Prospects of oil make Spratlys hot property

OIL and gas to the tune of US$1 trillion would solve all of China's energy problems well into the next century, and let it rival the United States as the world's eminent power. That is the attraction of the Spratly Islands - a few tiny, barren atolls in the South China Sea. And among the islands' other natural resources are guano fertilisers, fishing grounds, and minerals beneath the sea bed. More than this, they lie in the most strategic waterway in the region - one of the busiest in the world and the route for 70 per cent of Japan's imports. But there is an impediment to the access to all this wealth, and a valid reason why the Association of Southeast Asian Nations (ASEAN) and an American assistant secretary of state last week urgently called for negotiations over the Spratlys: they are 10 times closer to Vietnam than China's southernmost point - Hainan Island. Last week, China announced that it had sent two navy ships to stop supplies reaching the recently begun oil-drilling operations by Petro Vietnam - the country's state-run oil company - just off southern Vietnam. A statement from the Chinese Government last Wednesday said the drilling was ''illegal'', and sources said the warships had turned away at least one vessel trying to reach the site. The statement said: ''Vietnam's drilling activities in this area have gravely encroached upon China's sovereignty and maritime interests. ''The Chinese Government has demanded that the Vietnamese stop the drilling activities immediately. The Vietnamese shall be held responsible for all the ensuing consequences.'' Vietnam has rejected this statement, and has no alternative to trying to break the blockade if it wants to continue its drilling operations. In response to appeals from other parties, both sides have since said they would try to settle their claims peacefully. But both countries have far too much at stake to concede sovereignty without a fight. Mark Valencia, senior fellow at the East-West Centre in Honolulu, Hawaii, said: ''China last year proposed to resolve the dispute over the sites by asking Vietnam to share the sites' joint development. To Vietnam, this offer implied tacit recognition of the validity of China's 'historical' claim to the sea, and so it refused.'' The dispute centres on an area called Wan An Bay by Beijing, and Tu Ching Bank by Hanoi. It is about 60 nautical miles from Vietnam and 660 nautical miles from China, and lies within the 25,155 square kilometre concession area of the South China Sea which Beijing granted to US drilling company Crestone Energy Corp. It is the largest concession area ever to be granted in the region, and was made in May 1992, just a couple of months after China adopted legislation which drew a ''historic claim line'' encompassing about 80 per cent of the South China Sea. Most maritime legal experts believe the claim would be difficult to defend in an international court. When Crestone began explorations in April, Vietnam protested vehemently, and responded by reviving an agreement for exploration with Mobil Corp which had been dormant since 1975. Several private and state-run Japanese companies have joined Mobil in the consortium, which means Japanese and US companies could become involved in the dispute, and their respective governments might be forced to take action to keep the vital waterway open. The US has stressed that it supports none of the claims, and Winston Lord, US Assistant Secretary of State for East Asia and Pacific Affairs, last week acknowledged the danger of hostilities and warned American oil companies of the risk of exploring in the Spratly Islands area. ''Although we don't forbid them to do business there or to explore, we have pointed out the possible risks involved with overlapping territorial claims,'' Mr Lord said. Ironically, a 44-year-old American national with a background in the oil business can be held directly responsible for the crisis. Randall Thompson, chairman and controlling shareholder of Denver-based Crestone, is responsible for bring matters to a head. China had made no bids to explore the area before Mr Thompson suggested that the China National Offshore Oil Corp grant him the concession in April 1991. ''I believe it is better to look for oil and gas with high potential and low technical risk in an area with bad politics rather than the other way around,'' Mr Thompson said of his proposal. Nine months later, China accepted, and was set on its collision course with Vietnam. The two countries have engaged in naval battles twice in the last 20 years, and Vietnam came off very badly in both of them. In the latest stand-off, the next development is expected to take place in a regional forum after an ASEAN conference in Bangkok, with up to 17 countries taking part. Analysts have warned that talks are unlikely to defuse the mounting tension. Previous conferences have called for a peaceful solution, and suggested multilateral talks to that effect. There are other complicating factors in the Spratly dispute: Taiwan has mounted an identical claim to China, while the Philippines, Malaysia and Brunei all claim parts of the islands. All except Brunei maintain garrisons there. Unfortunately, China is opposed to multilateral talks. Earlier this month, on a visit to the Philippines, Chinese Foreign Minister Qian Qichen repeated that China held sovereignty over the islands and that rival claims should be settled through negotiation. He stressed that any such claims would be dealt with on an individual basis. In New Delhi last week, Mr Qian said: ''We have proposed that all these countries shelve their disputes and come together in joint ventures on the islands. ''Some have accepted our proposal. We hope others will agree, too.'' Crucially, however, he declined to identify the countries which had accepted, and analysts say the statement should be treated with caution. Meanwhile, other countries are pushing their claims independently. At the beginning of July, Manila granted a permit to a US-Philippines joint venture to explore for oil in the South China Sea. The non-exclusive geo-physical permit given to Vaalco Energy of the US and Alcorn Petroleum and Minerals of the Philippines allows the two firms to research previously obtained data on the Reed Bank, east of the main Spratly Islands. The data also covers Lawak and Patag islands, two of eight islands in the archipelago garrisoned by the Philippines. Malaysia, meanwhile, is developing an islet in the Spratlys into a tourist destination and has already built a small hotel there. Not to be left behind, Taiwan recently stepped up patrols by police boats around the islands, ostensibly to protect its fishing fleet. Defence Minister Sun Chen said on Sunday that Taiwan was considering using non-lethal weapons to defend its fishing areas, which it believed to include the Spratlys. Most analysts agree that one means of strengthening sovereignty claims in a disputed area is to by already having developments there. Some say that unilateral claims may yet put pressure on China to consider a multilateral approach to this potentially explosive crisis.