China’s Intimidation Exposes Vietnam’s Lack of Deterrence

Hanoi does not seem to have a strategy to develop the resources that international law says rightfully belong to it. And the economic costs of this predicament are rising.
By Bill Hayton

A Chinese coast guard vessel sails near an oil drilling rig in disputed waters in the South China Sea in 2014. 

Vietnam has lost another sea battle: a $200 million oil and gas development project — known as the ‘Red Emperor’ development — off Vietnam’s southeast coast has been suspended, possibly cancelled. 

Hanoi’s hopes of a hydrocarbon boost to its stretched government budget have been dashed. 

And the culprit is Vietnam’s ‘good neighbour, good comrade and good friend’ to the north.
The project, many years in the making, was a joint venture between Repsol of Spain, Mubadala of Abu Dhabi and the state-owned energy company PetroVietnam. 

Commercial drilling was due to begin this April and oil and gas were expected to flow for at least 10 years. 

A specialised platform built in the port of Vung Tau lies idle, as do the contracted drilling rig and storage tanker.
So far, the Vietnamese government has not admitted that the project has been suspended. 

Nor has it confirmed that another Repsol project on a neighbouring block of seabed was cancelled last year.
Both the Repsol blocks lie within Vietnam’s claimed exclusive economic zone. 

A reasonable interpretation of international law would give it the right to the resources in the blocks. Unfortunately for Vietnam, China does not subscribe to that reasonable view.
Over the past decade, China has increased the degree of intimidation that it is prepared to use to achieve its strategic objectives. 

In 2007, Beijing threatened international energy companies, suggesting that their businesses in China were at risk if they pursued offshore ventures with Vietnam. BP and Chevron were among the companies that folded. 

In 2011 and 2012, Chinese ships used force against Vietnamese oil survey vessels, cutting and snagging their seismic cables. 

In 2017, China threatened to attack Vietnamese positions on the Vanguard Bank in the South China Sea if Repsol’s development was not halted.
It is not yet clear what kind of threat was issued in the latest confrontation. 

But the Vietnamese decision did coincide with China’s deployment of a 40-ship naval flotilla off Hainan, just two days sailing from the drill location. 

This is the situation that Vietnamese leadership finds itself in: a huge neighbour is prepared to imply the use of military force to threaten Vietnam’s vital economic interests.
Vietnam is facing significant economic woes. 

Its public debt is the highest of the ASEAN countries (excluding Singapore). 

Debt has risen rapidly from 50 per cent of GDP in 2011 to 64 per cent in 2016 and is now thought to be bumping the legal ceiling of 65 per cent. 

To try to avoid breaching that limit, sales of stakes in state-owned companies have risen sharply and ministers have pledged to cut the state payroll, including for the police. 

Austerity is being imposed on the traditional tools of Communist Party control.
In addition, taxes are going up. 

The government has introduced a new levy on fuel, ostensibly to cut carbon emissions, but really to try to balance the books. 

Tax increases are never popular but as existing oil fields become exhausted the government urgently needs to replace declining revenue sources. 

The Red Emperor field was planned to be productive within months but the suspension now creates a hole in next year’s state budget. 

Ironically, China’s moves out at sea have made its communist comrade more vulnerable on land.
What options does Hanoi have? 

For some years it has been trying to build up its naval deterrent capabilities with new ships, submarines and missiles. 

Vietnam could probably sink a few Chinese ships if it came to a fight, but the consequences for it — both military and economic — would be dire. 

By backing down over this oil drill Vietnam has demonstrated its lack of a credible naval deterrent. 

Not even the visit of one of the mightiest warships on earth, the USS Carl Vinson, to Da Nang days before the scheduled start of Repsol’s oil drilling was sufficient to give Vietnam the confidence to ignore Chinese threats.
Another option is diplomacy. 

In the days after the Repsol decision, the Chinese Foreign Minister Wang Yi visited Hanoi. 

Talks were friendly but there was a sharp disconnect in the official statements. 

The Chinese talked of ‘exploring feasible ways for joint development’ whereas the Vietnamese suggested that ‘the issues must be tackled in respect of … the United Nations Convention on the Law of the Sea’.
Diplomacy with third countries is tricky for Vietnam given its long-standing aversion to alliances and the Communist Party’s distrust of the United States. 

Vietnam’s current leadership team under General-Secretary Nguyen Phu Trong are ‘system-loyalists’ determined to maintain Communist Party leadership. 

They see their Chinese counterparts as more reliable than the democracy-loving Americans. 

The hardliners are currently engaged in a severe crackdown on political dissidents, reasoning that Washington is unlikely to sanction them given the current geopolitical climate. 

For the same reasons, Beijing can be reasonably sure that Hanoi is not about to jump into the US camp simply because of the loss of oil revenue from the South China Sea.
Hanoi’s options are very limited. 

It, along with all the other Southeast Asian claimant states in the South China Sea, is still refusing to concede on the main Chinese demand for ‘joint development’. 

It continues to court international support and to engage China in discussions. 

But it does not seem to have a strategy to develop the resources that international law says rightfully belong to it. 

And the economic costs of this predicament are rising.

Axis of Evil

China And Vietnam Explored Almost A Decade Together For Oil. What Went Wrong?

China and Vietnam quit a joint oil exploration project in 2016 after at least nine years of searching

Ralph Jennings

This photo taken on June 13, 2015 shows the Xingwang deep-sea semi-submersible drilling platform at Liwan3-2 gasfield in the South China Sea. China's largest offshore oil and gas producer CNOOC Ltd. announced that year that the platform has started drilling at 1,300 meters underwater. 

China and Vietnam, through wary of each other politically, talk regularly about working together at sea where oil and gas deposits may lurk. 

The Chinese foreign minister met the head of Vietnam’s Communist Party April 2 and the minister said his government was “willing” to “explore joint development.” 

Discoveries of oil or gas anywhere add fuel to the factory work that both countries consider crucial to economic development.
But according to the best guesses of analysts who follow Southeast Asia, China and Vietnam quit a joint oil exploration project in 2016 after at least nine years of searching under the Gulf of Tonkin between them. 

They found little if any fuel. 

