China, Vietnam, spar on high seas over US$2.5 trillion in energy

Vietnam produces 22-33 million tons of oil from its offshore blocks each year. (Bloomberg pic)

SINGAPORE: When a Chinese state-owned survey vessel sailed into waters off Vietnam’s coast in early July, it unleashed a high-seas standoff with trillions of dollars at stake that risks drawing in Russia and the US.

For weeks now the Haiyang Dizhi 8 has zigzagged across a square block of water to study the seabed in an active drilling block operated by Russia’s state-owned Rosneft Oil PJSC.

Satellite images show more than a dozen Chinese and Vietnamese coast guard ships manoeuvring around the surveyor, which at one point included a heavily-armoured Chinese cutter known as “The Beast” that is larger than most American destroyers.

The location is particularly worrying for smaller countries looking to extract oil and gas from disputed parts of the South China Sea – it sits three times closer to Vietnam than the Chinese mainland.

While Beijing has long sought to disrupt exploration in parts of the sea that fall under its expansive claims, its naval buildup and moves to construct military assets on disputed reefs over the past decade have allowed it to more aggressively assert its interests further from its shores.

“It’s the growing intensity or frequency of these occurrences that truly differs from the past,” said Collin Koh, a research fellow from Singapore’s S Rajaratnam School of International Studies.

The current standoff “could’ve sufficed to make investors think twice about staying on that offshore project, and this might even serve as a deterrence to future investors who might want to anticipate and avoid being embroiled in such troubles.”

The Chinese move comes just as it’s holding negotiations on joint exploration in a disputed area with the Philippines, which has sought closer ties with Beijing since President Rodrigo Duterte came to power.

Vietnam has persistently rejected China’s nine-dash line map of the sea as a basis for cooperating on energy resources, prompting tensions to increase as Beijing’s military strength grows.

The US this week criticized China’s move to send the survey to Vietnam as “an escalation by Beijing in its efforts to intimidate other claimants out of developing resources in the South China Sea.”

The State Department statement said China was blocking Southeast Asian nations from accessing an estimated US$2.5 trillion in unexploited hydrocarbon resources.

For Vietnam – a country that produced 22-33 million tons of oil from its offshore blocks each year, and has as much as 4.4 billion tons in crude oil and gas reserves there – armed Chinese ships within its maritime border could have a devastating impact on an industry that made up 20% of Vietnam’s GDP from 1986-2009.

China defended the provocation, saying Vietnam should not have carried out its decision in May to unilaterally begin exploitation work in a “Chinese jurisdiction.”

“This is the cause of the current situation,” Foreign Ministry spokesman Geng Shuang said on Friday.

Rosneft declined to comment.

Duterte’s conundrum

While the Philippines produces very little offshore oil and gas by comparison, data shows deposits in the disputed Reed Bank to the west could amount to as much as 5.4 billion barrels and 55.1 trillion cubic feet of oil and gas respectively. Any attempt to extract it, however, would likely face strong resistance from China.

“Anything that the Philippines tries to do, particularly at Reed Bank, is going to met with the same kind of response that we’re seeing right now off the coast of Vietnam,” said Gregory Poling, director of the Washington-based think-tank Asia Maritime Transparency Initiative.

Weekly transgressions from China near its coast has also cast a shadow over Duterte’s final years in office amid his pursuit of warmer ties with Beijing. The Philippine Armed Forces said this month they’ve consistently spotted armed Chinese warships sailing through its territorial waters since early July.

The presence of Chinese surveyors in its exclusive economic zone this month prompted a diplomatic protest, said Philippine Foreign Affairs Secretary Teodoro Locsin, who was mindful that China now has the largest naval force in the region.

“Our nightmare – we send a ship and a big Chinese ship laughs at it. What do we do,” Locsin wrote in an email. “They claim it is all theirs. We claim it is all ours.”

This all follows the deployment of a maritime militia and so-called fishing fleets known to harass fisherman throughout the region. A high-profile incident in June included a Chinese vessel colliding with a trawler, leaving 22 Filipino fishermen stranded at sea.

“It is indicative of how much China has expanded its operations in and through Filipino waters on account of the government’s accommodation of China,” Jay Batongbacal, director of the University of the Philippines Institute for Maritime Affairs and Law of the Sea.

Code of conduct

With Duterte and his Chinese counterpart Xi Jinping set to discuss recent activities in the South China Sea later this month in Beijing, Xi will be hoping to make progress on a joint exploration deal that would serve as a major concession in the ongoing code of conduct negotiations with the Association of Southeast Asian Nations, or Asean.

According to a leaked draft of the negotiating text of the code of conduct dated June 2018 and seen by Bloomberg, China has stated its intention to achieve exclusive joint explorations in the South China Sea by eliminating any foreign presence.

The draft also expresses China’s intent to win veto rights over any joint military exercises with foreign militaries and attain regular joint patrols with Southeast Asian countries.

The pursuit of such an agreement demonstrates Beijing’s resolve in win administrative control within its so-called “nine-dash line” encompassing some 80% of the South China Sea, while recent incidents openly challenge a 2016 Hague Tribunal ruling.

Observers say the increased hostilities in the South China Sea may be an attempt by China to coerce the 10-nation bloc to yield to China’s demands within a self-imposed deadline of three years – when Duterte’s term comes to an end.

“These actions are designed to shape the other parties’ calculus to take into account their interests with China in mind,” said Koh.

Risk of conflict

With Vietnam less likely to yield to such pressure, China has engaged in several high-stakes deployments in recent weeks, including conducting two military exercises near the disputed Paracel Islands, lifting a controversial fishing ban and testing new warships and weapons in the Gulf of Tonkin, prompting concerns the two nations may wind up in open conflict.

“This is the tensest we have seen the relationship between Vietnam and China in five years,” said Poling from the Asia Maritime Transparency Initiative. “Even if things are relatively quiet, they don’t seem like they are going to stay that way.”

China has repeatedly talked down the escalation calling on Vietnam to respect China’s sovereign rights.

“China hopes to join hands with regional countries to maintain stability in this area, with a focus on the negotiation of the code of conduct,” Zhu Feng, executive dean of The Collaborative Innovation Center of South China Sea Studies at Nanjing University, said during a phone interview.

In an attempt defend their maritime claims as well as wade the growing geopolitical rift between the US and China, Asean in June adopted its own version of an Indo-Pacific strategy in June, though its own signatories admit it has serious limitations.

“Southeast Asia had best focus its attention and confine its resources to the South China Sea instead of looking farther out in pursuit of a policy that reeks of containment,” said Philippine Foreign Minister Locsin.