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How Russia’s War Affects Alaska Trade

by | Mar 9, 2022 | Arctic, Featured, News, Oil & Gas

Russia & Ukraine War Concept.

SJANKAUSKAS | DREAMSTIME

Half a world away yet breathing down Alaska’s neck, Russia’s military invasion of Ukraine presents some commercial possibilities for the erstwhile empire’s erstwhile colony. Not many, but a few.

Natural Resource Competitor

The most immediate, yet indirect, effect is the spike in oil price. Markets are bracing for boycotts of Russian crude, which would constrain global supply. Benchmark grades are trading above $120 per barrel, a return to triple-digit prices not seen since 2014.

The sudden increase in the price of gasoline is the most visible consequence, yet Alaskans can’t grumble too much while the same spike puts more cash into the state treasury. To return that windfall to Alaskans pinched at the pump, the state House of Representatives is considering a $1,300 per person energy rebate, to be added to this year’s dividend from the Permanent Fund, as part of its budget process.

Beyond that, though, Russia’s actions have minimal impact on Alaska, at least directly.

“By and large, we’re a natural resource competitor. We’re trying to sell the same things,” says Greg Wolf, executive director of the World Trade Center Alaska. “They have gold, we have gold; they have seafood, we have seafood; they have coal, we have coal; we have minerals, they have minerals, and they have some that we don’t have.”

That duplication might be an upside for Alaska, if world markets look away from Russian products, either by choice or enforced by sanction. “They now will look for substitution,” Wolf says. “They will look for an alternative supplier. That could possibly benefit us. Again, possibly.”

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June 2022

Alaska has closer ties to Russia in terms of services, rather than goods. Wolf observes that Alaskans have provided architecture, construction, oil and gas support, and logistics in Russia, especially in the country’s Far East. The war in Ukraine is interrupting those relationships.

For instance, Lynden has been providing logistics for an oil and gas project that ExxonMobil has been developing on Sakhalin Island. However, ExxonMobil has announced it is withdrawing as the operator, so Lynden may follow suit.

Wolf notes that the Japanese operator of summertime flights between Anchorage and Petropavlovsk-Kamchatsky had planned to return to service in 2022 after two canceled seasons. However, because the flights used aircraft and crews leased from Siberia-based Yakutia Airlines, that service will not resume.

Wolf says the World Trade Center has not yet heard of other flight routes, cargo or passenger, that have announced changes to avoid Russian air space. If they do, Alaska could reclaim its Air Crossroads title from when the Siberian Air Corridor was closed before the ‘90s.

Wolf is not aware of any significant financial investments by Russian firms in Alaska, nor have Alaskans put much private capital into Russia—with one big exception. As part of its diversified equity portfolio, the Alaska Permanent Fund Corporation owns at least $81 million in Russia-based assets. The value could be as high as $162 million, or 0.2 percent of the Fund.

International investments are hardly unusual. The Permanent Fund owns assets in seventy-seven different countries and is far more heavily invested in, for example, Taiwan or Sweden. The exposure in Russia is much greater, though, than the $388,000 in market value the Fund owns in two Ukrainian consumer products companies.

Given that the Fund’s Russia investments include shares of state-connected firms such as Gazprom, Rosneft, and Sberbank, some Alaska legislators and Governor Mike Dunleavy are urging managers to divest. No such plans are currently in the works, but a Permanent Fund spokesperson says managers are monitoring events and analyzing the appropriate response.

As long as the Moscow stock market is closed, though, Wolf says nobody can sell their shares in Russian firms. If the Permanent Fund hasn’t sold them already, they might not be able to.

Minimal Exchange

The Japanese operator of seasonal flights between Anchorage and the Russian Far East has dropped plans to resume leasing aircraft and crew from Siberia-based Yakutia Airlines.

Daniel Eida | Dreamstime.com

Alaska tried to build trade ties with Russia in the ‘90s, immediately after the collapse of the Soviet Union. “A lot of Alaska companies very enthusiastically ran over to the Russian Far East with money, and they eventually came back without money,” Wolf recalls. “It just didn’t work. I don’t think either side was really ready for that.”

Partnerships continue, such as maritime rescue cooperation with each country’s Coast Guard, and a lot of Russians who came to study at the University of Alaska have made a life as expatriates. That doesn’t translate to much commerce across the Bering Strait.

“Even though we have this proximity, and we have historical connections, and we do have a Russian community here, of course—our commercial ties are not significant,” says Wolf.

Russia is nowhere in the top twenty-five trading partners for Alaska exports. Ukraine is, though, thanks to receiving about $18 million in Alaska goods in 2020 (the most recent data from the US Census Bureau). That’s about a single shipment, says Wolf, and trade with Russia was less than that.

“Traditionally, we do very little export of goods or resources to Russia mainly because… they have everything we have and even more,” says Wolf. “They’re not a natural trading partner of ours because, essentially, they are competitors with us.”

Not that the competition can’t be friendly. Wolf has visited Sakhalin quite a few times, and before COVID-19-era travel restrictions, he was in Khabarovsk in 2019 to speak at a conference on the Arctic. He’s found some commonality with Alaska’s neighbors.

“Russian Far East people share an affinity with Alaskans,” he says. “Sometimes here in Alaska, we think that we’re far away and being ignored by Washington, and in the Russian Far East, they’re far away and feel like they’re ignored by Moscow. We’re kind of kindred spirits out here in the hinterland.”

If Russia’s bellicose posture hasn’t exactly interrupted a thriving trade relationship, it has put a stop to potential growth. For the moment, of course. “If it’s short lived, maybe a lot of changes won’t be made,” Wolf says. “I don’t know if they’ll ever quite return to business as normal, but maybe they do. It’s too early to tell; it’s very unpredictable right now.”

Alaska Business Magazine June 2022 cover

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