Each side eventually went off to work on its own in other waters.
"This [exploration] block was generally viewed as unproductive, not commercially exploitable," says Carl Thayer, Southeast Asia-specialized emeritus professor at the University of New South Wales in Australia.

Years of effort
In 2013, China’s offshore driller CNOOC Ltd. renewed an agreement with PetroVietnam to explore for fossil fuels under the seabed of the Gulf of Tonkin, the Vietnamese Communist Party-run Nhan Dan news website says. 

The deal was due to expire in 2016 and there are no signs it was re-renewed. 

The two companies effectively quit the deal in 2016, analysts believe.
It was kept alive for longer than economically needed to show that China and Vietnam could cooperate, Thayer says. 

The two dispute sovereignty over parts of the South China Sea but periodically talk of setting aside those differences in the name of mutual economic gain. 

The 2013 renewal was aimed at “increasing chances to discover potential oil and gas areas in order to enhance effective cooperation between the two countries in the oil and gas sector,” PetroVietnam says.

Early hopes for a discovery
The 2013 deal, which expanded the size of the original exploration area, was the fourth of its kind. From 2007 to 2013 the two firms drilled for exploratory oil and gas wells, interpreted data and tried to figure out how much energy was under the sea, the Communist Party website says. 

The two partners did a 3D seismic survey and drilled one exploration well too, per PetroVietnam’s website. 

They had agreed to share operating costs.
The Vietnamese driller reported “good cooperation relations between the two parties” in 2013 but made no mention of finding oil or gas. 

CNOOC did not answer a request for comment.
“The short-term gain from exploration is quite low,” says Maxfield Brown, business intelligence associate at the consultancy Dezan Shira & Associates in Saigon. 

Extraction and sale of fuel in waters near Vietnam would “take years to realize,” he says.

Separate exploration projects
Both sides have realized they can find oil or gas on their own.
In 2014, China authorized CNOOC on its own to position a rig in waters disputed by Vietnam. Vietnamese boats rammed China’s at sea in protest, and the incident set off deadly anti-China riots in Vietnam. 

China also launched “multiple [oil rig] deployments afterward just on its side of the median line around the mouth of the Gulf of Tonkin,” says Gregory Poling, director of the Asia Maritime Transparency Institute under a think tank in Washington.
Two years later the Vietnamese government told Beijing to pull its oil rig from parts of the gulf that had not been demarcated yet and urged China not to drill there anymore.

Chairman of China National Offshore Petrol Company Fu Chengyu (L) and Director General of PetroVietnam Tran Ngoc Canh exchange signed documents of a framework agreement for oil and gas cooperation between Vietnam and China in the Gulf of Tonkin in Hanoi, in October 2005. 

CNOOC is chasing oil elsewhere in the South China Sea now. 

The firm said last year it would open 22 exploration blocks, covering a combined 47,270 square kilometers, for cooperation with foreign companies, the Global Times news website of China reports.
Vietnamese oil companies are enlisting their own foreign partners. 

Oil firms from Vietnam and India have worked together since 2014. 

Since mid-2017 Beijing has twice asked the Spanish contractor Repsol to quit Vietnamese-led projects in the South China Sea, apparently because the sites "violated" China's sovereignty claims, international media reported each time. 

Now Vietnamese gas firm CNG Vietnam Joint Stock Co. and Exxonmobil are preparing to explore for natural gas in a South China Sea field covering 150 billion cubic meters. 

Gas could be processed by 2023, CNG’s website says.
Vietnam is turning toward more energy exploration on land too, says Frederick Burke, partner with the law firm Baker McKenzie in Saigon. 

Vietnam needs crude oil for export to refineries, some of which send gasoline back for consumption, Burke says. 

Crude exports make up about 18% of foreign exchange reserves, he says.
“If oil exploration does not prove to be viable for Vietnam in its territorial waters, many speculate that future exploration may be taken on land,” Brown says.

Vietnam halts South China Sea oil drilling project under pressure from Beijing

By James Pearson, Henning Gloystei

HANOI/SINGAPORE - Vietnam has halted an oil drilling project in the “Red Emperor” block off its southeastern coast licensed to Spanish energy firm Repsol following pressure from China, three sources with direct knowledge of the situation told Reuters on Friday.
It is the second time in less than a year that Vietnam has had to suspend a major oil development in the busy South China Sea waterway under pressure from China.
A source with direct knowledge of the situation said government ministries in Vietnam had paused the project while the decision-making politburo debates whether to suspend or indefinitely terminate the contract.
The decision, which hangs on whether the fees incurred by contract cancellation will exceed the cost of resisting Chinese pressure, is on hold until the politburo meets, the source said.
That meeting has been delayed by overseas trips by Vietnam’s prime minister Nguyen Xuan Phuc, a series of visits by foreign dignitaries to Hanoi, and the death of former prime minister Phan Van Khai on Saturday.
“The ministries are determined to terminate the contract,” said the source, who asked not to be identified because of the sensitivity of the situation.
A source with direct knowledge of the situation confirmed that the project, which is a joint venture with state oil company PetroVietnam, had been stopped following pressure from China.
A source at Repsol told Reuters high-level executives had been discussing how to respond to the pressure, which had been applied both directly by China, and indirectly via Vietnam.
A spokesman for Repsol in Madrid declined to comment. 

PetroVietnam executives declined to comment. 

The Vietnamese foreign ministry did not immediately respond to an emailed request for comment.
Asked at a regular briefing if China had pressed either Vietnam or Repsol, Chinese foreign ministry spokeswoman Hua Chunying said she did not know where such news had come from, but did not elaborate.
“We hope the relevant sides can work together to maintain the hard-earned positive situation in the South China Sea,” she said.

‘RED EMPEROR’
Red Emperor, known in Vietnamese as the Ca Rong Do field, is part of Block 07/03 in the Nam Con Son basin, 440 km (273 miles) off the coast of Vietnam’s southern city of Vung Tau.
The $1-billion field of moderate size by international standards is seen as a key asset to help slow the decline of Vietnam’s stalling oil and gas production.
But the block lies near the U-shaped “nine-dash line” that marks the vast area that China claims in the sea and overlaps what it says are its own oil concessions.
Located in waters around 350 metres (1,148 ft) deep, it is considered to be profitable from around $60 per barrel. 

