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Beijing Threatens Hanoi Over Drilling in South China Sea

VIETNAM (ing)_tcm14-11801.jpg (693×400)

The map shows the areas/basins in the country where Repsol has exploration and/or production/development activity. (Repsol)

Following threats from Beijing, Vietnamese authorities have ordered a foreign joint venture to abandon its gas-drilling efforts in a disputed area of the South China Sea.  The drilling was taking place in Block 136-03, around 250 miles off the coast of Vietnam, and licensed to a joint venture among Vietnam’s state oil firm, Spain’s Repsol and Mubadala Development Co. of the United Arab Emirates.  China, which claims some 90 percent of the South China Sea, calls the same area Wanan Bei-21 and sold the rights to a Hong Kong-listed company called Brightoil in 2015, which has recently denied ownership.  Estimates on the amount spent by Repsol on drilling range from $27 million to $300 million.  

Chinese authorities apparently threatened to attack Vietnamese military bases in the islands of Truong Sa (Spratly) if the drilling proceeded.  A similar threat was made to British Petroleum in 2007, according to Bill Hayton, author of The South China Sea: The Struggle for Power in Asia.

Beijing’s military threat is championed by General Fan Changlong, deputy chair of China’s Central Military Commission, who visited Madrid to complain of Repsol’s participation in the drilling of a maritime area claimed by China.  A few days before the start of drilling on June 21, General Fan reportedly stormed out of a meeting in Hanoi and cancelled a planned “friendship meeting” at the China-Vietnam border, officially over protocol concerns but rumoured to be over the drilling dispute.

Carl Thayer, a longtime analyst of the Vietnamese military and emeritus professor at the University of New South Wales, called Beijing’s threats of attack “a marked and alarming step up of Chinese assertiveness” and a “major escalation in China’s posture.”  Thayer also expressed worries over the future of Vietnam’s offshore oil industry, arguing “If Vietnam stops exploration permanently this would have long-term implications for present oil contracts with foreign companies and more significantly, Vietnam’s future energy security.”  

Following the report by Reuters, Vietnamese Foreign Ministry spokeswoman Le Thi Thu Hang argued “Vietnam’s petroleum-related activities take place in the sea entirely under the sovereignty and jurisdiction of Vietnam established in accordance with international law,” while adding, “Vietnam proposes all concerned parties to respect the legitimate rights and interests of Vietnam.”

Those “rights and interests of Vietnam” include two other prominent blocks being developed by foreign companies.  In early July, Hanoi granted a two-year extension to ONGC Videsh, an Indian oil company, to explore oil block 128, which falls within Vietnam’s 200 nautical mile exclusive economic zone (EEZ) – part of which is also claimed by China under its illegal “nine-dashed line” yet overlaps Chinese claims.  And some 50 miles off the coast of central Vietnam, ExxonMobil is initiating the $10 billion “Blue Whale” gas concession in block 118 – entirely within Vietnam’s EEZ and part of which is also claimed by China.

With Hanoi reportedly being forced to back down, should other foreign oil and gas companies fear the loss of drilling rights from concessions granted by Hanoi?



Gary Sands

Gary Sands is a Senior Analyst at Wikistrat, a crowdsourced consultancy, and a Director at Highway West Capital Advisors, a venture capital, project finance and political risk advisory. He has contributed a number of op-eds for Forbes, U.S. News and World Report, Newsweek, Washington Times, The Diplomat, The National Interest, International Policy Digest, Asia Times, EurasiaNet, Eurasia Review, Indo-Pacific Review, the South China Morning Post, and the Global Times. He was previously employed in lending and advisory roles at Shell Capital, ABB Structured Finance, and the U.S. Overseas Private Investment Corporation. He earned his Masters of Business Administration in International Business from the George Washington University in Washington, D.C. and a Bachelor of Science in Finance at the University of Connecticut in Storrs, Connecticut. He spent six years in Shanghai from 2006-2012, four years in Rio de Janeiro, and is currently based in Ho Chi Minh City, Vietnam. Twitter@ForeignDevil666