Vietnam bears up in the South China Sea

By Eric Watkins

LOS ANGELES, April 16 – Vietnam seems to have scored one against China in the ongoing dispute concerning oil and gas reserves in the South China Sea. Indeed, by signing up Russia’s Gazprom to an offshore deal, Vietnam may have scored one for several nations in the region and beyond.

The two blocks signed for by Gazprom – 5.2 and 5.3 – have already figured in an earlier dispute after BP relinquished the rights to them following pressure from China. That was back in March of 2009, and the effect on Vietnam was noted by commentators.

At the time, in Block 5.2, BP held a 55.9% stake, PetroVietnam 24.1% and ConocoPhillips 20.0%. In Block 5.3, BP had a 60% stake, while PetroVietnam and ConocoPhillips each had a 20% stake. BP clearly had commanding stakes, and its departure would be felt.

“Without BP, Vietnam will have to delay its plans to bring gas onshore,” said Hanoi-based financial analyst Bui Kien Thanh, who added that Vietnam would need the participation of “strong international players” since the two blocks are located at areas of “difficult conditions” for production.

EXXONMOBIL UNDER PRESSURE

Last year, China added to Vietnam’s difficulties by putting pressure on US major ExxonMobil. “Any foreign company shall not engage in oil and gas activities in waters under Chinese jurisdiction. This position is clear and consistent,” said Chinese Foreign Ministry spokesman Hong Lei.

The warning came just a week after ExxonMobil announced the discovery of hydrocarbons in August in a well drilled offshore central Vietnam, in a region described by Hanoi as within its 200-mile exclusive economic zone under international maritime law.

In signing up Russia to a 49% stake in the two blocks, Vietnam has indeed selected a strong partner. As one analyst stated last week, “These are very important, very sensitive blocks with a lot of history.” He said the decision to include Gazprom in the development “puts Moscow front and center as this dispute rumbles on.”

The dispute, of course, is China’s insistence on claiming sovereignty over most of the South China Sea – ignoring the claims of smaller countries in the region to any share of the presumed oil and gas reserves that lie under the seabed below. But Russia is another matter.

‘NEW INTRICACIES’

Analyst Ian Storey of the Singapore-based Institute of South East Asian Studies said the latest deal over contested blocks has delivered “new intricacies” to the situation, especially given Russia’s already extensive interests in Vietnam.

“When it comes to Vietnam, Russia is going to be hard to push around – and China has its own strategic relationship with Moscow, so there are real complexities here,” he said.

Carl Thayer of Australia’s Defence Force Academy said that the Russians believe China would not try to intimidate Gazprom or its partners due to the well-established institutionalized relationship between Beijing and Moscow.

Still, that did not prevent China’s Foreign Ministry from issuing a veiled warning to Russia over the Gazprom deal, much like the warnings it has given to US, Japanese, Australian and Indian oil and gas firms attempting to operate in the region.

RUSSIA WARNED

“We hope relevant countries will work with us, to avoid pulling extra-regional countries into the disputes,” China’s Foreign Ministry spokesman Liu Weiman, in an obvious warning to smaller countries in the region like Vietnam and the Philippines.

But Liu’s warning extended to countries outside the region, too. “We also hope those extra-regional countries will respect and support dialogue and negotiation between China and relevant countries, and try not to get involved.”

Chinese state media were less veiled in the remarks.

“Disputes in the South China Sea have become the most delicate geopolitical challenge for China,” intoned the Global Times. “Vietnam and the Philippines are trying hard to involve outsiders in order to escalate the situation and stack up their chips on the negotiation table against China.”

There were equally barbed remarks for Russia in the Global Times editorial.

“Russia should not send mixed signal regarding the South China Sea issue at this time, as its meddling benefits neither China nor itself,” the paper said. “Russia’s image in the eyes of the Chinese people has already been tarnished by this exploration deal with Vietnam.”

But Vietnam showed no signs of backing down. Said Foreign Ministry spokesman Luong Thanh Nghi: “Vietnam is committed to protecting the legitimate interests of foreign partners operating in Vietnam.”

It seems that with a little help from its friends in Moscow, Vietnam is bearing up in the South China Sea.

© Glamma Productions Inc. 2012.

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About Eric Watkins

Eric Watkins is a consultant specializing in oil diplomacy. A former journalist, Mr. Watkins's work has appeared in numerous leading publications including The Wall Street Journal, The Economist, The Financial Times, and specialist media such as Oil & Gas Journal, Middle East Economic Survey (MEES), and Lloyd's List.
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