Many Russian cities might feel like they are at the end of the world, but Murmansk really is. Perched well inside the Arctic Circle, its grey apartment blocks and port sprawl over one side of the Kola bay. The sun doesn’t set over Murmansk for two long months in summer, while for two months in winter the endless night is broken only by a couple of hours of grainy twilight each day.

The last dregs of the Gulf Stream keep the port ice-free all year round and prevent the climate from being truly inhuman, but even at the height of summer it’s rare for the mercury to hit 15C and it can snow at any time.

In the 1980s Murmansk was a city of nearly half a million, drawing people from across the Soviet Union with its relatively high salaries and well-developed fishing industry. It was also the start of the Northern Sea Route, an icy passage from Murmansk all the way to Chukotka and the Bering Strait. Nine time zones away, it provides a lifeline to remote northern settlements along the way and a transport outlet for the Siberian interior, whose great rivers flow north towards the Arctic. Things haven’t gone so well for Murmansk since the fall of the Soviet Union in 1991.

In its heyday, the Northern Sea Route carried 7 million tonnes of goods each year; now traffic is down to 1.5 million tonnes. The city’s wealth was based on fish, but the fleets became rusty and local companies couldn’t compete with Norway’s better-organised industry. Even the Navy suffered. “The Northern Fleet [based in the Murmansk Region] was always Russia’s best-prepared and most modern fleet,” says Ivan Safranchuk, director of the Moscow office of the World Security Institute. Nevertheless, during the 1990s the fleet became dangerously underfunded, culminating in the Kursk submarine tragedy in 2000, in which 118 sailors died.

The city itself lost over 100,000 inhabitants almost overnight when people rushed to claim property in their old hometowns as the Soviet Union collapsed. “Anyone who could get out, did,” says Andrei Privalikhin, editor-in-chief of Blits-TV, a local broadcaster. Recently, however, some benefits from Russia’s current economic boom have trickled through to Murmansk and there are tentative hopes that the Arctic’s new-found energy reserves and transport possibilities could turn Murmansk into a High North hub over the coming decades.

Shtokman, the world’s largest natural gas field, lies 600km off the coast of Murmansk and will play a huge part in fulfilling Europe’s energy needs over the next 50 years. Gazprom has promised the first gas in 2014 but officials in the region are already excited about it.

“Just the fees from transit and transport of the gas will amount to a quarter of our entire current regional budget,” says Murmansk regional governor Yury Yevdokimov in his office on Lenin Street, which is decked out with a model ship and an award bestowed on him by the King of Norway. “Additionally, we will be able to gasify the region – currently we have to bring in oil by train to heat people’s houses.”

“It will create lots of work and opportunities,” says Alexei Fadeyev, deputy director of Murmanshelf, a local association of oil and gas industry suppliers. “The development of the Shtokman field will have a huge knock-on effect across other industries and sectors.”

The city has already seen economic progress that not long ago would have been unthinkable. A 1988 guidebook to the city, still on sale in local bookshops, proudly boasts that, “While a few years ago, Murmansk residents could only dream of eating potatoes in winter, now they have not only potatoes but onions and cabbage all year round.”

These days, things are better still. Last year a mall opened on the city outskirts with a multiplex cinema, 60 shops selling everything from cosmetics to plasma-screen TVs, and a huge branch of the Turkish hypermarket chain Ramstore. The shelves are stocked with potatoes, onions and cabbage – and also French cheeses, Chilean wines and 105 varieties of vodka for those dark months.

Vladimir Boglayev describes himself as a “fairly honest” businessman (“In these conditions it’s impossible to be completely honest”). In the 1990s, he says – over a glass of wine in a restaurant that he owns – he was the richest man in Murmansk. He built himself a gaudy mansion in the city centre, becoming one of the few people to live in a house, not an apartment. Now there are people wealthier than him, and to cater for them, his construction company has built a gated community of luxury housing on the outskirts of the city.

He has also opened a “tropical swimming pool”, where locals can come and bask in 30C air and water temperatures and sip a cocktail beneath plastic palm trees. Reality is never far away, though. The windows open out to a vista of Murmansk – impossibly dark clouds hovering in the low Arctic sky over the decaying apartment blocks below.

Despite the miserable climate, the locals are open. “There’s not enough natural warmth in the north, and because of this people have to keep warmth in their souls to compensate,” claims Governor Yevdokimov.