Current Brent crude oil prices are almost $70 per barrel.
The field’s estimated potential recovery is around 45 million barrels of crude oil, 172 billion cubic feet of natural gas and 2.3 million barrels of condensate, a super light form of crude oil that is mostly a byproduct of gas production.
Global crude oil, by comparison, is at almost 100 million barrels per day. 

Global gas consumption is around 4 trillion cubic metres per year.
The move came as Repsol was making final preparations for commercial drilling, according to the BBC, which first reported the news on Friday.
A rig, the Ensco 8504, was due to depart from Singapore for the drill site on Thursday, the BBC said, citing an unnamed energy industry source.
Repsol spent around 33 million euros ($41 million) on exploration in Vietnam last year, according to the company’s 2017 profit and loss statement.
Repsol’s top management considers the Red Emperor site one of the company’s future growth projects.
Repsol, which has a 51.75 percent stake in the project, signed a 384-million-euro rental contract for a rig to start work on a Vietnamese site in 2019, according to the statement.
Just under half the company’s 1 billion euro ($1.23 billion) investments for which contracts have been signed for 2018 are in Vietnam.

Rogue Nation

Energy firms operating in the South China Sea face two options: Bow to Beijing or suffer

• Beijing's willingness to use military threats in the South China is a worrying development for energy players
• Firms that ignore Chinese demands could face on-site harassment, exclusion from the Chinese market and threats to company staff

By Nyshka Chandran 

As the world's second-largest economy threatens military action in the South China Sea, oil and gas players with interests in the disputed zone are put in a bad place.
That was the case for Spanish energy firm Repsol. 

In July, its subsidiary Talisman-Vietnam was ordered by Hanoi to stop gas drilling in a China-claimed area after Beijing warned the Southeast Asian country that it would attack bases if operations continued.

Xi Jinping's administration's use of military retaliation is "a worrying escalation" and could result in further pressure on future business dealings, said Hugo Brennan, Asia analyst at Verisk Maplecroft, in a Wednesday note.

Companies that have interests or operations in blocks licensed by Southeast Asian governments but located within China-claimed waters are likely to face pressure from Beijing, according to Brennan.
There are many overlapping claims in the region. 

China relies on a concept known as the nine-dash line to mark its territorial claims — a massive area that extends roughly 1,000 miles from its southern shores — in the South China Sea. 

But Vietnam, the Philippines, Malaysia and Brunei also assert sovereign rights over parts of the international waterway, which is rich in resources and boasts key maritime routes.
Against that backdrop, firms licensed by other countries to operate in disputed ares will face Chinese protestations. 

Any company ignoring those would likely face consequences such as on-site harassment, de facto exclusion from the Chinese market and even threats to company staff and assets, Brennan said. 

BP experienced the latter option in 2007, he added.
"Operators also have to analyse the resolve of Southeast Asian governments to stand up to China. Otherwise, companies with rights to develop blocks or fields in contested waters may find that they are prevented from exercising them as host government become wary of rocking the boat."
The next potential flash-point could be Vietnam's Red Emperor oil and gas field, also called Ca Rong Do. 

Repsol is active in the project, which is located within China's nine-dash line, and drilling is slated for 2019. 

But in light of Chinese threats, it remains to be seen how much progress the Madrid-based firm will make, Brennan said.
Regional players are already taking defensive action in response to China's aggressive behavior.
Indonesia, which isn't a claimant in the South China Sea drama but maintains an exclusive economic zone there, recently announced intentions to use its military to provide security for resource exploration activities.
However, "blurring the lines between commercial and naval activities in this way raises the potential for oil and gas assets to become targets in any militarized confrontation," Brennan said.
Even as China prevents others from tapping hydrocarbon deposits located within its nine-dash line, it's in no rush to develop those assets. 

That's likely because 71.2 percent of total discovered reserves within the nine-dash line are "not currently considered commercially viable," according to Brennan.

China's Abused Spouse

Hanoi looks to Washington for assistance only when China threatens—but, in its heart, Vietnam values its relationship with Beijing more.

By Tuong Vu

Master and servant

Relations between China and Vietnam have taken a dive since June, after Gen. Fan Changlong of China cut short his visit to Hanoi and canceled a cross-border gathering for the two militaries aimed to build mutual trust.
The cause of the dispute was an oil-drilling contract in the South China Sea that Hanoi had signed with the Spanish firm Repsol. 

This had happened before, but this time Beijing threatened to undertake military measures if Hanoi did not cease and desist. 

Within a week Vietnam had canceled the contract and agreed to pay Repsol millions of dollars in compensation.
China’s direct military threat to Vietnam indicates an escalation of tension in the South China Sea, and Hanoi’s quick kowtow to Beijing has led many to blame Donald Trump’s inward-oriented foreign policy.
This is unfair. 

A week later Defense Minister Ngô Xuân Lịch of Vietnam arrived in Washington to meet with his counterpart, Secretary of Defense James Mattis. 

Lịch, political commissar of the People’s Army of Vietnam, was known as a hard-line ideologue in Vietnamese politics. 

When he arrived in the US capital, however, he announced that, for the first time in bilateral history, Vietnam had accepted a proposal for a port visit by a US aircraft carrier.
The idea for such a visit had been floated many times. 

Most recently, as President-elect Trump made the suggestion, but it took Chinese military pressure for Vietnam’s top brass to warm to the idea. 

Lịch’s visit, in fact, fits a long-standing pattern of Vietnamese policy toward China and the United States. 

Hanoi looks to Washington for assistance only when China threatens—but, in its heart, Vietnam values its relationship with Beijing more.
Like Vietnam, China is a socialist country. 

The two communist parties’ relationship goes back to the 1920s, when a young Ho Chi Minh worked alongside fellow revolutionary Zhou Enlai to mobilize laborers in southern China. 

Soon after Mao Zedong and Zhou took power in China, they supported the Vietnamese revolution by sending arms and advisers, helping Ho’s army win a decisive battle against the French in 1954.
During the Vietnam War, Beijing was Hanoi’s big brother, as well as its most generous financier. Beijing sent Hanoi billions of dollars, as well as food and military aid. 

