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South China Sea And Sharing Trans-Boundary Resources: Fluid Lessons – Analysis

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By Lydia Powell

The oft repeated thesis about the long running conflict in South China Sea is that it is essentially about hydrocarbon resources. In other words, it is a scramble for energy resources. Not surprisingly, the recent exit of India’s ONGC Videsh from a block in Vietnam is seen through this lens and is read as India bowing down to Chinese pressure against the interests of weaker Vietnam.

The potential for the South China Sea to be a major hydrocarbon source has raised the stakes since the 1970s beginning with survey reports prepared by the UN Economic Commission for the Far East. Since then there has been a deluge of reports characterizing the area as having more oil than Iran and more natural gas than Saudi Arabia. These reports are highly speculative and have not been endorsed by any of the reputed data sources of the oil industry.

South China Sea
South China Sea

In Vietnam, OVL has invested USD 114 million in an exploratory asset and USD 244 million in a producing asset which gives OVL 2.249 BCM of gas and some condensate. In terms of overseas oil assets of OVL of about 6 million tonnes, Vietnam accounts for 4 percent and in terms of overseas gas assets of OVL of about 2.5 BCM Vietnam accounts for 80 percent. The area from which India recently withdrew is an exploratory asset in the Vietnam Exclusive Economic Zone (EEZ) and also crosses over the ‘nine dotted line’ claimed by China.

India withdrew from block 127 in the adjacent area three years ago as the region did not possess commercial quantities of oil to justify further investment. The exit from block 128 recently was also on the same grounds. The strategic community finds it hard to believe that it is quite natural for a commercial entity such as OVL to exit from a venture that is proving to have little or no commercial value.

The ownership of foreign oil resources does not actually increase India’s energy security. We had been arguing that the belief that if we own foreign oil, we can use the profits from sales to insulate its economy from high world oil prices does not make economic sense. The world market prices oil according to its opportunity cost and the opportunity cost of oil produced domestically is the same as the opportunity cost of oil produced abroad. Therefore as far as India is concerned the decision over block 128 in Vietnam is best left to the commercial interests of OVL.

As for Vietnam, the issue is clearly far more complicated as it concerns China which poses the largest challenge, in both efforts to resolve and manage maritime and territorial disputes in the South China Sea. The UN Convention on the Law of the Sea (UNCLOS) has not been able to mediate the dispute conclusively. On the one hand, it provides a common legal framework and all states base their claims partly or fully on UNCLOS. On the other hand, UNCLOS has also been the source of new claims as well as a driver of conflicts as states seek to establish and consolidate their maritime holdings and jurisdictions under a new regime.

Coming to the Indus basin where a trans-boundary dispute of a slightly different nature is plying out, we can observe many similarities in the behavior of claimants to resources. The Indus Water Treaty (IWT) takes the place of UNCLOS in providing a framework for distribution of resources across territories.

David E Lilienthal’s 1951 article that initiated efforts towards a Treaty between India and Pakistan over sharing the Indus waters did not make the case for dividing the water between Pakistan and India. Instead, it called for the ‘best Pakistani and Indian engineering minds’ to work together on ‘big mutual projects to ‘arrest the “wastage” of water flowing unused into the sea’ and put it to use to irrigate and power the two new countries. The ‘common engineering project’ carried out by the ‘Indus Engineering Cooperation’ that Lilienthal had envisioned did not materialize.

Instead, an extensive set of guide-lines captured in 12 articles and eight annexures each with a number of appendices consisting mostly of engineering and legal verbiage to guide unilateral hydrological engineering projects of India and Pakistan labeled the ‘Indus Water Treaty’ was drafted. At the time of drafting India and Pakistan were adamant over their territorial right over the Indus water that the Treaty was forced to go against the established wisdom of sustaining the unity of a river basin. The Treaty is seen by the strategic community as the primary reason why the two hostile nations have not gone to war over water, but what they have failed to notice is that the provisions of the Treaty have put the two nations on the course of a hydrological arms race with India in the lead.

Both cases illustrate that the weaker claimants to trans-boundary resources cannot completely depend on International Law or a bilateral Treaty. Who gets what and how much is not decided by laws or treaties in a world that is dictated by economic and political power. Recommended joint resource development agreements – be it in the Indus basin or in the South China Sea — are unlikely to favour smaller partners. Powerful private interests will collude with the most powerful state to safeguard their mutual energy interest or the private sector may actually end up suggesting and implementing a joint framework agreement. These sub-optimal outcomes confirm once more the highly theoretical nature of ‘soft’ or ‘fluid’ international law and bi-lateral treaties and its heavy dependence on the ‘realpolitik’ of international relations.

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ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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