South China Sea: economics, geopolitics and energy security
South China Sea has been and is a topic of dispute in the Southeast Asia region of the world. Stretching from the Strait of Malacca in the southwest to Taiwan in the north, it is one of the most important trade routes in the world. 2017 report of World Trade Organization estimates that 25% of the world’s shipping passes through the South China Sea, with the trade value being 3.37 trillion dollars per annum. In addition to the trade value, a big portion of world energy trade passes through South China Sea. 2016 data from Energy Information Administration (EIA) states that almost 40% of all liquified natural gas (LNG) is transported from this region.
The enormous trade value of the region alongside the discovered and projected offshore hydrocarbon reserves, make South China Sea a territory for grabs. According to several governmental sources of both USA and China such as EIA, United States Geological Survey, and China National Offshore Oil Company, the estimates are between 5 to 22 billion barrels of oil, 2.5 to 10 trillion cubic meters of natural gas.
Given the numerous economic projections regarding the Southeast Asia as a region, a robust economic growth is expected. OECD’s 2019–23 GDP growth projection for emerging Asia (including China and India) is 6.1% annually. With an economic growth projection of this scale and the cause of this economic growth being mostly energy-heavy industries, energy demand of emerging Asia (Southeast) will be growing significantly. The energy growth is estimated to be 3% annually, China accounting for 43% of that growth.
A region of this level of importance inevitably resulted in a dispute of claims and ownership between neighboring countries, although the majority of the problem coming from China’s ‘nine-dash line’ border claim.
As early as the 1970s, neighboring countries of South China Sea began to claim various parcels. Most of the claims were based on historical ownership. Few examples of the important parcels are the Spratly and Paracel islands, in addition to their potential natural resource reserves, these island chains are abundant in fishing areas. China has based its claims on historical maps and documents dating back a few centuries, but the documents are yet to be verified.
The claims regarding the ownership of Paracels and Spratlys have resulted in serious clashes between the Chinese and Vietnamese, resulting in near 200 deaths in the mid 70s and late 80s. There were also a few incidents dating back a few years between China, Vietnam and Philippines. Up to now, China has been using its dominant navy and air force to subdue rest of countries’ claims. Under the International Tribunal of the Law of the Sea, islands get a 12-mile territorial sea and an exclusive economic zone. This is an important law when it comes to the Spratly and Paracel island chain, as these are mostly shallow water archipelagos and don’t count as islands under this law according to a 2016 decision. As observed by satellite images, China has been militarizing some parts of these island groups alongside the Woody island, creating outposts and military bases in the aim of having them earn the status of island, 12-mile territorial sea and exclusive economic zone.
China’s hegemony over the region and its potential extraction of its natural resources in the near future, will create a new energy balance in the region and the world as a result. China is a major importer of crude oil and natural gas (LNG and pipeline), but there will be an increase in the domestic output of these resources due to the annexation of the parcels in the South China Sea. The change in the domestic output and import balance of these natural resources directly affect the energy trade of the region, since China will decrease its dependence on imports coming from its neighboring countries.
The strategy followed by China is in its national interests in terms of economy, military presence and energy security. United States’ increased presence in the South China Sea region with its navy fleet and potential of alienating China by partnering up with other claimant countries might slow down China’s attempts of securing its ‘nine-dash line’. However, as China’s economy advances further, it shouldn’t come as a surprise if its military presence dominates that of United States’ in the region.
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