Oil, History, and the South China Sea: A Dangerous Mix

By Scott L. Montgomery - 07 August 2018
Oil, History, and the South China Sea: A Dangerous Mix

Scott L. Montgomery argues that energy insecurity can blend with ideas of historical purpose, national identity, and global ambition to deadly effect.

As a global power, China has a serious energy weak point: oil. While coal continues to kill hundreds of thousands in the country’s cities each year and massive hydropower plans stir up worries worldwide, the leadership seems more concerned about the long-term supply of petroleum to its borders, especially via the South China Sea (SCS). China’s large-scale encroachment in this area, home to the world’s busiest sea lanes, has not only continued but become more threatening, creating a true flash point.

During the past year, that is, the situation has entered a critical new phase. China has not only made threats of violence but installed the first weapons systems on several of the disputed Spratly islands. President Xi Jinping’s promise against any militarization by China thus underlines how China is willing to use deception to get what it wants. Mr. Jinping, however, has now been more forthright about his intentions, telling U.S. Defense Secretary Jim Mattis this June that “We cannot lose even one inch of the territory left behind by our ancestors,” according to China’s state media. What, then, is the actual role of oil in this fraught situation?

The Importance of Oil

Oil’s critical importance, indeed necessity, is often left undiscussed in coverage of its prices, supply, imports, and so forth. In my experience, lack of understanding here allows for a good deal of fantasy and illusion elsewhere about a decline in fossil fuel use and possible arrival of an all-renewable energy future in just a few decades.

The truth of the matter is this: on the global scale, oil constitutes the one energy source with no alternatives. Because of this, and the fact that it powers nearly every kind of vehicle in use, oil also defines the one source that no modern state can do without. No modern economy and no military can exist without it. This makes oil a crucial national security concern all over the world. It also makes oil the greatest long-term challenge for dealing with climate change (coal and natural gas can be reduced by hydro, renewables, and nuclear).

All indications are that this situation won’t significantly change until the second half of the century. Biofuels? After a decade-and-a-half and $hundreds of billions, investment has shrunk to a fraction of what it was in 2007, while consumption is no higher than just 4% of the global transportation market. These fuels show few signs of any massive worldwide growth ahead, in part because they must now compete against electric vehicles (EVs). But growth here, even in optimistic scenarios, isn’t predicted to reach more than 300-500 million cars by 2040-2050, in a total market as large as two billion vehicles.

Of course, predictions like these are often worth what we pay for them; even with draconian government policies in favor of EVs, much will depend on oil prices to help stimulate consumer preferences. But consider: we are only talking about cars. Electricity will also need to replace diesel, jet fuel, bunker fuel, and more (diesel, in particular, powers a wider array of vehicles than gasoline). Biofuels, EVs, or other technologies yet to have a market presence, will not save us from the need for petroleum in coming decades. This is a fact that must be faced.

China’s Oil Situation

If this is true, then how serious a security problem is oil for China? Short answer: very serious. Longer answer: very serious, and the leadership and military know it.

To begin with, the country has less oil than other energy sources but, because of its economic and military expansion, needs it more. It’s coal and natural gas resources are large enough to keep imports relatively low. While demand for gas is growing rapidly, domestic production has risen as well, continuing to provide more than 60% of supply. China’s total shale gas endowment is vast, and, despite more gradual development than in the U.S., it is forecast to contribute more and more to future production, reducing imports over time. At the same time, China’s plans for increasing its renewable (solar, wind, possibly geothermal), hydropower, and nuclear power contributions are legendary at this point. The major motive in this changing energy mix has to do with reducing pollution and improving public health, thus reducing a powerful reason for dissent. National security must be counted a driving factor in the country’s “blue skies” policy.

However true this may be, oil inhabits an entirely different realm of security concern. The country’s imports began to rise consistently in the early 1990s and have never looked back. With much effort, China’s oil production reached a plateau of around 4.2 million bbls/day (MMbpd) in 2012-2015, but by then this was less than half of demand. Figures have since fallen to below 3.8 MMbpd, as consumption levels have risen to over 12 MMbpd. This is no surprise, as China’s economy has been growing at well over 6% per year, with consumers (not industry) now the main driver of expansion. Car sales into 2018 show no signs of slowing, and though electric vehicles are an increasing part of this, at least 96% are still oil-powered. Greater demand for consumer goods, moreover, has meant more transport by air, rail, and especially commercial vehicles, including heavy trucks, whose sales have risen even faster. 

China’s imports have therefore shot up from 2 MMbpd in 2004 to just shy of 10 MMbpd in 2018. At around 70% today, they will likely be nearly 80% before 2030, despite policy efforts to push EVs. Though some of the import increase comes from stockpiling (filling China’s strategic petroleum reserve) and private Chinese companies building new refineries and exporting refined fuels (at a time when prices have risen), this doesn’t weaken the fact that China is now the world’s largest oil importer and is deeply dependent on the new global (unofficial but effective) cartel—Russia + OPEC.

Here is where the security issue advances front and center. Russia is not a big worry at this point, because it supplies oil to China via pipelines. Of far greater concern is oil from the Middle East, which currently makes up more than 60% of imports and is forecast to grow hugely by 2040. In addition to getting more oil from Russia, Chinese policy has been trying to lessen the amount of oil imported by sea through the SCS by funding pipeline systems to its borders from ports in the greater Indian Ocean. This has included pipelines in Myanmar (completed) and Pakistan (under construction).

Land pipelines are generally viewed as less secure than transport by sea. The level of violence and terrorism in Pakistan would seem to favor such a view. But it appears that China feels the Malacca Straits and SCS constitute a greater risk, at least until the SCS is under  Chinese control. At present, nearly 80% of its oil imports continue to come through the SCS.

