Tuesday, July 10, 2012

ExxonMobil to 'decide' China-Vietnam dispute in South China Sea

By Professor Jeffery Atik

Later this month, the ASEAN foreign ministers will meet in Phnom Penh - and the continuing disputes over the South China Sea will occupy much of the attention of the attendees.

The intricate and intriguing conflicts between China and its various Southeast Asian neighbors - particularly Vietnam and the Philippines - over the development of oil and gas reserves in the South China Sea may be resolved, in part, by corporate decisions of multinational oil firms such as ExxonMobil.

At first blush, the South China Sea is yet another vexing territorial dispute, with competing states advancing arguments more designed to indulge the nationalistic impulses of domestic constituencies than to follow contemporary international law. China's claim to the South China Sea in its broadest form - the so-called 'nine-dash map' - is the most extravagant, and the flimsiest. To be fair, China merely references the nine-dash map; it avoids expressly claiming sovereignty over what is by far the greater part of the sea.

Two major developments have significantly aggravated these disputes. The first is the prospect of finding substantial reserves of oil and gas under the South China Sea. Control of these resources is of immense financial and strategic importance to the rival claimants. The second is the adoption of modern legal principles - fixed in the UN Convention on the Law of the Sea or UNCLOS - that motivate the states to make gestures that otherwise would seem incoherent. While the possibility of a hot conflict persists, the eventual resolution of the South China Sea disputes may result from commercial considerations - including decisions taken in corporate boardrooms.

It isn't clear exactly how much oil is under the South China Sea - estimates vary. Eventual development would involve more exploration - and meaningful exploration is, for the time being, largely impeded by the ongoing conflicts. But there are enough signs to motivate the competing states - China and Vietnam and China and the Philippines - to engage in complex diplomatic and military posturing. And the scent of petroleum has attracted the attention of the world's major oil companies.

Vietnam and the Philippines both claim Exclusive Economic Zones (EEZs) that extend 200 nautical miles into the South China Sea. (It should be noted that the Philippines now refers to the South China Sea as the "West Philippine Sea" - quelle surprise.) And - in moves consistent with their respective EEZ claims - both Vietnam and the Philippines have invited multinational oil companies to bid for off-shore leases in particular tracks located within their respective claimed EEZs.

The problem is that China claims to control these same areas, although the precise legal basis for China's claim is somewhat vague. China may in fact be asserting its "nine-dash map" claim (this refers to a series of dashes on a 1947 map that is said to record Chinese historical control over virtually the entire South China Sea) - or China may have some other theory.

The ultimate point is not whether or not China's legal claims have merit. Were it brought to an international tribunal, there are good reasons to believe that China's "nine-dash map" claim would fail. Historical claims to the seas (as opposed to land) are disfavored in contemporary international law. But the potential weakness of China's legal basis will not stop China from advancing the argument - as the argument will never be tested in a tribunal.

China pointedly seeks 'joint development' of the South China Sea's natural resources - in other words, a share in any (and perhaps all) oil and gas development in the Sea. And China's route to securing joint development shares seems to involve the advancement of legal claims sufficient to cloud the South China Sea waters.

Rather, the ultimate arbiters of China's rival claims to these tracks may be the oil companies. At this point, neither China, Vietnam nor the Philippines possess the technology needed to successfully extract oil from these depths - the technological capacities of the multinationals are essential. Yet the oil companies will not invest in the development of the South China Sea's resources without substantial assurances of security. Any hot conflict between China and its neighbors would mean that no oil will be developed. ExxonMobil or any other player would require guarantees that its interest in any offshore project be recognized by all state parties in the region, regardless of the strength - or weakness - of their title.

Vietnam may have inadvertently played into China's hands by launching joint exploration projects involving PetroVietnam and the multinational majors in Vietnam's claimed EEZ. China's recent decision to solicit 'bids' for this same territory through CNOOC, its national offshore oil company, sends a clear signal to the multinational firms that regardless of the validity of old maps or new international law, China will need to be satisfied before development can proceed in the Vietnamese EEZ. This, then, is the Chinese road to 'joint development.'

Thanks to Jack Cooper for research assistance.

Follow me on Twitter @jefferyatik

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