For much of the 1960s, more than 100,000 Chinese troops were stationed permanently in North Vietnam.
Relations turned dramatically as the war ended, however. 

Hanoi viewed Mao’s invitation for Richard Nixon to visit Beijing in 1972 as treachery. 

With both Beijing and Moscow courting Washington’s attention, and with Vietnam’s victory over the Americans in 1975, Vietnamese leaders began to imagine themselves as vanguards of world revolution. 

Their ambition to dominate Indochina riled Chinese leader Deng Xiaoping, who sent half a million troops across the border in 1979 to teach the “ungrateful” Vietnamese a lesson.
The border war between the communist brothers lasted until the late 1980s. 

As the Soviet bloc collapsed and the US-led camp emerged triumphant, Hanoi felt threatened and quickly turned to Beijing, apologizing for the war and proposing a new anti-imperialist alliance. 

Although Beijing turned down the proposal, bilateral relations were restored in 1991.
To demonstrate that they had learned their lesson, Hanoi’s leaders changed their constitution to remove anti-China passages. 

While Vietnam celebrated the wars against France and the United States every year, the 1979 war with China was erased from public memory. 

State-controlled media were prohibited from publishing negative news about China, and editors who violated the ban were punished.
Vietnam restored relations with the US in 1995 and concluded a bilateral agreement in 2001. 

As market reforms gathered steam, Vietnam achieved remarkable success with its exports. 

The US became the leading market for Vietnamese exports, allowing the country to earn billions of dollars in trade surplus.
Despite the value of the American market for Vietnam, however, the US remained in the “not so close” category for Hanoi leaders. 

Washington’s criticism of Vietnam’s violations of human rights infuriated them, and the US invasions of Afghanistan and Iraq prompted deep anxiety. 

As recently as 2005, the PAVN still considered the United States a strategic enemy.
Across the border, bilateral relations between China and Vietnam thrived: Top leaders paid annual visits, as did representatives from the military, the Public Security Ministry, the Propaganda Department and other government organs. 

By 2011 China had overtaken the United States as Vietnam’s top trade partner, and by 2014 Vietnam’s trade with China was nearly twice its trade with the US.
Problems began in 2005, however, when China began aggressively enforcing its sovereignty claims over much of the South China Sea, dashing Vietnamese leaders’ hope that the camaraderie between the two parties would rise above narrow national interests. 

While pursuing several strategies in response to China’s rising threat, Hanoi assigned greater weight to talks between the two "fraternal" parties than to multilateral or legal approaches.
When China towed a giant oil rig within Vietnam’s exclusive economic zone in 2014, even as Hanoi sent Coast Guard ships to surround the Chinese naval force defending the rig, Nguyễn Phú Trọng tried to call President Xi Jinping of China a dozen times, hoping in vain that Xi would answer. 

On the streets Vietnamese people peacefully protesting China were beaten by security forces. 

Trọng later visited Washington, a first for a general secretary of the Vietnamese Communist Party.
After the oil-rig confrontation, criticisms of China appeared in the Vietnamese press. 

Nevertheless, there is no sign that Hanoi has fundamentally changed its strategy of making timid overtures to the United States only when Beijing acts up. 

Given the domination of Marxist-Leninist loyalists in the top leadership elected at the 12th Party Congress in 2016, change is unlikely.
Lịch’s welcome of a US aircraft carrier’s visit sends China a signal of displeasure, but isn’t a drastic policy u-turn. 

The Repsol affair left Hanoi with a bruised eye, and the country wants Beijing to know that it is unhappy. 

Still, like an abused spouse who calls the police after a beating but then doesn’t end the relationship, Hanoi will follow its heart and won’t break away from Beijing anytime soon.

South China Sea: Vietnam takes up fight against China

• Vietnam isolated as China goes on charm offensive
• Divisions emerge among ASEAN nations

By Gregory Poling

When it comes to the disputed waters of the South China Sea, Vietnam's leaders must feel very lonely these days.
Their fellow Southeast Asian claimants have either reversed course after years of escalating tensions with Beijing, or are keeping their heads down and letting Hanoi take up the fight.
In June, the Vietnamese government refused a Chinese demand to halt drilling by a subsidiary of Spanish company Repsol in an oil and gas block on Vanguard Bank—an area of the seabed that, as far as international law is concerned, is undisputedly Vietnam's.
A month later Hanoi reversed course, after Beijing threatened to use military force against one of its outposts in the South China Sea, which Vietnam calls the East Sea.
Now Vietnam could be on the hook to Repsol for hundreds of millions of dollars and it will have a hard time convincing other companies that any of its offshore contracts are a smart bet.
Repsol didn't respond to a CNN request for comment, and Vietnam's Foreign Ministry said its oil and gas activities take place in waters entirely within its sovereign rights.

Chinese military bases destroy reefs in South China Sea
Deafening silence
How did Vietnam's neighbors and the international community respond to this act of bullying by China? 

With deafening silence.
After pushing back against Chinese coercion for years, the Philippines has turned defeatist under the year-old government of Rodrigo Duterte. 

Manila now appears eager to trade silence regarding its maritime claims for economic carrots from Beijing.
Malaysia, whose government is embroiled in corruption and is barreling toward political crisis in the next general election, has little appetite for confrontation with China, an important benefactor.
And Indonesia is happy to occupy a middle ground, resisting at the margins when it comes to Chinese fishing encroachments in its waters, but uninterested in taking a more active role in the disputes.
Even Singapore, which remains deeply skeptical of China's long-term intentions, is keeping its head down after being made a diplomatic punching bag by Beijing for its perceived support of the Philippines' international arbitration victory last July.

Divisions on display
The divisions within Southeast Asia were on full display during the Association of Southeast Asian Nations (ASEAN) Foreign Minister's Meeting earlier this month.
The 10 ASEAN ministers spent several days arguing over how the South China Sea disputes should be addressed in their customary joint declaration.
The Philippines, which hosted the summit, and Cambodia wanted to strip out anything that could irritate China. 

