Analysis: Withdrawal of ONGC from South China Sea

The South China Sea is part of Pacific Ocean, encompassing an area from the Singapore and Malacca Straits to the Strait of Taiwan of around 3,500,000 square kilometres. It is located south of mainland China and the island of Taiwan, west of the Philippines, North West of Sabah (Malaysia), Sarawak (Malaysia) and Brunei, north of Indonesia, north east of the Malay Peninsula (Malaysia) and Singapore, and east of Vietnam. Thus, total 8 countries surround this strategically important sea.

Several countries have made competing territorial claims over the South China Sea.

Such disputes have been regarded as Asia’s most potentially dangerous point of conflict.

China and Taiwan claim almost the entire body as their own. China has always been assertive about its claims in the SCS. It claims almost the entire SCS on historical grounds. It does not want any third party mediation and supports bilateral talks to resolve the dispute rather than multilateral discussions among the stakeholders. The other countries that claim the various territories are Indonesia, Vietnam, Philippines, Thailand, Malaysia and Singapore and also Brunei.

Why South China Sea is important for Vietnam?

South China Sea is Vietnam’s economic lifeline. As per the estimates of the Vietnam, the maritime activity accounts for more than half of the country’s gross domestic product (GDP). The map in the right shows that Vietnam is thin, with distinct population clusters centred on the Red and Mekong rivers at either end. Uniting these clusters under one flag requires securing the middle trunk that connects them. This middle trunk is the geographic weak point of Vietnam. To the west, Laos provides an inland buffer for the trunk, while the long coast to the east is largely open, only loosely bracketed by two sets of islands, the Paracels and the Spratlys. The importance of the islands in substantiating territorial claims is added by the possible presence of underwater energy resources. For Vietnam, the demands of a growing economy will only increase the sea’s importance and raise the risk and frequency of conflict with China.

Spratly Islands

Around 60 islands make up the Spratly Island chain, which lies in the South China Sea between Vietnam and the Philippines. Apart from being hot tourism destinations, the islands are much more significant for their strategic location between the Pacific and Indian Oceans. During World War II, Japan used the islands as a base for attacking the Philippines and Southeast Asia. Still more significant, as much as $1 trillion in oil and gas may lie beneath the seabed around the Spratlys. Six countries claim some or all of the islands, and international law is not equipped to sort out these conflicting claims. China, Vietnam, and Taiwan claim sovereignty over all of them, while Malaysia, Brunei, and the Philippines claim some of them. Indonesia does not claim any. During the Cold War, the competing nations felt it was too hazardous to push their claims on the islands. After the end of Cold War era, the situation became more volatile. All the contenders except Brunei placed soldiers, airstrips, and ships on the islands. In 1988, the Chinese navy invaded seven of the islands occupied by Vietnam, killing about 70 Vietnamese soldiers.

In 1992, China again landed troops in the islands and began exploring for oil in a section of the seabed claimed by Vietnam. In 1995, China moved to expand its territorial designs on islands already claimed by the Philippines and has since built what it calls “shelters,” which look like fortifications to the Filipinos. Late in the 1990s, Malaysia occupied two disputed Spratly Islands and began building on one of them. In 2004, Vietnam began renovations of an airport on one of the islands, saying it was necessary to boost tourism there. China condemned the construction as a violation of its territorial sovereignty, an accusation it repeated in 2007 when Vietnam negotiated natural gas development with foreign companies in the Spratly Islands.

The OVL Contract:

It all started in 2006, when ONGC Videsh Limited (OVL) signed a contract with Petro-Vietnam to jointly explore blocks 127 and128 in the Phu Khanh Basin. In the later half of 2011, OVL also signed three deals to jointly explore oil and natural gas in these blocks.

This began a series of garboil between India, China and Vietnam. China said that India was trying to encroach its area of influence. India said that it supports the freedom of navigation in the SCS under the Declaration of Code of Conduct, 2002. Then, according to the UNCLOS guidelines, the blocks lie within Vietnam’s Exclusive Economic Zone and Continental Shelf. The official statement from India was that “Our cooperation with Vietnam or any country for that matter in the world is always as per the international law, norms and conventions.” Since then, New Delhi has maintained the position that its explorations in the SCS have been purely commercial.

Why OVL recently withdrew from SCS?

In April 2012, India started withdrawing from the South China Sea (SCS). On 10th April 2012, India’s ministry of External Affairs said that the “OVL’s decision to initiate relinquishment process is based purely on techno-commercial considerations.”

OVL had dropped the Block 127 because here it encountered the dry wells.

In 2011, India had invested USD 50 million in block 128, but after repeated exploration, it found that due to hard seabed, the prospects of finding oil in the block were low.

It was concluded that it was not a very commercially viable project. We should note that India needed to pay USD 15 million as exit fee to PetroVietnam to relinquish the fields.

However, India will continue to explore the Nam Con Son basin that OVL was awarded as a goodwill gesture to India. Currently, OVL has 45 per cent stakes in these blocks. These blocks are not the part of the SCS dispute. India also continues to engage in the profitable Lan Tay field off the southern coast of Vietnam in the South China Sea, owned by OVL, PetroVietnam and British Petroleum. One more field called LanDo field has also Indian investments and is expected to begin production this year.

India still insists that comprehensive cooperation with Vietnam, along the full value chain of hydrocarbon development, will continue.

Thus we may conclude that the reasons for withdrawal of ONGC Videsh Limited (OVL) from the South China Sea (SCS) are much economic in nature than in geopolitical.(Image source: Stratfor.com)