Only the occasional local admits to the weather taking its toll; the majority simply shrug and say, “You get used to it.” The same goes for the two months of darkness in winter. “I think Seasonal Affective Disorder was invented by psychologists to make money,” says Privalikhin of Blits-TV. “It’s dark in the winter and light in the summer. I was born here and that’s just how it should be.”

There’s also a surprisingly worldly air for a Russian provincial town. Norway is a stone’s throw away and most people have been there on holiday or for business. Murmansk’s hotels are filled with wide-eyed Scandinavians, seeking out adventurous business deals while taking advantage of cheap alcohol and prostitutes. On the plane from Moscow, the chubby moustachioed man wielding three shoddy plastic bags turns out to be on the final leg of his journey home from Accra, via Beirut and Athens, having captained a ship from the Canaries to Ghana. Taxi-driving former sailors recount merry anecdotes about drinking escapades in Aberdeen.

The Arctic’s thinning ice and huge energy deposits are likely to cause much geopolitical tension in the coming years, as Russia’s flag-wielding mission to the North Pole in August showed, but there may also be increased chances for cooperation.

The Murmansk Shipping Company (MSCO) operates the world’s only fleet of civilian nuclear icebreakers, and in early September dispatched the first commercial convoy to the port of Churchill in Canada’s Hudson Bay (it was the MSCO’s boat, Rossiya, that took the diving pods to the Pole to plant the Russian flag beneath the ocean). Currently, Churchill is only open a few months of the year, but in Murmansk, they are convinced that the route could be profitable all year round.

“We don’t need to wait for the ice to break,” says Alexander Medvedev, MSCO’s general director, tracing with a finger the brevity of the route on a globe by his desk. “We have the boats to go there all year round, and in two years we’ll have six more ships that are of a new generation and will be cheaper to insure. I think in five years we could be talking about 1.5 to 2 million tonnes of freight on the route.”

Governor Yevdokimov thinks that MSCO can also poach business from traditional international shipping routes. “Any sensible person realises that the route from Rotterdam to Shanghai is 30 per cent shorter through the north than via Indochina, not to mention that there are no pirates in the north,” he says. “Using icebreakers we can easily and safely accompany any convoy. But shipowners aren’t interested in shorter routes because they’re paid by the kilometre, so we need better advertising to get the message to cargo owners.”

But advertising is not Murmansk’s strong point. The military installations dotted along the Kola Peninsula, including a nuclear submarine base fewer than 20 miles from Murmansk, ensures an air of secrecy and inaccessibility. Entire towns and settlements are closed to all outsiders, and even visiting the fishing port requires prior clearance from the federal security service.

“Since Kursk, there has been a gradual increase in the money spent on the Northern Fleet,” says Safranchuk, although it seems unlikely that anyone would attack Russia from the north.

Rune Aasheim, the Norwegian Consul General in Murmansk, is optimistic about the city’s prospects, but feels that the tension between economic development and security interests will prove to be key in determining Murmansk’s fate. “There are so many rules and regulations in this country, which makes quick development very difficult.”

As an example, he cites Gazprom’s plans to build a liquid natural gas plant for Shtokman in Vidyayevo – a closed town that houses a submarine base. Norwegian experts who were called in to undertake preliminary work for the installation found themselves having to apply for permits weeks in advance just to visit the site. “You have a collision of interests, and one can ask how long the military and security interests will be allowed to have the upper hand.” It might be that Murmansk’s renaissance will need a change of mindsets, not just a change in the climate.

Norwegians, Swedes and Finns make up the bulk of foreign visitors to Murmansk (the Norwegian town of Kirkenes is just over 200km away). “In the 1990s, a lot of [Scandinavian] people thought it would be a place to make quick money,” says Rune Aasheim, the Norwegian Consul General. “Unfortunately, it didn’t work out that way.”

Now, Scandinavian business is interested in the city’s prospects again. “It’s amazing how different it is,” says a Norwegian businessman in the oil sector. “The opportunities are immense.” Access is also much easier now that Norwegian carrier Wideroe offers flights from Kirkenes.

“There aren’t many tourist attractions in Murmansk, but we do have some ‘vodka tourists’,” says Andrei Milokhin, deputy manager of the Polyarnye Zori, the city’s smartest hotel. Its cafés and bars are full of rowdy Norwegians enjoying cheap beer, and its Icebreaker nightclub is packed with prostitutes hoping to find a rich Scandinavian. “After all, we’re a hotel, not a church,” says Milokhin.