With proven oil reserves of nearly eight billion barrels and containing an estimated 28 billion barrels in total, the South China Sea has been described by China as a ‘second Persian Gulf’.
But with half-a-dozen or so surrounding countries claiming territorial rights – often overlapping – over these offshore riches, it’s also the subject of one of the most intractable disputes in the world.
China claims ‘indisputable sovereignty’ over almost all of the sea, in defiance of the 1982 UN Convention on the Law of the Sea (UNCLOS), of which it is a member. Yet while many of its neighbours have taken a largely sympathetic or neutral stance to this claim, it’s hotly contested by Vietnam, which is widely seen as the other main protagonist here.
China and Vietnam have a history of enmity of course. In 1969, the founder of modern Vietnam, Ho Chi Minh, reportedly said: "Colonialism is dying, but if the Chinese stay now, they will never go." In 1979 the two went to war after Vietnam invaded Cambodia and ended the reign of the Khmer Rouge.
Although Vietnam began offshore oil exploration in the 1970s, it was only in 2004 that it started awarding licences to foreign companies. Until recently the dispute over rights to territory, which include the Paracel and Spratly Islands, has grumbled on, but now extra tensions are coming to the fore.
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In May 2011, for example, Chinese vessels cut the cables of a Vietnamese exploration ship operated by state-run oil firm PetroVietnam as it was carrying out a survey in block 148, about 120km off the south-central coast of Vietnam – within the 200km limit laid down by UNCLOS.
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By GlobalDataThen, in September, it looked as though tensions would ease, when China and Vietnam signed a deal to settle their dispute.
Vietnam’s deal-making
Yet only a few days later it emerged Vietnam had signed another deal, with India’s ONGC Videsh Ltd (OVL), ONGC’s overseas development arm, to develop long-term cooperation in the oil sector.
In 2006, OVL was awarded blocks 127 and 128 in the Phu Kanh basin, offshore of central Vietnam, which China has been unhappy about for some time. In October ExxonMobil announced the discovery of "significant hydrocarbons" off the coast of Danang. It has a licence from the Vietnamese Government to explore blocks 117, 118 and 119 in the area.
Other companies, such as Premier Oil, Gazprom and Total, have also found oil in the region.
While not naming names, China has warned foreign companies against exploration in the South China Sea, but it’s the Vietnam-India deal that has sparked fury in Beijing. In a rare public attack, the state-run daily Global Times newspaper ran an article in late September by Long Tao, purportedly a strategic analyst with the China Energy Fund Committee, called ‘Time to teach those around the South China Sea a lesson’.
It marked Vietnam as one of the "noisiest troublemakers" and advocated the need to "think ahead and strike first [before things get] out of hand".
The paper then quickly backtracked however, publishing another piece later that day, ‘Patience and peace will keep serving our strategy’, which recognised that views such as those from Long Tao would serve only to push neighbouring countries closer to the US – which would be welcomed in Washington – and that patience is "equally useful in the geopolitical conflicts" China faces.
This apparent U-turn is a sign of the divisions within China’s leadership over this issue, although China and Vietnam have since declared they will not "take action [that could further] complicate the issue before the disputes are settled through dialogue".
India has not escaped Chinese criticism either. After the OVL-PetroVietnam deal was announced, the Global Times wrote: "India should bear in mind that its actions in the South China Sea will push China to the limit. China cherishes the Sino-Indian friendship, but this does not mean China values it above all else."
India is unfazed by this, however, and a spokesman for its Ministry of External Affairs responded at the time by saying: "The Chinese had concerns but we are going by what the Vietnamese authorities have told us, and have conveyed this to the Chinese."
From a political standpoint, India wants to assert itself in the face of China’s ‘string of pearls’ policy of establishing sea lines of communication from Hong Kong to the Persian Gulf, and many Indians still remember the humiliating defeat the country suffered in the 1962 Sino-Indian war.
Sino-Indian relations
But China is right to cherish its friendship with India – for one thing, these two giants of the region hope to be doing $100bn worth of annual bilateral business by 2015.
Yet India’s sheer clout means it can afford to stand up to China’s sabre-rattling. As Harsh Pant, an international affairs expert at King’s College London put it: "India is right to forcefully reject Chinese claims of sovereignty over the entire South China Sea. It should now build credible strategic partnerships with other regional states to prevent a Chinese regional dominance that will undermine Indian and regional security interests."
In reality though, experts agree that the issue of sovereignty will not be resolved in the foreseeable future. For example, Sam Bateman, a senior fellow in the Maritime Security Programme at the S Rajaratnam School of International Studies in Singapore, said: "The South China Sea disputes will only be settled when the bordering countries change their mindsets from one of sovereignty, sole ownership of resources and seeking ‘fences in the sea’ to one of functional cooperation and cooperative management. While countries have this nationalistic mindset, settlement of the South China Sea disputes is highly unlikely."
This will have a knock-on effect on oil exploration and production. As Subbu Bettadapura, AsiaPacific director for energy and power systems at consultancy Frost & Sullivan, said: "Sovereignty disputes matter for oil and gas exploration, development and production investments as well as the continuity of projects. It is important that offshore blocks awarded are not disputed.
"OVL will most probably go ahead with its drilling and mapping the area for oil and gas assets. But in case of any proven discoveries, development investment might not be forthcoming, as it would be risky. All said and done, China dominates the South China Sea, and any escalation [in tensions] could result in disruption of the project. The bottom line is that we are not likely to see large development investment in the disputed waters," he said.