But Vietnam, smarting from the Vanguard Bank incident and convinced that China's diplomatic softening over the previous year was just a delaying tactic, argued for stronger language.
Its tactics got it singled out in a China Daily editorial, which slammed Hanoi for "hypocritically trying to insert tough language criticizing China's island building."
Late on Sunday, the group reached a compromise that reinserted several points from previous ASEAN statements, including concern over recent land reclamation and militarization.
The comprise language in the communique was weaker than some previous statements, particularly the Sunnylands Declaration signed by ASEAN leaders and President Barack Obama in 2016.
But it was stronger than the group's last statement, issued by Duterte following the ASEAN Summit in April, and helped avoid a repeat of the group's 2012 debacle when then-host Cambodia blocked the release of any statement at all.

Modest victory
Hanoi paid a diplomatic price for its activism, with China's foreign minister Wang Yi canceling a planned bilateral meeting with his Vietnamese counterpart.
Still, Vietnam had won a modest victory and received a measure of support, even if grudgingly, from its neighbors. 

But the victory was short-lived.
The next day, Philippine foreign secretary Alan Peter Cayetano sided with China, telling the press,"I didn't want to include it. It's not reflective of the present position. They (China) are not reclaiming land anymore. So why will you put it again this year?"
It was a surprising break for an organization built on consensus. 

Here was the group's chair publicly airing disagreements with the supposed consensus and appearing to back an outside power over a fellow ASEAN member.

Wang Yi arrives in Manila on August 5, 2017 to attend the ASEAN meeting, where Vietnam urged other Southeast Asian nations to take a stronger stand against Chinese expansionism in the South China Sea.

One-two punch
The one-two punch of China's successful coercion over Vanguard Bank and ASEAN's tattered consensus in Manila has left Hanoi exposed.
That isolation, which has been building for months, helps explain why Defense Minister Ngo Xuan Lich arranged a visit to Washington on the heels of the ASEAN meetings.
Following his meeting with Defense Secretary James Mattis, the Pentagon announced that the two had "agreed to deepen defense cooperation, including by expanding maritime cooperation." 

They even confirmed plans for a US aircraft carrier to visit Vietnam in the future—something that would have been unthinkable just a few years ago.
Hanoi remains convinced that China's new charm offensive in the South China Sea is mostly smoke and mirrors—a conclusion strengthened by its recent experiences—and that sooner or later its neighbors will figure it out too. 

In the meantime, it will look for support wherever it can find it.

Vietnam's Capitulation

Drilling ship leaves Vietnam oil block after China row
By Matthew Tostevin

HANOI -- The drilling ship at the center of a row between Vietnam and China over oil prospecting in disputed waters in the South China Sea has arrived in waters off the Malaysian port of Labuan, shipping data in Thomson Reuters Eikon showed on Monday.
Drilling by the Deepsea Metro I ship was suspended in Vietnam's Block 136/3 last month after pressure from China, which says the concession operated by Spain's Repsol overlaps the vast majority of the waterway that it claims as its own.
The ship, used by Norway's Odfjell Drilling Ltd., was reported to be in Labuan at 9.17 a.m. (0117 GMT), according to shipping data in Thomson Reuters Eikon. 

It was last recorded at the drilling site on July 30.
Odfjell Drilling did not respond immediately to a request for comment.
The row over the drilling inflamed tensions between Vietnam and China, whose claims in the South China Sea are disputed by five Southeast Asian countries.
Repsol said last month that drilling had been suspended after the company spent $27 million on the well. 

Co-owners of the block are Vietnam's state oil firm and Mubadala Development Co of the United Arab Emirates.
The block lies inside the U-shaped "nine-dash line" that marks the area that China claims in the sea.
China had urged a halt to the exploration work and a diplomatic source with direct knowledge of the situation said that the decision to suspend drilling was taken after a Vietnamese delegation visited Beijing.
Vietnam has never confirmed that drilling started or that it was suspended, but last month defended its right to explore in the area.
Vietnam has emerged as the most vocal opponent of Chinese claims in the South China Sea, where more than $3 trillion in cargo passes every year, and China was also angered by Vietnam's stand at a regional meeting last week.
Vietnam held out for language that noted concern about island-building and criticized militarization in South China Sea in the communique from foreign ministers of the Association of South East Asian Nations (ASEAN).

Vietnam, Yielding to Beijing, Backs Off South China Sea Drilling

By MIKE IVES

Vietnamese Coast Guard ships in Da Nang last year. Vietnam may have halted drilling in the South China Sea this summer for fear of its vessels being overwhelmed by Chinese warships, one analyst said.

HONG KONG — Vietnam appears to have retreated in a high-stakes maritime gambit against China, suspending a gas-drilling project that it had approved in the South China Sea but that was said to have irritated Beijing.
The drilling, by a subsidiary of the Spanish energy company Repsol, had started in June off the southern Vietnamese coast, analysts said.

The offshore block where the drilling was occurring straddles the border of Vietnam’s 200-nautical-mile exclusive economic zone but is challenged by China, Vietnam’s hulking northern neighbor, which is building artificial islands in the sea for its military.
Analysts say the project’s suspension, which Repsol confirmed to Reuters on Wednesday, appears to be another strategic victory for China at a time when the Trump administration is distracted by turmoil at home. 

They say it also highlights the difficulty that Vietnam faces as it mounts long-shot challenges to Beijing’s claims to the South China Sea — without much help from its neighbors in Southeast Asia or from Washington.
Vietnam’s leaders “can try their best to deter the Chinese” in the South China Sea, said Gregory B. Poling, a fellow in the Southeast Asia program at the Center for Strategic and International Studies in Washington. 

“But when the Chinese push back hard, like they just did, the Vietnamese are out on a limb all by themselves.”
In an emailed response to questions about the Repsol project and Vietnam’s strategic priorities in the South China Sea, Le Thi Thu Hang, a spokeswoman for the Foreign Ministry, said that Vietnam supported the settlement of any disputes in the sea by peaceful means and according to international law.

“Vietnam calls on relevant parties to respect the legitimate rights and interests of Vietnam and make positive and practical contributions to peace and cooperation in the East Sea,” she said, using the Vietnamese term for the South China Sea. 

