Beijing's deployment of its billion-dollar oil rig sends a clear message to Vietnam: We'll drill where we damn well please.
NOTE: This story was updated May 6, 2014 to include State Department comments.
China has triggered a potentially dangerous escalation in tensions in the South China Sea with the dispatch over the weekend of the Haiyang Shiyou 981, a massive billion-dollar rig designed to drill for oil in waters claimed by both Beijing and Hanoi.
Vietnam has vociferously protested the move because the rig is squarely inside the 200-mile exclusive economic zone that extends offshore from every country; China, which claims the nearby Paracel Islands, says the rig is legal because it is working in waters that it says belong to Beijing.
It’s hardly the first time that the search for energy has sparked fights between China and its neighbors in the region, but the latest step is a big deal for several reasons.
China had carried out energy survey activities in disputed areas, and prevented other countries, including Vietnam, from carrying out their own surveys in disputed waters, but this seems to be the first time that Chinese oil companies are actually drilling wells in waters claimed by other nations. Just as alarmingly, China and Vietnam have a history of armed conflict, including a bloody land war in 1979 and a series of armed skirmishes over disputed islands in the South China Sea. The oil drilling issue could potentially trigger a new round of sparring.
The Chinese move also represents a slap in the face to President Barack Obama, who just returned from a trip to Asia designed to reassure jittery allies like Japan, South Korea, and the Philippines that the U.S. would deter Chinese maritime bullying. Six days later, Beijing took one of its most provocative steps to date.
"Given the recent history of tensions in the South China Sea, China’s decision to operate its oilrig in disputed waters is provocative and unhelpful to the maintenance of peace and stability in the region," State Department spokesperson Jen Psaki said at a briefing Tuesday. The dispatch of an oil rig by itself is hardly enough to unleash the dogs of war, but is meant to slowly assert Chinese control over the region, experts said.
"It’s going to be one more of these small, incremental steps that individually won’t lead to conflict, but collectively over time gradually will change the status quo," said Mike McDevitt, a retired admiral and head of strategic studies at the CNA Corporation.*
A spokesperson for the Chinese Foreign Ministry defended the deployment of the rig, saying that it is operating "completely within the waters of China’s Paracel Islands," Reuters reported. China has occupied the Paracel Islands since the 1970s, and also claims the maritime resources around those specks of land. That’s part of Beijing’s expansive view of its sovereign rights in the South China Sea, the so-called "nine-dashed-line" that the current regime inherited from Chinese nationalists at the end of the civil war in the late 1940s.
Vietnam’s Foreign Ministry and state oil firm PetroVietnam, unsurprisingly, both protested the move. The Foreign Ministry said that the move is a "violation of Viet Nam’s sovereign rights," since the rig is located in waters that only Vietnam has the right to exploit for undersea resources. PetroVietnam asked China National Offshore Oil Corporation, a state-owned giant, to remove the rig and cease drilling activities there in the future.
The South China Sea is the biggest flashpoint for potential conflict between China and neighbors like Vietnam and the Philippines, and others; the sea is both a byway for trillions of dollars in international trade and potentially sits atop a mother lode of oil and gas resources coveted by energy-poor countries in the region. Manila recently took Beijing to an international tribunal in The Hague over competing claims to tiny specks of land in the South China Sea, in part because it believes there are plentiful deposits of oil and gas off the Philippine coast.
The quest for oil and gas lies behind the latest incident, at least superficially. China publicly announced in 2012 that it would auction off energy-exploration rights in disputed waters; at the same time, CNOOC took the unusual step of building its own deep-water rig rather than contracting to purchase one from specialized suppliers. That was a costly, but necessary, step for China’s oil company to take: CNOOC did not want to have to rely on Western companies to supply drilling gear for contentious areas of the South China Sea because the companies could have potentially refused to lease the equipment to CNOOC if it was going to be used on controversial deepwater projects.
Last weekend, CNOOC dispatched the rig to drill in deep waters about 120 nautical miles east of the Vietnamese coast, not far from where international oil firms such as Exxon Mobil have found potentially large deposits of natural gas. It seems part and parcel of CNOOC’s stated strategy of dispatching oil rigs to serve as "mobile national territory" that can extend Chinese sovereignty to open waters.
"I think this is the other shoe dropping, which is the Chinese actually going to go out and drill for oil" in those disputed areas, said Holly Morrow, an expert on the South China Sea at Harvard University’s Belfer Center.
China’s apparent escalation with the dispatch of the rig is especially surprising because the two countries signed an accord in 2011 to peacefully resolve South China Sea disputes, as they successfully did with maritime borders in the Gulf of Tonkin.
"I thought that agreement cooled down the rhetoric between Vietnam and China, and that China would not go out of its way to humiliate the Vietnamese," said McDevitt. "But the Chinese seem to feel they have a good argument for going where they’re going, and they are going to do it."
The U.S. as a rule doesn’t take a position as to who owns what in the disputed areas, but in recent years has stressed the need for states such as Vietnam and China to rely on the rule of law to settle disputes over territory and maritime rights in the South China Sea. In December, Secretary of State John Kerry announced a deal to help strengthen the Vietnamese coast guard, in part to help parry Chinese territorial expansion in the area.
Oil and gas rigs are the pointy ends of the battle over sovereignty, but there is plenty of uncertainty over just how energy-rich the area really is. In part, that is because all the territorial disputes have discouraged large-scale surveys of potential oil and gas resources.
The U.S. Energy Information Administration estimates that the South China Sea holds the modest amount of 11 billion barrels of oil and 190 trillion cubic feet of natural gas. CNOOC believes there could be ten times as much oil and plenty more gas in the South China Sea. Vietnam, bolstered by recent work by firms such as Exxon, is also bullish on the energy prospects in parts of the South China Sea it considers its own.
But regardless of how much energy actually lies under the ocean, Beijing’s heavy-handed approach to regional relations and the damage it has caused could hardly be worth tapping some extra barrels of oil, said Morrow of the Belfer Center. That makes the constant tug-of-war, provocations, and brinksmanship more about national sovereignty than a scramble for resources.
"The cost in foreign policy terms of what they are doing is so high, and so outweighs whatever energy security benefit there is," she said.
*Correction, May 6, 2014: Mike McDevitt is with the CNA Corporation; an earlier version of this story said that he was an analyst with the Center for Naval Analyses. (Return to reading.)