Tussle for oil in the South China Sea

It is hard to overestimate the stakes involved in the disputed South China Sea.

All the major powers are involved. A rising and resource-hungry China claims much of the area through its historic claim to the Spratlys archipelago in the deep south - it dates its occupation of the islands to the Han dynasty. Despite China's increased military spending, the US remains the leading military power and will be for more than a decade at least - projecting its influence through the carrier battle groups of the Seventh Fleet, frequent visitors to Hong Kong. Japan receives much of its oil via the South China Sea's shipping lanes, while Russia is seeking to expand its long-time oil interests off Vietnam.

Vietnam, a much smaller player, straddles the equation, the only other nation to claim the entire Spratlys - jurisdiction it bases on its large continental shelf and the UN's Convention on the Law of the Sea.

It is a nation defined by its wars of independence - including modern conflicts against both the US and China - and one fiercely protective of anything it regards as sovereign. It doggedly refers to the South China Sea as the 'Eastern Sea' in all official communications, maps and state media reports. And it, too, is determined to fully exploit the oil, fishing and tourism potential of its coast - oil and gas are already its leading export earners. Vietnam's desire for economic sustainability and independence is matched by a foreign policy geared to ensuring it is never beholden to a single alliance or relationship. It wants better ties with both China and the US, for example, but not at the expense of each other.

This complex web of interests is the backdrop to the news we report today that executives from ExxonMobil - the world's largest oil firm - have been approached by Chinese envoys and told to pull out of preliminary oil deals with Vietnam.

Some independent analysts suspect Beijing is manoeuvring to muscle its way into a future joint-development deal, similar to the one hatched recently between Japan and China to end years of tension over the East China Sea. Others suspect also that China could be showing its unhappiness with Vietnam, a fraternal Communist Party-ruled ally, but one deeply suspicious of its giant neighbour to the north.

In a statement to the Sunday Morning Post, Vietnamese Foreign Ministry spokesman Le Dung suggested there was little room for compromise over oil, even if he avoided the bellicosity that has occasionally marked Hanoi's protests to Beijing, couching China in deliberately 'foreign' terms.

'Vietnam ensures the rights and benefits of foreign investors doing business in Vietnam,' he said.

'We welcome and facilitate foreign partners, including those from China, to co-operate in the field of oil and gas on the continental shelf of Vietnam, on the basis of complying with Vietnamese laws.'

The Foreign Ministry in Beijing has yet to comment.

Mr Dung did not directly address questions about China's discreet overtures to oil giants such as ExxonMobil, but Australian National University scholar Carl Thayer said Vietnamese officials had told him privately of deep concerns that Beijing was warning major foreign oil players against doing business with Hanoi. Total of France and Russia's Gazprom are among the international players active in Vietnam.

He also said that Hanoi was angry that secret Communist Party documents outlining the importance of coastal exploitation to Vietnam's ambitious development plans had found their way to Beijing. The study was requested by the highest levels of the party and covers the future development of the country's entire coastline.

Professor Thayer has studied Vietnam's military and political relations with China since the late 1960s. He recently told a German academic audience that Vietnam's national sovereignty was under threat. Last week he said that China's much vaunted 'soft power' in the region was getting harder where Vietnam was concerned.

'We are now in a time where Chinese hard power is coming back into the equation,' Professor Thayer said, 'and, as a whole, the Vietnamese government doesn't quite know how to react at the moment ... they seem to be hoping that by shutting down criticism and negative publicity they can somehow secure a special relationship with China that can limit the damage.

'Certainly the military is hopping mad ... Hanoi must also cope with criticism from dissidents and exiles who see weakness in the face of China as a great nationalistic rallying point.'

Vietnam's military, Professor Thayer has noted, appears geared towards building a navy strong enough to at least act as a deterrent to Chinese ships and submarines, soon to be occupy a large new base on Hainan island.

