Creative diplomacy required to resolve territorial disputes

LONDON – China and the United States appear headed for a damaging confrontation over the extent of China’s territorial claims in the South and East China Seas.

Now that China has become the world’s largest importer of oil, and energy more generally, the country’s need to develop more indigenous energy supplies has become urgent.

Expecting China to put the South and East China Seas off limits to exploration and production until disputes over sovereignty can be resolved through some undefined legal or diplomatic process is unrealistic.

Part of the problem is that Western analysts and policymakers still fail to appreciate the strategic importance of these areas. It is common to hear maritime disputes between China and its neighbors characterized in terms of uninhabited islands, submerged reefs, historic fishing grounds and unfinished business from World War II.

In reality, the disputes center on control over areas which are thought to contain substantial quantities of oil and gas, which could be vital to the economic development of all states in the area.

U.S. diplomats were reportedly dismayed when China started to claim the South China Sea was among the country’s “core national interests” along with Tibet and Taiwan.

But given the potential for developing substantial oil and gas fields in both the South and East China Seas it should have been obvious that they could not be treated as unimportant claims that could be deferred indefinitely.

U.S. diplomats sometimes appear to want to freeze the disputes, a position which is both unhelpful and dangerous.

According to U.S. Defense Secretary Chuck Hagel, the United States takes “no position on competing territorial claims” in both seas, but wants disputes peacefully resolved “in accordance with international law.”

At a regional security conference in Singapore in May 2014, Hagel singled out what he termed China’s “destabilising, unilateral actions asserting its claims in the South China Sea,” without apportioning blame to other countries, a one-sided approach that drew a furious protest from China.

Subsequently, Gen. Martin Dempsey, the top U.S. military officer, has become the first chairman of the joint chiefs of staff to visit Vietnam since 1971, fueling China’s suspicions about encirclement and quiet U.S. backing for neighboring states over maritime disputes.

The U.S. has also refused to recognize China’s self-declared air defense identification zone in the East China Sea and insisted the disputed Senkaku-Diaoyu islands are covered by its mutual defense pact with Japan, even while U.S. officials insist they do not take a view on the underlying issue of sovereignty.

This strategy (expressing no view on sovereignty while trying to freeze the status quo pending an unlikely diplomatic resolution of the disputes) is dangerous and threatens to worsen the standoff because the status quo is not remotely stable.

Western analysts and policymakers tend to downplay the potential oil and gas resources of the disputed areas, but this probably understates the amount of energy which could be recovered if the areas were thoroughly developed.

Both the South and East China Seas contain sedimentary basins with thick layers of mud, silt and organic material deposited on the floor of ancient seas and lakes. Both have already seen significant oil and gas discoveries (link.reuters.com/vug72w)

The South China Sea is ringed with known oil and gas fields off China’s Pearl River Delta, Hainan Island and the coasts of Vietnam, Thailand, Malaysia, Indonesia, Brunei and the Philippines.

In 2010, the United States Geological Survey (USGS) estimated the South China Sea contains about 11 billion barrels of oil and 145 trillion cubic feet of natural gas that have yet to be discovered (“Assessment of undiscovered oil and gas resources of Southeast Asia” March 2010).

In global terms, these are relatively modest amounts. For China, however, they are much more significant.

The assessment focused exclusively on coastal areas and did not include potential resources in the deeper waters in the center of the sea around the islands and reefs which are at the heart of the dispute.

The South China Sea remains comparatively unexplored and there is the potential for substantial additional discoveries. China’s oil companies believe the area has strong hydrocarbon potential and they have published resource estimates which are an order of magnitude higher than Western analysts.

The hydrocarbon potential of the East China Sea is even less well known. But there are good reasons to believe that it could hold significant quantities of recoverable oil and gas. Several oil and gas fields have already been found in sea areas claimed by both China and Japan.

The sea borders on the Songliao and Bohaiwan basins have been in production for decades and account for most of China’s current oil and gas output. There is therefore a high probability more oil and gas could be found further offshore in the East China Sea itself.

With advances in ultra-deepwater drilling the potential for far offshore exploration and production has never been greater and the dispute over sovereignty in the East and South China Seas is unlikely to remain frozen.

U.S. diplomats have suggested the disputes could be resolved through international law, norms and diplomacy, without outlining how that might actually be achieved.

In its maritime boundary dispute, the Philippines has filed a claim against China under the United Nations Convention on the Law of the Sea (UNCLOS) with the Permanent Court of Arbitration.

UNCLOS is cited by many outside observers as a suitable legal framework for resolving disputes between China and its neighbors.

But UNCLOS is not really relevant to the dispute because the core of the disagreement concerns ownership and sovereignty over the islands and other outcrops.

Once sovereignty has been established, UNCLOS can help assign rights and responsibilities to all the parties, including control of shipping, fishing and oil and gas drilling.

But UNCLOS cannot resolve the underlying disputes about sovereignty in the first place.

China has already rejected the arbitrators’ jurisdiction, which suggests the process is headed for failure.

The parties to the various disputes are all now raiding their archives for ancient books, letters and artifacts to bolster their claims to historic control over the disputed islets.

Such historical research is unlikely ever to resolve the claims persuasively (just look at Britain’s and Argentina’s unresolved dispute over the Falklands-Malvinas).

The only real solution is diplomatic. The coastal states around the South and East China Seas will have to agree to divide, share or pool their sovereignty in the interests of security and to permit the peaceful exploitation of the resources.

There are plenty of examples of such shared resource development, ranging from the Spitsbergen Archipelago in the Arctic to the Neutral Zone between Saudi Arabia and Kuwait.

Before the recent flare up, China and Japan had agreed jointly to develop the Chunxiao gas field, which straddles the maritime boundary.

The challenge for diplomats, especially from the U.S., is to help the parties discover creative solutions that benefit all the coastal states.

Instead, U.S. diplomats have encouraged all parties to harden their positions and suggested the entire dispute can be frozen until some ill-defined legal process runs its course.

This strategy will not work and is escalating rather than defusing tensions in the area, encouraging coastal states to pursue maximal claims rather than compromise and negotiate common solutions.

It is time that Western policymakers recognized that hydrocarbon exploration is both necessary and desirable in both the South and East China Seas.

Oil and gas exploration must be a stabilizing force for cooperation, rather than a source of conflict and competition.

John Kemp is a Reuters financial columnist specializing in commodities and energy. The views expressed are his own.