High latitude ocean gateway changes are thought to play a key role in Cenozoic climate evolution. However, the underlying ocean dynamics are poorly understood. Here we use a fully coupled atmosphere-ocean model to investigate the effect of ocean gateway formation that is associated with the subsidence of the Greenland–Scotland Ridge. We find a threshold in sill depth (∼50 m) that is linked to the influence of wind mixing. Sill depth changes within the wind mixed layer establish lagoonal and estuarine conditions with limited exchange across the sill resulting in brackish or even fresher Arctic conditions. Close to the threshold the ocean regime is highly sensitive to changes in atmospheric CO2 and the associated modulation in the hydrological cycle. For larger sill depths a bi-directional flow regime across the ridge develops, providing a baseline for the final step towards the establishment of a modern prototype North Atlantic-Arctic water exchange.