Water Wars: Jockeying for Black Gold in the South China Sea

China leverages its growing military presence, threatening Vietnam and building ties with the Philippines

Photo: Svetl. Tebenkova

This week China made waves in the South China Sea’s hydrocarbon space, hinting at joint venture opportunities with the Philippines and coercing Vietnam into shutting off the flow of natural gas within its own exclusive economic zone (EEZ).

Oil and gas play a significant role in the South China Sea dispute. United States Geological Survey studies estimate that beneath the South China Sea lay 22 million barrels of crude oil and 300 million trillion cubic feet of natural gas, which rival estimates of reserves in Mexico and the U.S. Gulf Coast. Yet the Sea’s hydrocarbons remain largely untapped. That’s due in part to the difficulties of exploring a region burdened by unpredictable weather, fragmented geology, and little infrastructure, and in part to the territorial disputes that discourage risk-averse producers from investing in the region.

Those territorial disputes bubbled to the fore this week. On Monday, Bill Hayton reported that China threatened to attack Vietnamese regional outposts unless Vietnam shut down drilling operations at Block 136-03, near the southeastern edge of Vietnam’s EEZ. Spanish oil firm Repsol, exploring in partnership with Vietnam’s state-owned oil company PetroVietnam, complied. Questioned on Tuesday, China’s Foreign Ministry was characteristically cryptic: “China urges the relevant party to cease the relevant unilateral infringing activities and with practical actions safeguard the hard-earned positive situation in the South China Sea.”

Many analysts say the move represents a surprisingly bellicose step for China. Hayton, who offered a sunny view of China’s regional strategy just two weeks ago, walked that opinion back this week in a CSIS podcast. Professor Carl Thayer said that if true, the report represents an “unprecedented and alarming escalation” that fits “a pattern of increased Chinese bellicosity.” Prof. Thayer also noted in The Diplomat that he expects the threat to “accelerate the debate . . . about how to halt, if not reverse China’s continued militarization of the South China Sea.”

China’s approach to the Philippines this week, however, bore a much lighter touch. While the Philippines has hinted recently that it may restart exploration on the Reed Bank, it wasn’t clear how or with whom, given the concurrent claims and frosty discussions on the subject as recently as this spring. In May, Philippine President Rodrigo Duterte claimed in a speech that he told China’s President Xi Jinping, “We intend to drill oil there. If it’s yours, well, that’s your view, but my view is I can drill the oil if there is some inside the bowels of the earth because it is ours.” This week vague glimmers of an accord appeared, with Chinese and Philippine officials issuing coordinated statements on the “wisdom” of a joint venture arrangement which would serve as a “model” for resolving disputes with China’s maritime neighbors. The details will be extremely difficult to hash out—the Philippines constitution places strict limits on joint ventures within the country’s EEZ. And even if the Philippines overcomes its domestic legal obstacles, a joint venture arrangement could threaten the strength of the Philippines’ international law claims in light of last year’s victory before an UNCLOS arbitral tribunal. The Philippines promised to slow-walk the potential deal by “consulting” ASEAN and to forswear “unilateral” action to avoid “destabilization.”

In Other News…

United States

Two Chinese fighter jets intercepted a U.S. Navy EP-3 surveillance plane in international airspace west of the Korean Peninsula on Sunday. Pentagon officials characterized the intercept as “unsafe,” with the Chinese jets overtaking the EP-3 from the rear and slowing down in front so as to force the U.S. aircraft to change direction, but China’s Ministry of Defense said its pilots acted in a “legal, necessary and professional” manner. On Tuesday, a Chinese Foreign Ministry spokesperson commented that “US military vessels and planes have long been carrying out frequent surveillance activities close to China's coastal waters which poses a grave threat to China's maritime and airspace security. China urges the US to immediately stop all close-in surveillance activities and avoid a recurrence of such incident.” The incident is the third of its kind this year.

China

Beijing has established a Scientific Research Steering Committee, modeled after the U.S. Defense Advanced Research Projects Agency (DARPA), according to a documentary aired on CCTV earlier this week. The committee was created earlier this year as part of President Xi Jinping’s overhaul of the military and will fall directly under the Central Military Commission. The purpose of the committee is to strengthen management of defense science and technology, promote indigenous innovation in national defense, and coordinate integrated development of military and civilian technologies.

China is testing large-scale deployment of underwater drones in the South China Sea with real-time data transmission technology, Xinhua reported on Saturday. Yu Jiancheng, chief scientist of the expedition commissioned by the Chinese Academy of Sciences, said the 12 Haiyi autonomous underwater vehicles will roam for one month and collect detailed information about ocean conditions. Analysts anticipate that the deep-diving glider may be used for submarine detection and other defense missions in the future.

