking financial and logistical support on behalf of the six Permanent Participant organisations of the Arctic Council (six formal indigenous institutions with permanent observer status). Adjacent, it is important to note local cultural beliefs in proposing development projects, as sustainable business practices towards the land and the sea are preferred.

However, as a result of high insurance costs, weather concerns, and UNCLOS regulations on passage, it is unlikely that Arctic trade will be revolutionised. The region’s shortcomings overshadowing its potential should be taken into account, but instead of dissuading business ventures, they can be used to inform decisions. Therefore, investments in safety and environmental protection infrastructure are also necessary. Maritime traffic entails search and rescue infrastructure and oil spill response, and such mechanisms are currently underdeveloped. Operational challenges are also present in the lack of navigational and meteorological data, weak satellite communications, and limited bathymetric (maritime depth) data. Climate change has worsened the latter aspect as it continually alters the geography of the region. These complications are important considerations for the tourism and shipping industries, as they largely affect transiting. These challenges are also likely to remain as they require extensive regulatory and information-sharing mechanisms.

Equally important to keep in mind are the significant defence and security risks in the Arctic Circle. Russia’s grey zone activities against NATO have led to instances of GPS jamming, military exercises, maritime sabotage, and cyber disruptions. This creates defence concerns for shipping and infrastructure initiatives in vulnerable and fringe Arctic areas, and it is important to take note of this. The UK’s Royal Navy does not currently have the ice-patrolling capabilities to intervene in escalated circumstances. Overall, geopolitical uncertainties may cause strategic and reputational risks for private actors, creating business disruptions. Overt military conflict is also a possibility, contributing to risk concerns and insurance policies, especially located around fringe Russian EEZ areas. Potential conflict could also impact transit, with the implementation of Russian border patrolling and potential border lockdowns in cases of military threat.

Additionally, insurance for economic Arctic activities, including maritime trade, fishing, mining, and tourism, is projected to grow. The accumulated lack of regulatory frameworks, competitive interests, and geopolitical tensions contributes to making the Arctic a hotbed for risk accumulation and uncertain ventures. The nascent nature of shipping and transit across the NSR contributes to actuarial knowledge gaps, weakening the robustness of safety measures, deductibles, incidents, claims, settlement costs, and more. Risk management information is still sparse.

Magnified climate change in the region could also lead to unpredictable circumstances. Arctic permafrost melt could alter the environment in the near future, impacting the property lines of businesses. This means reduced ice cover and increased flooding risks, potentially threatening buildings’ foundations and industrial installations. The WWF’s Principles for a Sustainable Blue Economy, corroborated by the World Bank and UN, provide further sustainable investment plan recommendations for the region. A majority of private investors have identified substantial infrastructure investment requirements in the fishing, mining, shipping, and resource extraction industries and in telecom, undersea cable development, housing, and education.