Repsol did not respond to a request for comment.
Unlike the Philippines and Japan, Vietnam is not a treaty ally of the United States, meaning Washington is not legally obligated to protect it in the event of an attack. 

Mr. Poling said that Hanoi found itself isolated on South China Sea policy in part because it was unsure how the Trump administration would react if a conflict escalated there.
“I think it’s fair to say the Vietnamese are still not entirely confident” that the administration cares about the South China Sea in the way that the Obama administration did, he said.
Vietnam’s strategic isolation has worsened as the Philippines, another major territorial claimant in the South China Sea, has warmed to China since Rodrigo Duterte came to power in June 2016.
Last July, the Philippines won a landmark case when an international tribunal ruled that Beijing’s claim to sovereignty over most of the sea had no legal basis. 

Vietnam saw the ruling as a giant step toward its decades-long goal of creating a unified diplomatic front against Chinese territorial encroachment in the South China Sea.
But Duterte appeared to undercut the victory last year by saying that he favored direct talks with China over territorial disputes. 

Eufracia Taylor, a political analyst based in Singapore at the British risk consultancy Verisk Maplecroft, said that while Vietnam and the Philippines were once “in the same boat” on South China Sea policy under Duterte’s predecessor, President Benigno S. Aquino III, bilateral relations had deteriorated since Duterte took office.

The Vietnamese-occupied Southwest Cay, part of the Spratly Islands, in the South China Sea.

It hardly helps that other Southeast Asian countries, which have less of a direct stake in South China Sea disputes and are mostly eager to woo state-backed Chinese investment, are reluctant to publicly discuss Beijing’s island building or the arbitration ruling, said Collin Koh Swee Lean, a research fellow at the S. Rajaratnam School of International Studies in Singapore.
“This is not surprising because Asean would not want to spoil the atmosphere” as it tries to negotiate with China about establishing a so-called code of conduct in the sea, he said, referring to the Association of Southeast Asian Nations.
Vietnam’s South China Sea strategy may also be constrained by domestic concerns.
When a state-owned Chinese company defiantly towed an oil rig into disputed waters near the Vietnamese coast in 2014, it provoked a tense maritime standoff as well as anti-Chinese riots in Vietnam that destroyed foreign-invested factories and led to the deaths of a few Chinese workers.
Analysts say Vietnam’s top leaders worry that another such standoff could again inflame a lingering popular sentiment that the ruling Communist Party is not standing up to China, and therefore damage the party’s legitimacy in the eyes of the country’s 93 million people.
Alexander L. Vuving, a Vietnam specialist at the Daniel K. Inouye Asia-Pacific Center for Security Studies in Hawaii, said that concern appeared to explain why Vietnam did not publicize the Spanish drilling project. 

“This time they were more aware of the threat from their own population,” he said.
Then there are naval considerations.
Dr. Vuving said that Vietnam may have ordered Repsol to stop drilling in the South China Sea this summer because it feared its Coast Guard could be overwhelmed by a potential riposte from the Chinese Navy.
By Dr. Vuving’s calculations, Vietnam roughly doubled the size of its Coast Guard, in terms of tonnage, from 2013 to 2017. 

That buildup has been widely seen as a response to the 2014 crisis, in which large Chinese Coast Guard vessels encircled wooden Vietnamese fishing boats near the controversial oil rig, embarrassing Hanoi.
Analysts and defense officials said in interviews that Vietnam was also investing in maritime surveillance capabilities, conducting limited reclamation work on islands that its military controlled in the South China Sea and training crews to operate its six new Russian-built attack submarines.
Mr. Poling said Vietnam’s overall aim was to deter Chinese aggression in the sea by developing the ability to at least give China a “bloody nose” in a hypothetical military conflict.
“Vietnam’s building up its naval power in order to efficiently and effectively protect its sovereignty and defend its security” against China, said Nguyen Hung Cuong, a South China Sea expert at Vietnam National University in Hanoi.
Ms. Taylor, the Verisk Maplecroft analyst, said that she expected Vietnam to continue exploring offshore energy resources with foreign partners, in part because the government was eager to have energy security that could help power brisk economic growth.
She noted that Vietnam had so far “held the line” on a separate plan to drill for gas in another area of the sea in partnership with Exxon Mobil.
Ms. Taylor said that Vietnam’s uncertainty over the United States’ commitment in the South China Sea under the Trump administration was significant, but also a familiar feeling across Southeast Asia for decades.
Even the Obama administration’s so-called strategic pivot to Asia, she said, had been “a little late — maybe better than never, but not enough to assure people.”

The Week Donald Trump Lost the South China Sea

Vietnam's capitulation shows China's neighbors fear the U.S. no longer has their backs.
BY BILL HAYTON

Vietnam’s history is full of heroic tales of resistance to China.

But this month Hanoi bent the knee to Beijing, humiliated in a contest over who controls the South China Sea, the most disputed waterway in the world. 

Hanoi has been looking to Washington for implicit backing to see off Beijing’s threats. 

At the same time, the Trump administration demonstrated that it does not understand and sufficiently care about the interests of its friends and potential partners in Southeast Asia to protect them against China. 

Southeast Asian governments will conclude that the United States does not have their backs. 

And while Washington eats itself over Russian spies and health care debates, one of the world’s most crucial regions is slipping into Beijing’s hands.
There’s no tenser set of waters in the world than the South China Sea. 

For the last few years, China and its neighbors have been bluffing, threatening, cajoling, and suing for control of its resources. 

In June, Vietnam made an assertive move. 

After two and a half years of delay, it finally granted Talisman Vietnam (a subsidiary of the Spanish energy firm Repsol) permission to drill for gas at the very edge of Hanoi’s exclusive economic zone (EEZ) in the South China Sea.
Under mainstream interpretations of the U.N. Convention on the Law of the Sea (UNCLOS), Vietnam was well within its rights to do so. 

Under China’s idiosyncratic interpretation, it was not. 

China has never even put forward a clear claim to that piece of seabed. 

On July 25, Chinese Foreign Ministry spokesman Lu Kang would only urge “the relevant party to cease the relevant unilateral infringing activities” — but without saying what they actually were. 

