China Thwarts Neighbors’ Energy Ambitions

“Bullying” in the South China Sea threatens littoral states’ hydrocarbon exploration efforts.

By: Yigal Chazan

Along with military and diplomatic concerns, Southeast Asian countries are becoming increasingly embroiled in a dispute with Beijing over oil and gas exploration in the contested South China Sea, yet they are relatively powerless to challenge China, which lays claim to most of the strategic, energy-rich waterway.

Tensions around maritime sovereignty have been fueled by Chinese interference in exploratory drilling by Malaysia and Vietnam in their coastal waters, which has put off several of Hanoi’s international energy partners. China wants to secure joint oil and gas development of these regions with its neighbors. However, they are reluctant, clearly concerned they will lose out economically.

China has for some time sought to pressure littoral states into accepting its highly contested claim to about 90 percent of the sea, employing coastguard vessels to harass their fishing fleets and survey ships. Malaysia and Vietnam have protested over Beijing’s claims but can’t do much more. They fear provoking further naval intimidation and an economic backlash, which they can ill afford as China is their main trading partner.

Long distrustful of Beijing, the Philippines has pivoted closer to China in recent years, even discussing joint energy development. Talks, though, appear to have stalled, amid suggestions that Manilla is having second thoughts. On September 23, Philippine President Rodrigo Duterte, reversed himself in his first-ever address to the United Nations General Assembly, stressing his country’s legal victory at The Hague over islets in the South China Sea and defending the parts of the sea that The Hague ruling declared to be within the country’s exclusive economic zone.

In early September, Hanoi issued a decree against illegal oil and gas exploration in its waters, a barely concealed warning to China which has recently stepped up pressure against Vietnam’s exploration efforts. Radio Free Asia reported in August that Chinese survey vessels had been appearing with greater frequency in Vietnamese waters. A Chinese maritime surveillance vessel reportedly rammed and sank a Vietnamese fishing boat in April, underlining the threat posed by China.

Energy and commodities publisher Argus Media commented in July that clashes between Vietnamese and Chinese vessels in 2014 (which triggered anti-Beijing protests in Vietnam) and last year have discouraged investment in Vietnam’s disputed offshore sector. Indeed, Petroleum Economist noted in August that Chinese pressure has this year forced Russian energy company Rosneft to shelve a planned drilling campaign, while Spanish and UAE firms have relinquished offshore stakes to state-owned PetroVietnam.

Malaysia too has been subject to similar intimidation. In April a Chinese survey ship escorted by coast guard and maritime militia ships began operating near a disputed area, where a Malay-contracted vessel had been conducting exploration work since late last year. It prompted a rebuke from the US which accused China of bullying, an oft-repeated American characterization of Chinese behavior in the South China Sea. At least two US warships were reportedly dispatched close to the area.

At the time, the Washington-based think tank the Asia Maritime Transparency Initiative (AMTI), said the standoff was the latest development in a series of targeted Chinese harassments of drilling operations near the Malaysian coast in the past year. Tensions between Beijing and Kuala Lumpur rose last December when Malaysia sought to extend the outer limit of its continental shelf, a move which China claimed infringed its sovereign rights in the South China Sea.

Commenting on the battle of wills off the Malaysian coast, the AMTI said it reflects the “new normal” in the South China Sea whereby attempts by Southeast Asian states to develop new energy resources in areas China claims for itself “will be met by persistent, high-risk intimidation from Chinese law enforcement and paramilitary vessels.”

While littoral states have been reluctant to protest too loudly about Chinese incursions, they may become emboldened by the US decision in July to declare as “completely unlawful” Beijing’s claims to “offshore resources across most of the South China Sea” as well as its “campaign of bullying to control them.” The US also has sought to put some spine in the so-called Quad alliance of Japan, Australia, India and the US, which met in Tokyo to condemn Chinese aggressiveness in the South China Sea and declared the “importance of maintaining a free, open and inclusive Indo-Pacific.”

It is believed to be the first time that Washington has explicitly sided with the littoral states on maritime rights since an international tribunal in 2016 dismissed China’s so-called nine-dash line demarcation claim, which asserts sovereignty over most of the waterway. The Europeans have also entered the fray. In a note to the UN in September, Germany, France and the UK challenged China’s expansive self-declared sovereignty rights.

In a further sign of the US’s hardening position, in August it sanctioned 24 Chinese companies allegedly involved in the militarization of artificial islands Beijing has created from reefs. Yet it is unclear whether the move might be a prelude to penalties against those involved in thwarting hydrocarbon development.

Targeting the latter cannot be ruled out given President Trump’s tough pre-election rhetoric on China. But it seems unlikely as it could put at risk the Sino-US ‘phase one’ trade deal, a partial truce in their tariff war signed earlier this year.

For China’s neighbors, America’s more assertive stance on the South China Sea is encouraging, especially if it results in broader international calls for Chinese restraint, which the Europeans’ UN protest signals. However, the littoral states will not want to see an escalation in US-China tensions in the waterway, which may only serve to further destabilize the region. China remains a key economic partner and the dominant regional military power. And, as such, they can only hope, with international backing, to collectively nudge Beijing into respecting their economic rights in the waterway.

Yigal Chazan is the head of content at Alaco, a London-based business intelligence consultancy. He has previously contributed to Asia Sentinel.

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