Oil could ignite this powder keg

PUBLISHED : Friday, 29 June, 2012, 12:00am
UPDATED : Friday, 29 June, 2012, 12:00am

For all the Sino-Philippine tension at sea over disputed reefs and the megaphone diplomacy in recent days between Beijing and Hanoi over the Paracel Islands, it is the prospect of an intensifying dispute about international oil exploration in the South China Sea that alarms strategic analysts and diplomats.

The worst-case scenarios are not hard to conceive - rival exploration involving the assets of international firms and flanked by naval ships and paramilitary vessels, all carrying the risk of accident as well as the involvement of larger powers. 'We are talking about a powder keg...this could be the big one,' said one veteran military attache. 'Tensions over disputed oil exploration could easily degenerate into something far worse.'

The move, announced at the weekend, by the state-owned China National Offshore Oil Corporation to tender for exploration bids in blocks already being explored by international firms in deals with Vietnam is being seen as a reflection of deepening concern by Beijing about disputed waters that are close to some of the world's busiest shipping lanes.

For several years, Beijing has publicly and privately objected to exploration deals between Hanoi and some of the world's largest oil firms off its coast in waters bisected by China's controversial nine-dotted line. There have been public expressions of protest, formal diplomatic complaints and, as the South China Morning Post first reported back in 2008, discreet warnings by Chinese envoys to oil firms. The message from Beijing has been clear - the firms are encroaching on Chinese sovereignty and could harm their Chinese interests. Hanoi, obviously, disagrees.

Some firms, including the British giant BP, have pulled out. America's ExxonMobil - the world's biggest oil firm - is still there and Indian, Russian and Japanese giants have also moved in, lured by Hanoi as part of its broader policy of internationalising the South China Sea issue.

Beijing's threats to ExxonMobil played into mounting Washington concerns about reports of Chinese assertiveness in the South China Sea. The PetroVietnam conglomerate, meanwhile, is to open talks with more Japanese firms next month, according to diplomatic sources.

Now, after years of frustration, CNOOC is putting nine of its own blocks up for tender. For several years now, mainland oil industry officials have expressed internal concern that they could miss out on potentially lucrative contracts as the South China Sea dispute drags on. Vietnam has repeatedly said they are welcome - but only as a foreign investor, along with other international firms.

'There are highly likely to be future clashes should there be actions taken by any of the countries concerned to try and explore within those blocks,' Professor Clive Schofield, director of research at the Australian National Centre for Ocean Resources and Security told Bloomberg. 'The designation of blocks is in a sense a proxy way of states trying to reinforce their jurisdictional rights.'

CNOOC's nine blocks cover some 160,124 square kilometre of ocean - overlapping, according to PetroVietnam officials, Vietnamese blocks held by Exxon, Russia's Gazprom, India's Oil and Natural Gas Corp and Talisman Energy of Canada. Chinese surveillance vessels last year clashed with Vietnamese exploration vessels in some of the blocks and also attempted to stop exploration in disputed waters off the Philippines.

Foreign Ministry spokesman Hong Lei this week described CNOOC's move as 'normal corporate activity', and urged Hanoi to 'immediately stop oil and gas activities that infringe on rights in relevant waters'. Vietnam's Foreign Ministry spokesman Luong Thanh Nghi said the move had 'seriously violated' its sovereignty and insisted the firm 'immediately cancel' the tender.

The two sides also formally exchanged protests over a series of bureaucratic and legal moves in recent days, while Vietnam launched regular patrols across the disputed Spratly Islands by its Su-27 jet fighters.

The sudden burst of rhetoric and action has puzzled some analysts who have described an easing of Sino-Vietnamese tensions amid a flurry of diplomacy and co-operation in the last year. Outlining these connections to a conference in Washington this week, veteran South China Sea scholar Professor Carl Thayer nonetheless warned of potential trouble. 'Both China and Vietnam continue to expand their civilian maritime enforcement agencies, and more significantly, modernise their naval and air forces in the South China Sea. ... As the 'bathtub' of the South China Sea becomes more crowded, the probability of an accidental naval clash rises.'