In the absence of official clarity, Chinese lawyers and official think tanks have suggested two main interpretations.
China may be claiming “historic rights” to this part of the sea on the grounds that it has always been part of the Chinese domain (something obviously contested by all the other South China Sea claimants, as well as neutral historians). 

Alternatively, it may be claiming that the Spratly Islands — the collection of islets, reefs, and rocks off the coasts of Vietnam, Malaysia, Brunei, and the Philippines — are entitled as a group to their own EEZ. 

An international arbitration tribunal in The Hague, however, ruled these claims incompatible with UNCLOS a year ago. 

China has refused to recognize both the tribunal and its ruling.
In mid-June, Talisman Vietnam set out to drill a deepwater “appraisal well” in Block 136-03 on what insiders believe is a billion-dollar gas field, only 50 miles from an existing Repsol operation. 

The Vietnamese government knew there was a risk that China might try to interfere and sent out coast guard ships and other apparently civilian vessels to protect the drillship.
At first, China’s intervention was relatively diplomatic. 

The vice chairman of the Central Military Commission, Gen. Fan Changlong, visited Hanoi on June 18 and demanded an end to the drilling. 

When Vietnam refused, he cancelled a joint meeting on border security (the 4th Border Defense Friendly Exchange) and went home.
Reports from Hanoi (which have been confirmed by similar reports, from different sources, to the Australia-based analyst Carlyle Thayer) say that, shortly afterward, the Vietnamese ambassador in Beijing was summoned to the Chinese Foreign Ministry and told, bluntly, that unless the drilling stopped and Vietnam promised never to drill in that part of the sea ever again, China would take military action against Vietnamese bases in the South China Sea.
This is a dramatic threat, but it is not unprecedented. 

While researching my book on the South China Sea, I was told by a former BP executive that China had made similar threats to that company when it was operating off the coast of Vietnam in early 2007. 

Fu Ying, then the Chinese ambassador in London, told BP’s CEO at the time, Tony Hayward, that she could not guarantee the safety of BP employees if the company did not abandon its operations in the South China Sea. 

BP immediately agreed and over the following months withdrew from its offshore Vietnam operations. 

I asked Fu about this at a dinner in Beijing in 2014, and she replied, “I did what I did because I have great respect for BP and did not want it to get into trouble.”
Vietnam occupies around 28 outposts in the Spratly Islands. 

Some are established on natural islands, but many are isolated blockhouses on remote reefs. According to Thayer, 15 are simply platforms on legs: more like place markers than military installations. 

They would be all but impossible to defend from a serious attack. 

China demonstrated this with attacks on Vietnamese positions in the Paracel Islands in 1974 and in a battle over Johnson South Reef in the Spratlys in 1988. 

Both incidents ended with casualties for Vietnam and territorial gains for China. 

There are rumors, entirely unconfirmed, that there was a shooting incident near one of these platforms in June. 

If true, this may have been a more serious warning from Beijing to Hanoi.
Meanwhile, the drillship Deepsea Metro I had found exactly what Repsol was looking for: a handsome discovery — mainly gas but with some oil. 

The company thought there could be more and kept on drilling. 

It hoped to reach the designated total depth of the well by the end of July.
Back in Hanoi, the Politburo met to discuss what to do. 

Low oil prices and declining production from the country’s existing offshore fields were hurting the government budget. 

The country needed cheap energy to fuel its economic growth and keep the Communist Party in power — but, at the same time, it was deeply dependent on trade with China.
It is all but impossible to know for sure how big decisions are made in Vietnam, but the version apparently told to Repsol was that the Politburo was deeply split. 

Of its 19 members, 17 favored calling China’s bluff. 

Only two disagreed, but they were the most influential figures at the table: the general secretary of the party, Nguyen Phu Trong, and Defense Minister Ngo Xuan Lich.
After two acrimonious meetings in mid-July, the decision was made: Vietnam would kowtow to Beijing and end the drilling. 

According to the same sources, the winning argument was that the Trump administration could not be relied upon to come to Hanoi’s assistance in the event of a confrontation with China. 

Reportedly, the mood was rueful. 

If Hillary Clinton had been sitting in the White House, Repsol executives were apparently told, she would have understood the stakes and everything would have been different.
The faith in Clinton isn’t surprising. 

Her interventions on behalf of the Southeast Asian claimant states, starting in Hanoi at the July 2010 meeting of the ASEAN Regional Forum, are well remembered in the region. 

The Barack Obama administration’s focus on the regional rules-based order was welcomed by governments fearful of domination by either the United States or China.
That said, some U.S. observers are skeptical that any other administration would have been more forthcoming. 

Bonnie Glaser, the director of the China Power Project at the Center for Strategic and International Studies, questions this apparent contrast: “What would the U.S. have done differently [under Obama]? I find it unlikely that the U.S. would militarily defend Vietnam against China. Vietnam isn’t an ally.”
Yet it wouldn’t have taken much: a statement or two about the rules-based order and the importance of abiding by UNCLOS, some coincidental naval exercises during the weeks of the drilling, perhaps even some gunnery practice in the region of Block 136-03 and a few quiet words between Washington and Beijing. 

“Forward-deployed diplomacy,” as it used to be called. 

The Obama administration warned Beijing off the Scarborough Shoal in April 2016 this way. 

Has Donald Trump’s Washington forgotten the dark art of deterrence?
The implications of China’s victory are obvious. 

Regardless of international law, China is going to set the rules in the South China Sea. 

It is going to apply its own version of history, its own version of “shared” ownership, and it will dictate who can exploit which resources. 

If Vietnam, which has at least the beginnings of a credible naval deterrent, can be intimidated, then so can every other country in the region, not least the Philippines.
This month, Manila announced its intention to drill for the potentially huge gas field that lies under the Reed Bank in the South China Sea. 

The desire to exploit those reserves (before the country’s main gas field at Malampaya runs out in a few years’ time) was the main reason for the Philippines to initiate the arbitration proceedings in The Hague. 

The Philippines won a near total legal victory in that case, but since taking office just over a year ago, Rodrigo Duterte has downplayed its importance. 

