The Next Vietnam War

March 24, 2011: China and Vietnam are escalating their low-key struggle to solidify control over the Spratly Islands. Apparently Vietnam believes its improving ties with Russia and the United States will keep the Chinese from crushing their small southern neighbor.

The Spratlys are a group of some 100 islets, atolls, and reefs that total only about 5 square kilometers of land, but sprawl across some 410,000 square kilometers of the South China Sea. Set amid some of the world's most productive fishing grounds, the islands are believed to have enormous oil and gas reserves. Several nations have overlapping claims on the group. About 45 of the islands are currently occupied by small numbers of military personnel. China claims them all, but occupies only 8, Vietnam has occupied or marked 25, the Philippines 8, Malaysia 6, and Taiwan one.

Two years ago, Taiwan built a 1,150 meter long, and 30 meter wide air strip on Itu Aba, one of the Spratly Islands, 500 kilometers to the south. Called Taiping Island by the Taiwanese, Ita Aba is one of the largest of Spratly Islands, at about 120 acres (489,600 square meters). It has been in Taiwanese hands since the mid-1950s, and has largely been used as a way station for fishermen.

The island is also claimed by the Vietnamese, who call it Thai Binh. Taiwan has long maintained a small military presence on the island, and the new air strip is meant to cement that control. Protests were made by Vietnam, which controls the largest group of islands, and the Philippines, which also claims Itu Aba island.

The Vietnamese earlier refurbished an old South Vietnamese airstrip on Big Spratly Island. Recently, both the Chinese and Vietnamese were seen building more structures, including armed bunkers, on the Spratly islands they occupy. Malaysia has built an air strip on its Spratly island, which is uses to fly in tourists looking for prime scuba diving.

In 1988, China and Vietnam fought a naval battle, off the Spratly islands. The Chinese victory, in which a Chinese warship sank a Vietnamese transport carrying troops headed for one of the disputed islands, was followed by Chinese troops establishing garrisons on some of the islands. In 1992, Chinese marines landed on Da Lac reef, in the Spratly Islands. In 1995, Chinese marines occupied Mischief Reef, which was claimed by the Philippines.

The small countries all fear that China will eventually make good on its long-standing claim to all the Spratlys, as well as all similar islands and reefs in the South China Sea. At that point, the international community will have to worry about continued free passage through an area that current sees about two trillion dollars worth of cargo moved through the area each year.

The problem here is that China has a very different concept of "coastal waters" than does the rest of the world. International law (the 1994 Law of the Sea treaty) recognizes the waters 22 kilometers from land as under the jurisdiction of the nation controlling the nearest land. That means ships cannot enter these "territorial waters" without permission. Moreover, the waters 360 kilometers from land are considered the Exclusive Economic Zone (EEZ), of the nation controlling the nearest land. The EEZ owner can control who fishes there, and extracts natural resources (mostly oil and gas) from the ocean floor. But the EEZ owner cannot prohibit free passage, or the laying of pipelines and communications cables.

China claims that that foreign military ships cannot enter its EEZ, and sometimes uses force (usually with Chinese owned fishing or cargo ships) to try and persuade them to leave. It is feared that eventually China will use one of its growing number of warships to challenge some foreign warship "invading" its EEZ. The 1994 treaty says nothing about blocking warships from your EEZ, but some nations believe it is allowed. China is simply doing what China has been doing for centuries, trying to impose its will on neighbors, or anyone venturing into what China considers areas under its control.

For the last two centuries, China has been prevented from exercising its "traditional rights" in nearby waters because of the superior power of foreign navies (first the cannon armed European sailing ships, then, in the 19th century, newly built steel warships from Japan). However, since the communist took over China 60 years ago, there have been increasingly violent attempts to reassert Chinese control over areas that have long (for centuries) been considered part of the "Middle Kingdom" (or China, as in the "center of the world").
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China's Next Oil War

Malthusian Oil Grab

By Christian A. DeHaemer
Thursday, March 24th, 2011
China’s energy demand is insatiable.
The country's state-owned oil firms are on an international buying spree and a disputed group of islands in the South China Sea could be the catalyst for the next oil war.

Demand Just Off All-Time High

Global oil research firm Platts recently reported:

China's apparent oil demand in February climbed 10.1% year on year to 36.65 million tons or an average 9.58 million b/d, with demand reaching its second highest level ever barely two months after hitting its all-time high.

This jump in demand is attributed to refineries increasing production and coming back from planned maintenance.

Oil demand in February climbed 4.2% from January's 9.19 million b/d, which was just a bit lower than the all-time high reached in December of 9.62 million b/d.
CNOOC Has Cash to Burn

To help meet this demand, CNOOC (NYSE: CEO) — China's largest offshore oil explorer — is on a global buying binge.

The company just reported record fourth-quarter and full year results.
CNOOC spent $8 billion on acquisitions in 2010 and ended the year with $6 billion on hand to buy more.

The company already put up $570 million for 33% of U.S.-based Chesapeake Energy’s (NYSE: CHK) Niobrara shale gas project.
CHK, a natural gas producer, has seen its share price rise from $19 to $35 over the past year. CNOOC's has seen its replacement reserve grow by 202% — a new record. The company is planning 10 new projects this year.

PetroChina (NYSE: PTR), another of the Chinese big three, is planning on spending $60 billion on new deals over the next decade.
Both of these companies' share prices are up more than 40% this year.

Oil in the South China Sea
Typical hydrocarbon mercantilism might not be enough to meet China’s growing energy needs.
Learning from the West, China is picking up a big stick and enforcing its territorial claims... After all, the West has a long history of military adventures regarding rebels who sit on oil patches.

East Timor, Kurds in Iraq, and now the rebels in Libya all hold the lion’s share of their countries' oil lands.

China Warns Off Drillers

Today, China warned against any oil exploration without its consent in waters it claims in the South China Sea.

This comes after a Philippine announcement that Forum Energy had completed a seismic survey for a piece of ocean near the Spratly Islands. The next step would be drilling.

The oil-rich Spratlys are contested by Brunei, Malaysia, Taiwan, Vietnam, the Philippines, and China.

The Chinese Foreign Ministry stated:

China holds indisputable sovereignty over the Nansha Islands (Spratlys) and the adjacent sea waters...

Any activities by countries or companies to explore for oil or gas in the sea waters in China's jurisdiction without the permission of the Chinese government will constitute a violation of China's sovereignty and... will be illegal and invalid.

That’s what we call a gauntlet being tossed.