Taiwan

The Taiwanese military has allocated six 155m howitzers for use by the Coast Guard in defense of Itu Aba Island in the Spratly Islands, a defense official told the Taipei Times on Sunday. The heavy guns will be remain on mainland Taiwan for the time being and only be deployed if necessary to counter aggression by other claimant nations, the official said. Itu Aba is Taiwan’s sole holding in the Spratly Islands, which are also claimed by China, Vietnam and Malaysia.

Vietnam

The Binh Dinh provincial search and rescue committee reported over the weekend that an Indonesian naval vessel shot and wounded four Vietnamese fishermen in the South China Sea on Saturday. An Indonesian military spokesman disputed the Vietnamese account, saying the warship only fired a warning shot, not aimed at the fishermen, after the fishing boat trespassed into Indonesian waters.

Indonesia

The Indonesian Ministry of Defence (MoD) is currently finalising a contract with shipbuilder PT Palindo Marine for the procurement of the Indonesian Navy’s first mini-submarine. The concept for the mini-submarine was unveiled by the MoD’s research and development branch in November 2016 at the Indo Defence exhibition in Jakarta.

Australia

On the heels of a goodwill visit to Canberra and Sydney by a high-level Chinese military delegation, the Australian Department of Defense confirmed last week that a Chinese Dongdiao-class AGI intelligence-collection vessel monitored this month’s Talisman Sabre joint military exercises from within Australia’s EEZ. Defense Minister Marise Payne said this week that the Chinese vessel “[was] not particularly doing anything wrong but we are very conscious of their behaviour and conscious of the activities they have underway.” Such monitoring of foreign military exercises is commonplace, but has not previously been reported off the coast of Australia.

United Kingdom

After meeting with Australian Minister for Foreign Affairs Julie Bishop in Sydney on Thursday, British Foreign Secretary Boris Johnson announced that the UK would deploy its two new aircraft carriers to the South China Sea to conduct freedom of navigation operations. Sending ships to the region would “vindicate our belief in the rules-based international system and in the freedom of navigation through those waterways which are absolutely vital for world trade,” Johnson said. The HMS Queen Elizabeth is expected to enter operational service by the end of this year and the HMS Prince of Wales will follow soon after.

Analysis, Commentary, and Additional Information

In the East Asia Forum Quarterly, Professor Katherine Morton of the University of Sheffield discusses the future of global governance and how China’s rise will drive changes in the existing global framework of rules and institutions. Morton surveys Chinese engagement on issues like transnational infrastructure development, counter-terrorism, and climate change, and concludes:

China’s stronger political leverage means that international politics is likely to become less transformative and more transactional over time. We are likely to witness more bargains over the rules, but not necessarily more conflict over strategic priorities—and it is this pragmatic orientation that provides optimism for the future of global governance.

On the Lowy Institute’s Interpreter blog, Australian Army Lieutenant Colonel Greg Colton reflects on joint exercise Talisman Sabre 17, which included the largest amphibious landing Australia has executed since the Second World War. Colton says “the [Australian Defence Force] has demonstrated that it is now able to conduct major amphibious operations throughout the region, either unilaterally or as part of a coalition with the United States or New Zealand[,]” and that “for the first time in more than 30 years Australia has a military strategy that is beginning to truly align ends, ways and means.”

Yasuo Hasebe, a professor of constitutional law at Japan’s Waseda University Law School, considers what comes after Japan’s constitutional amendment to permit the Self-Defense Forces to engage in collective self-defense with allies. Haseba argues that Japan’s pacifist constitution has allowed it to stay out of conflict and focus on domestic socio-economic development, and that Prime Minister Abe’s hasty moves to re-militarize are unwise “when the consequences of doing so remain so unclear.”

Professor Hugh White continues his conversation with Ely Ratner on the Lowy Institute’s Interpreter blog, suggesting that China might “call America’s bluff” if pressured by the United States. In The Huffington Post, Professor Graham Allison of Harvard’s Kennedy School of Government argues that China’s provocations in the South China Sea echo the United States’s maritime misadventures under the Monroe Doctrine and Roosevelt Corollary. And as China expands its regional clout, Professor Xue Li and Dr. Cheng Zhangxi propose in The Diplomat that it abandon its “unilateral win” strategy and instead adopt a “multilateral win” approach, paving a smooth path for China’s “Maritime Silk Road.”

Water Wars is our weekly roundup of the latest news, analysis, and opinions related to ongoing tensions in the South and East China Seas. Please email Sarah Grant with breaking news, relevant documents, or corrections.