For much of 2010 and 2011, tensions over conflicting claims to disputed islands, maritime territory and energy resources rippled through the South China Sea, embroiling several Southeast Asian states and China in disputes that also involved the interests of outside powers, including Japan and the United States.

Both allies see the semi-enclosed sea in the maritime heart of Southeast Asia as a key strategic arena, one that provides a critical trade and energy supply lifeline to Japan. After a short period of relative calm, the long-simmering struggle for control of one of the world’s most important arteries for commercial and military shipping may be about to boil up again.

The current dispute is between the Philippines, and China. It focuses on the issue of which country has the authority to let local and foreign companies develop valuable offshore oil and natural gas reserves in a contested zone of the South China Sea.

In the background is the U.S., which has a long-standing mutual defense treaty with the Philippines. Are we about to see a proxy conflict between China and the U.S., the two top Asia-Pacific economies and military forces? Such a power struggle could destabilise the region and undermine its growth prospects.

The dispute between the Philippines and China surfaced again last week when Manila announced it was preparing to issue exploration licenses for 15 petroleum blocks, three of them in the South China Sea. Philippine officials said that they hoped contracts would be awarded to bidders within the next few months.

The foreign ministry in Beijing immediately protested. It said that at least two of the South China Sea blocks being auctioned by Manila were under its jurisdiction. Each of the blocks covers at least 6,000 square km. Beijing asserts that they are part of the disputed Spratly Islands, even though they are less than 150 km from Palawan Island in the southwest of the Philippine archipelago, and some 1,065 km from Hainan Island, the nearest uncontested Chinese territory.

The Philippines insists that the two blocks are not part of the Spratlys. It says that the United Nations law of the sea treaty gives it the right to control seabed energy and mineral resources, as well as fisheries, in an Exclusive Economic Zone stretching 370 km from its shores. Both Manila and Beijing have ratified the treaty.

China has long maintained a sweeping but vaguely defined claim to about 80 percent of the 3.5 million square km South China Sea. If enforced or acknowledged, the claim would make China an immediate neighbor of the Philippines, Malaysia, Brunei and Indonesia. China would also become a very close neighbor of Singapore.

The core of China’s giant U-shaped claim stretching deep into Southeast Asia’s maritime heart to a point just north of Indonesia’s Natuna Islands is its assertion of sovereignty over three island groups, the Pratas, occupied by Taiwan, the Paracels, occupied by China but claimed by Vietnam, and the Spratlys, the main islands of which are garrisoned by China, the Philippines, Vietnam, Malaysia and Taiwan.

China, Taiwan and Vietnam each claim the whole of the Spratlys, which spread over 729,000 square km of the southeastern zone of the South China Sea. The Philippines, Malaysia and Brunei claim parts of the Spratlys closest to their territory. But only China consistently contests the Philippine claims to energy rights in the area.

The largest single feature of the Spratlys is a 100 km-wide submerged mountain top, known as Reed Bank, in the northeast of the group. It is prime petroleum territory, coveted by both the Philippines and China.

Before the recent exploration licensing round, Manila had issued only one previous block in waters also claimed by China. This was in the Reed Bank, where a British-based firm, Forum Energy Plc, which is 64 percent owned by Philex Mining Corp. of the Philippines, has done extensive seismic surveys to determine the size of a big gas find there.

Forum told shareholders earlier this year that the block could contain 40 trillion cubic feet of gas, a bigger reserve than the nearby Malampaya gas field operated by the Shell group. It fuels half the power needs of Luzon, the main island of the Philippines.

Philex said it would comply with a work program agreed with the Philippine government, including drilling two wells by June 2013. A year ago, a survey ship hired by Forum reported that two Chinese vessels in the Reed Bank area had threatened to ram it, disrupting the seismic work. This was followed by a series of incidents, with the Philippines reporting as many as a dozen cases of Chinese vessels, some of them warships, intruding into what Manila claims are Philippine waters.

How will China react this time? Will it use its vessels to disrupt survey work, as it did against both the Philippines and Vietnam last year?

The official China Daily last week accused the Philippines of breaching the ASEAN-China voluntary code of conduct in the South China Sea and choosing “once again to be a troublemaker.” China’s Global Times said that it was “probably time for China to take some substantial moves, such as economic sanctions, to counter aggression from the Philippines since protests and condemnation (by Beijing) have not worked.”

Meanwhile, Manila is seeking increased U.S. aid for its weak defense forces and preparing to give Washington more access to its ports and airfields to re-fuel and service U.S. warships and planes. The U.S. and the Philippines will conduct joint military training off Palawan Island late this month, focusing on how to deal with a takeover of an oil rig in the South China Sea.

The Philippines’ ASEAN partners and Japan will be watching with concern to see whether a strengthened U.S.- Philippine alliance deters or provokes China.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.

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