x Abu Dhabi, UAEWednesday 26 July 2017

South China Sea conflict between China and Vietnam bodes ill for oil

Trivial dispute has escalated into a serious stand-off.

We might think gunboat diplomacy died out in the 19th century. But if so, events in the South China Sea suggest drilling rig diplomacy has taken its place.

On May 2, the Chinese Offshore Oil Corp moved its HD-981 deepwater drilling rig into part of the South China Sea claimed by Vietnam. Immediately east of the area lie two blocks where the United States’ ExxonMobil, in partnership with the state firm PetroVietnam, has made sizeable oil and gas discoveries.

The Vietnamese objected and both sides sent reinforcements, with 80 Chinese ships, including seven warships, now confronting 29 Vietnamese vessels attempting to stop the rig. On May 4, the confrontation heated up when the Chinese reportedly sprayed water cannon on the Vietnamese ships and rammed some of them. The US called the Chinese rig deployment “provocative and unhelpful”.

And so a trivial dispute has escalated into a more serious stand-off, in an area where the two countries have fought sea battles before. This argument will also probably be resolved without serious violence, but it is a reminder that – like Ukraine’s Crimea – this is a resource-rich spot of friction between great powers and their proxies.

The disputed area is about 220 kilometres off the Vietnamese coast and 330km south of China’s Hainan Island. But it is close to the Paracel Islands, a collection of small sandbanks completely controlled by China since fighting in 1974.

Some extravagant claims have been made for the hydrocarbon resources of the South China Sea. But a study from the US energy information administration suggested that most of the area’s oil and gas lay in uncontested waters. The central part of the sea, farthest from anyone’s coastline, has no petroleum prospects.

The total potential of the disputed regions was estimated as 25 billion barrels equivalent of oil and gas – about the reserves of Australia or Indonesia, but less than a tenth of Saudi Arabia’s. For the littoral states – energy-short Vietnam, the Philippines and China – this is worth having, but not worth fighting to have.

The Paracels give China a claim over promising oil and gas acreage down the Vietnamese coast, just as the other controversial island chain, the Spratlys, does in the southern part of the sea where it abuts the Philippines, Malaysia and Vietnam. But marine boundary experts find it doubtful that some barely inhabitable sandbanks would confer the same legal rights as the Vietnamese mainland.

Agreement is not impossible. Malaysia, Brunei, Thailand, Indonesia and Vietnam have resolved their respective South China Sea claims. But these squabbles can persist for long periods – the Thailand-Cambodia overlapping area remained unexplored for 43 years.

China may have chosen this particular moment for a confrontation tactically – while the US is distracted by the crisis with Russia. Apart from oil and gas, it can also be seeking to assert dominance over this strategic sea, and its neighbours, after Barack Obama’s recent tour of Asia.

But in contrast to its generally restrained and pacific foreign policy, China has been surprisingly strident and jingoistic over these maritime disputes. The South China Sea may not be worth the bones of a Chinese geologist, but oil beguiles the popular imagination and makes it hard for any state to appear to relinquish its claim. Far from increasing Chinese security, such confrontations cause its neighbours to build up their navies, draw closer to each other and seek support from the US.

Fiery nationalists may choose such disputes to bolster domestic support. But they are playing with fire – oil and gas are just another element in a combustible mix. Even if they do not ignite a serious conflict, the best deterrent of oil companies is the sight of admirals playing sea battles.

Robin Mills is the head of consulting at Manaar Energy and the author of The Myth of the Oil Crisis

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