By Scott Borgerson and Scott Minerd

The Arctic might be the world’s final — and possibly most attractive — emerging market.

While most investors are focused on the economic potential of lower latitudes, the Arctic is — due to increased access from climate change — quietly undergoing a radical transformation that is attracting the attention of savvy investors. But the U.S. is asleep at the wheel, leaving some of the world’s largest oil, natural gas and mineral resources to be developed by others.

The U.S., an Arctic nation by virtue of Alaska’s 44,000 miles of coastline and a land area two-and-a-half times that of Texas, is at a critical juncture where it must decide if it wants to open up its 49th state to development. If so, the U.S. must manage the process so it is environmentally sustainable, coordinated with circumpolar neighbors, and done with the support of local populations.

Long literally and figuratively frozen to outside investors, the Arctic now has melting sea ice and thawing tundra that are yielding huge resource opportunities. According to the U.S. Geological Survey and Alaskan state studies, 22% of the world’s undiscovered oil and gas reserves are to be found in the Arctic. On the North Slope alone, there’s an estimated 40 billion barrels of oil and 236 trillion cubic feet of gas.

The Arctic is also home to some of the world’s largest zinc, nickel and rare earth mineral deposits, as well as fresh water, which is increasingly important in a warming world. Another resource is the Arctic’s sea routes, which, if realized, would be many thousands of miles shorter than traditional seaways around the two capes or through the two canals. The Bering Strait could one day host the next Singapore. With massive tidal, wind and geothermal capacity, the Arctic also has renewable energy potential.

Russia is actively working to open the Barents region. Canada is doing the same in the Yukon. Norway and Iceland each have multibillion-dollar energy projects underway. And Greenland, for now still under Danish rule, is exploring 31 billion barrels of oil estimated to be off its coast.

But the U.S. has left Alaska in the icebox. Energy production in the North Slope has been in decline for years to the point of threatening the viability of the trans-Alaskan pipeline. In contrast to other nations pocketing the Arctic’s bounty, the U.S. has no major new investment projects there.

If the U.S. wants to catch up, here are some policy initiatives that federal, state and native leaders might consider:

First, the U.S. needs to demonstrate political leadership. Secretary of State Hillary Clinton’s recent participation in an Arctic Council meeting — a first — in Nuuk, Greenland was a good start.

The U.S. should be taking a proactive approach to resolving disputes such as our disagreements with Canada over the Northwest Passage and over our maritime border in the Beaufort Sea.

Most importantly, we must finally sign on to the 1982 U.N. Convention on the Law of the Sea, which many voices in the U.S. national security establishment have long called for. Becoming party to this treaty would have many benefits in the Arctic and beyond. Crucially, it would allow the U.S. to participate in the established process of claiming exclusive rights to the resources over, on and under its extended continental shelf — a predicate for establishing a stable legal climate before attracting investment. (We will also need to revitalize our icebreaker fleet to support Arctic maritime activities.)

Second, the federal government should get out of the way of local commerce. This might be facilitated by a congressional “Arctic Preservation and Development Act” that could lay out the rules of the game, balancing environmental protection and the state’s economic interests.

Lastly, and consistent with President Obama’s formal commitment last month to an open national investment policy, federal and state governments should craft an ambitious strategy to attract foreign capital. Alaskan leaders might especially think about courting Asian investors that are in relatively close proximity, particularly Japan, South Korea and China. As our recent deficit challenges underscore, welcoming any investor interested in the American Arctic would create meaningful new jobs and contribute to economic recovery. Of course, any foreign investment will need to navigate the federal government’s review process, run by the interagency Committee on Foreign Investment in the United States, that is designed to safeguard national security interests.

Alaska should consider using its $40 billion Triple-A rated permanent fund from oil revenues like a sovereign wealth fund, emulating foreign models for investing alongside private monies. Deploying this capital reserve smartly would allow Alaska to accelerate Arctic development projects that are shovel-ready. If the money is steered toward increasing oil production and financing renewable energy projects — both Obama administration priorities — it would have the added benefit of helping the country reduce its dependence on Middle East oil.

If the U.S. can wake up to the Arctic potential it possesses, Secretary of State William Seward’s 1867 purchase of Alaska for $7.2 million could turn out to be the single greatest investment in American history.

Mr. Borgerson is a co-founder and managing director of CargoMetrics. Mr. Minerd is a co-founder and chief investment officer of Guggenheim Partners.

Copyright (c) 2011, Dow Jones & Company, Inc.

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