Escalating Tensions in the South China Sea

Untapped oil reserves add to anxieties in the South China Sea as China’s energy policy and foreign policy fuse.

Territorial claims

China’s recent moves to secure its ownership of the South China Sea, bordered by Brunei, China, Indonesia, Malaysia, the Philippines, Taiwan and Vietnam, has greatly increased tensions in the oil and gas-rich waters. The long standing ownership dispute revolves partly around shipping rights and the protection of freedoms in crucial sea lanes, but is complicated by an element of brinksmanship between the US and China, as the US attempts to internationalise a subject China views as indisputable.

Earlier this year, China announced that its claim to sovereignty over the sea and its islands was a ‘core national security interest’. In response, the US, which has long refrained from disputes over Chinese expansionism in the region, decided to put down an indicator in support of the south-east Asian countries. Vietnam particularly, with US support, has begun to push back against China’s military expansion in the area. The US also proposed a nuclear co-operation deal with Vietnam, and most recently in mid-August, conducted controversial joint naval training exercises in the South China Sea.

China versus the US

The US’ strategic interest in the area goes beyond Hillary Clinton’s benign statement that “the US has a national interest in freedom of navigation, open access to Asia’s maritime commons and respect for international law in the South China Sea.” In July, Clinton disclosed a proposal that attempts to forge a defensive coalition along the maritime perimeter against China’s domination of the hydrocarbon-rich waters. Moreover, China’s claims in the South China Sea appear designed to keep the US from accessing these waters. A divisive alliance structure spearheaded by the US and China is likely to take shape.

Oil and the South China Sea

According to US Energy Information Administration estimates, the sea contains more oil than Iran and more natural gas than Saudi Arabia. With continued investment in its navy and a need to support rapid economic growth, China appears to be putting a great deal of effort in to aggressively asserting its power in the region. As the world’s number one exporter and the number two economy, China  can no longer maintain a low foreign policy profile.

Oil deposits have been found in most of the littoral countries of the South China Sea. The fact that surrounding areas are rich in oil deposits has led to speculation that the islands located in the sea, such as the Spratly and Paracel Islands, could be untapped oil-bearing provinces located in direct proximity to some of the future’s largest energy consuming countries. Such speculation has given these islands great strategic value, fanning the flames of debate over ownership.

What is to come?

With increasing interest from multinational energy firms looking to the South China Sea for their long-term production growth strategy, the region is currently an attractive centre of exploration and production activity. This summer, BP joined with Chevron Corp. to bid for a South China Sea exploration block. This was followed by CNOOC Ltd’s stake purchase in this area in June from Devon Energy Corp.

It is likely that China’s assertive foreign policy in the region will continue to be challenged by a US-led coalition of South East Asian states. There has been a distinct shift in US policy under the Obama administration towards multilateral engagement with South East Asia, which has in turn prompted a strong reaction from China. It is likely that the US will continue to position itself back into South East Asian geopolitics. A US-Vietnamese alliance is on the cards and would stand as a possible counterweight to China’s expansion. It can be assumed that we are likely to hear a lot more about this piece of global real estate in the coming years as competition over its resources increases, and China’s energy policy, fostered by its need to secure resources to support domestic growth, becomes indistinguishable from its foreign policy.

Author: Brittany Damora, AKE Intelligence Analyst, www.akegroup.com

Please contact Brittany.Damora@akegroup.com for more information.

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