In that broader context, the ExxonMobil deal was no accident. Vietnam has in recent years been actively courting large American corporations as part of plans to boost US trade and investment, once frozen under a crippling post-war embargo imposed by Washington. Significantly, the mainland is Vietnam's biggest source of imports, while the US is its chief export market.

ExxonMobil executives were highly visible in both Washington and Houston, where the company has its headquarters, during a visit to the US by Vietnamese Prime Minister Nguyen Tan Dung in late June

The trip was significant for other reasons. Mr Dung became the first modern Vietnamese leader to be greeted at the Pentagon - the headquarters of the US military - since the end of the Vietnam war in 1975.

And buried in a joint statement by the leaders of the US and Vietnam that followed a visit to the White House was a US government commitment to support Hanoi's 'national sovereignty'.

That phrase from the former enemies got little attention. US media largely ignored it and White House spokesmen did little to spin it; Vietnam's state-controlled press was more intrigued but was warned off playing it up as part of Hanoi's effort to manage a deepening, but increasingly complex relationship with China.

Yet its significance is quietly rippling around the region, and in Beijing. Previously, US-Vietnam statements referred to Vietnam's security and territorial integrity. They still do so but, for the first time, national sovereignty - a jealously guarded concept through Hanoi's long years of warfare - has been dignified by the White House.

'I think it is very significant,' said Ian Storey, a specialist on the South China Sea at Singapore's Institute for South East Asian Studies. 'It may not have got a great deal of public attention, but its importance has been noted widely by anyone watching the region's strategic shifts, including in Beijing.

'These kind of statements are negotiated word by word, so it is a minor diplomatic victory for Vietnam.'

The US, whose relationship with China is growing broader and deeper, has always been careful to stay out of South China Sea disputes, and instead has called for efforts by all sides to resolve them peacefully.

The tension over ExxonMobil, it must be remembered, is merely part of a pattern. Though their broad relationship has improved, tensions have frequently flared between Vietnam and China over South China Sea oilfields in the years since the two normalised ties in 1991.

Beijing and Hanoi have successfully demarcated their 1,400km land border, as well as the once tense Gulf of Tonkin west of Hainan. Joint naval patrols have also started.

To the east, an initially suspicious Vietnam has joined a controversial joint exploration operation with China and the Philippines, which also claims part of the Spratlys.

The full details of the search have not been revealed, even though the agreement expired this month. It is far from clear whether a similar project will be launched.

Further south, things are more tricky. In the late 1990s, each side awarded the same offshore exploration block to a different oil firm, leading to a naval standoff.

And last year saw strongly worded rival assertions of sovereignty, skirmishes between Chinese naval patrols and Vietnamese fishing boats near the Paracel Islands and public protests over Beijing's claims in both Hanoi and Ho Chi Minh City - very rare events in Vietnam.

As tensions intensified, BP announced in June last year that it was halting seismic surveys off Vietnam's southern coast.

That decision has since been reversed and the company and its partners are pushing ahead with tests later this year.

That move may in part reflect efforts by Beijing and Hanoi to cool temperatures, in public at least. Vietnam's Communist Party chief, Nong Duc Manh, met President Hu Jintao in Beijing last month. No breakthroughs on the South China Sea were noted, but the pair resolved to lift ties to the level of a strategic partnership.

Zhang Mingliang, of Guangzhou's Jinan University, spoke of complications in the relationship but also of its broader strengths. 'China is Vietnam's biggest trading partner and the top-level exchanges between the two countries have been frequent,' he said. 'Even if there are frictions or tensions over specific issues, they will not affect the warming political and economic ties.'

Amid the diplomatic dance, it may well be that the oil companies make some of the more dramatic moves.

BP's shutdown last year showed how difficult it could be to ignore China. Likewise, sources at ExxonMobil admit that China's warnings could pose problems in the future, even as it prepares to push ahead with what it sees as a legal deal with Vietnam.

Both, after all, have said officially that sovereignty is a matter for governments.

'ExxonMobil is evaluating a business opportunity and sovereignty is a matter only governments can address,' the firm's spokesman said.

Additional reporting by Shi Jiangtao