The South China Sea Problem

Oil plays a double role for growing tensions in the SCS. First, as outlined above, most of China’s oil moves through the province. This same oil is transported through other seas as well, but the SCS is special. Even without China’s own claim to the Paracel and Spratly island groups, there have been competing territorial rights asserted for many years by Vietnam (an enemy), Indonesia, Malaysia, the Philippines, Brunei, and Taiwan (a “rogue province,” as viewed by China). On top of this uncertainty, there is the “problem” of U.S. naval (sea and air) presence in the SCS and surrounding areas, a presence that has now grown because of China’s own destabilizing actions in the region. This defines an existential security problem for the Chinese military. Unlike other first-rate powers today and in the past—count the U.S., Soviet Union, Russia, Britain, Japan over the past century—China does not have full control over the waters that border its coasts. Both the East and South China seas are hemmed by island chains and complexes belonging to other nations.

The second role that oil plays in conflict has to do with littoral nations drilling for it. China has opposed such drilling, in several cases quite aggressively. It has done so in waters internationally recognized as belonging to these nations, moreover. According to several sources, pressure from China led to ConocoPhillips divesting all of its assets in Vietnam between 2008 and 2012, with BP doing the same, selling its assets to Russian firm TNK-BP, later bought by state-owned Rosneft (1). A more recent example: both in 2017 and again this year, Vietnam ordered the Spanish firm Repsol to cease work in offshore wells adjacent the Can Rong Do (Red Emperor) field due to threats from China that it would attack Vietnamese outposts nearby.

In May 2017, Philippine President Rodrigo Duterte, no shrinking violet himself, stated that Xi Jinping had recently threatened war (with a smile) if any effort was made without China to drill for oil/gas at Reed Bank, a contested area that the UN Permanent Court of Arbitration ruled in 2016 lies within the Philippine Exclusive Economic Zone. This year (2018), the Philippines has re-proposed drilling blocks in Reed Bank with Chinese participation. It requires little political imagination to understand how such joint projects advance China’s expansion plans by establishing its presence in other nation’s waters.

In a word, Chinese perception of the SCS as a security concern has led to an erosion of security in the region. One other point should be made in this regard: oil and gas resources in the SCS are not likely an overriding reason for China’s actions. Continued focus on this idea in some quarters isn’t warranted. As I noted in an earlier article (and other informed sources have emphasized), geologic study by western sources, including the U.S. Geological Survey, conclude the region is gas-prone, with a probable recoverable oil resource of around 11-14 billion barrels. Even double this amount wouldn’t provide a clear rationale for China to risk military conflict and a breakdown in relations with its neighbors in this all-important area. Such an escalation would be a dire precedent for Mr. Jinping’s Belt and Road Initiative, a core priority. Thus more than resources must be involved. The 125-billion barrel figure provided by the Chinese National Offshore Oil Company, though often cited, is strategically excessive, almost certainly meant to distract attention from other motives, such as territorial control.

Oil and History Don’t Mix—Or Do They?

China’s oil problem sits on top of larger interests with a historical dimension that should not be underestimated. As Xi Jinping expressed it (quoted above), the SCS counts as “territory left behind by our ancestors.” This is no offhand or ritual statement. The document laying out historical evidence for China’s sovereignty, published in 2000, reaches back to the Han, Three Kingdoms, Tang, Song, and Yuan Dynasty periods, spanning the 1st – 14th centuries C.E. If this sounds like Sweden laying claim to the Baltic Sea because of the empire that Gustavus Adolphus built in the 1600s, that’s because it is very much like that. China’s claims ignore the greater part of modern history in which other nation-states with their own territorial realities have emerged in the SCS. Focused entirely on its own interests and national image, with a desire to force a global rival and greater power (the U.S.) out of SCS waters, Chinese leaders seem to view current history in terms of gaining back (more than “one inch” at a time) from the colonial era what has always been theirs or should have been.

Such claims do not create the same shock as Russia’s annexation of Crimea, but in some ways perhaps it should. The SCS is vastly larger and immensely more important to the global economy than Crimea, of course. “Ancestors” are no more a legitimate criterion for seizing territory from other states and from the international community, than shared language (Putin’s claim that Crimea is largely Russian-speaking).

Geopolitically speaking, these are primitive ideas from an earlier time, no less dangerous and autocratic today than in the past. China seems willing to risk great deal for them, hoping that by moving with patience, in small steps, in “partnership” with its neighbors, it can succeed. But in today’s terms, China annexing 80% or more of the SCS, including international waters with $trillions of annual trade, poses a blatant security threat of spectacular measure to all of East and SE Asia, as well as a large part of the global economy. Because of this, the SCS dispute holds more potential for military conflict than any other area where China is involved. Call it realpolitik if you like. These are simply truths of the current situation. To minimize them in any way is to warp the reality.

But neither should the factor of energy be ignored as a role in China’s idea of destiny. Its leaders also know something about the history of modern energy and its relationship to global power. Britain in the 19th century, the Soviet Union and the U.S. in the 20th, were each blessed by geology with large resources (coal and oil). Japan and Germany were not (Germany had coal but no oil). Nations without oil are vulnerable, and those lacking but requiring large amounts of it are correspondingly insecure. Thus does contemporary energy reality blend with ideas of historical purpose, national identity, and global ambition. Indeed, it may well be this volatile mixture of insecurity and sense of destiny that fuels the serious threat that China now poses in this extremely important region.





(1) See, for example, Bonnie S. Glaser and Gregory Poling, “Vanishing Borders in the South China Sea,” Foreign Affairs, June 5, 2018. Available here: http://viet-studies.net/kinhte/VanishingBorders_FA.pdf (accessed August 5, 2018).


Image credit: Jo Schmaltz via Flickr (CC BY-SA 2.0)

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