He appears to have been intimidated: preferring to appeal to China for financial aid rather than assert his country’s maritime claims.
In May, Duterte told an audience in Manila that Xi Jinping had warned him there would be war if the Philippines tried to exploit the gas reserves that the Hague tribunal had ruled belonged to his country. Last week, Chinese Foreign Minister Wang Yi was in the Philippine capital to discuss “joint development” of those energy resources.
Where Duterte and the Vietnamese leadership go, others will follow. 

Southeast Asian governments have reached one major conclusion from President Trump’s first six months: The United States is not prepared to put skin in the game. 

What is the point of all those freedom of navigation operations to maintain UNCLOS if, when push comes to shove, Washington does not support the countries that are on the receiving end of Chinese pressure?
Why has Washington been so inept? 

Secretary of State Rex Tillerson knows the stakes well. 

His former company ExxonMobil is also investigating a massive gas prospect in disputed waters. 

The “Blue Whale” field lies in Block 118, farther north and closer to Vietnam’s coast than Repsol’s discovery — but also contested by China. 

Like so much else, it’s a mystery whether this is a deliberate choice by the Trump White House not to get involved in the details of the disputes or if it is a reflection of the decimation of the State Department’s capabilities, with so many senior posts vacant and so many middle-ranking staff leaving.
The most worrying possibility would be that Tillerson failed to act out of the desire to see his former commercial rival, Repsol, fail so that his former employer, ExxonMobil, could obtain greater leverage in the Vietnamese energy market. 

But what government would ever trust Tillerson again?
Repsol is currently plugging its highly successful appraisal well with cement and preparing to sail away from a total investment of more than $300 million. 

Reports from the region say a Chinese seismic survey vessel, the HYSY760, protected by a small flotilla, is on its way to the same area to examine the prospects for itself. 

UNCLOS has been upended, and the rules-based order has been diminished. 

This wasn’t inevitable nor a fait accompli. 

If Hanoi thought Washington had its back, China could have been deterred — and the credibility of the United States in the region strengthened. 

Instead, Trump has left the region drifting in the direction of Beijing.

Chinese Aggressions

Vietnam renews India oil deal in tense South China Sea
By Mai Nguyen, Nidhi Verma and Sanjeev Miglani | HANOI/NEW DELHI

Vietnam has extended an Indian oil concession in the South China Sea and begun drilling in another area it disputes with China in moves that could heighten tensions over who owns what in the vital maritime region.
The moves come at a delicate time in Beijing's relations with Vietnam, which claims parts of the sea, and India, which recently sent warships to monitor the Malacca Straits, through which most of China's energy supplies and trade passes.
Vietnam granted Indian oil firm ONGC Videsh a two-year extension to explore oil block 128 in a letter that arrived earlier this week, the state-run company's managing director Narendra K. Verma told Reuters.
Part of that block is in the U-shaped 'nine-dash line' which marks the vast area that China claims in the sea, a route for more than $5 trillion in trade each year in which the Philippines, Brunei and Malaysia also have claims.
A senior official of ONGC Videsh, who asked not to be named because of the sensitivity of the matter, said interest in the block was strategic rather than commercial, given that oil development there was seen as high-risk with only moderate potential.
"Vietnam also wants us to be there because of China's interventions in the South China Sea," the official said.
Vietnam's state-run PetroVietnam declined to comment on the concession, which was first granted to India in 2006 but had been due to expire in mid-June.
Conflicting territorial claims over the sea stretch back many decades but have intensified in recent years as China and its rivals have reinforced their positions on the rocks and reefs they hold.
Far to the south of block 128, drilling has begun in a block owned jointly by Vietnam's state oil firm, Spain's Repsol and Mubadala Development Co of the United Arab Emirates.
Deepsea Metro I, operated by Odfjell Drilling Ltd., has been drilling in the region since the middle of last month on behalf of Spain's Repsol SA, which also has rights to neighboring block 07/03, Odfjell said.
Odfjell declined to comment on the specific location of its vessel, but shipping data from Thomson Reuters Eikon showed it was in oil block 136/3, which also overlaps China's claims.
Odfjell's Eirik Knudsen, V‎ice President for Corporate Finance and Investor Relations, referred further queries to Repsol, which declined to comment. 

PetroVietnam made no comment.

COMPETING MARITIME CLAIMS
When asked about the activity, Chinese foreign ministry spokesman Geng Shuang said China opposes anyone "carrying out unilateral, illegal oil and gas activities in waters China has jurisdiction over".

Chinese General Fan Changlong cut short a visit to Vietnam and a friendship meeting at the China-Vietnam border was canceled around the time the drilling began.
The centuries-old mistrust between China and Vietnam is nowhere more evident than in their competing maritime claims, despite their shared communist ideology and growing trade.
Asked about the most recent drilling, Vietnamese officials said their Chinese counterparts have started raising concerns about cooperation with both Repsol and ExxonMobil Corp. of the United States, which is developing the $10 billion "Blue Whale" gas concession off central Vietnam.
They said Chinese officials also expressed concern at Vietnam's evolving security relationships with the United States and Japan, both of which have offered moral support for its South China Sea claims and help for Vietnam's coastguard.
Tensions with China were being contained, however, and had not yet reached crisis proportions, they said.
"We know they are unhappy again, but we are resisting the pressure – it is a traditional part of our relations with Beijing," one official said privately. 

"Other parts of the relationship remain strong."
Underlining the relationship between India and Vietnam, Vietnamese deputy prime minister Pham Binh Minh told a forum in New Delhi this week that India was welcome to play a bigger role in Southeast Asia -- and specifically the South China Sea.
Hanoi's growing defense and commercial ties with India are part of its strategy of seeking many partnerships with big powers while avoiding formal military alliances.
The pace has picked up since Indian Prime Minister Narendra Modi's administration took office in 2014 and sought to push back against China's expanding presence in South Asia by raising its diplomatic and military engagement in Southeast Asia.
India is providing naval patrol boats, satellite cover to monitor Vietnam's waters and training for its submarines and fighter pilots -- more military support than it is giving to any other Southeast Asian country.
On the agenda are transfers of naval vessels and missiles under a $500 million defense credit line announced last year.
Next week, the navies of India, the United States and Japan will hold their largest joint exercises in the Bay of Bengal.