Hostility a barrier to reaping benefits of offshore resources
In May, China objected to Rosneft Vietnam — part of Russian state oil firm Rosneft — drilling in a Vietnamese offshore gas field within an area of the South China Sea claimed by Beijing. Vietnam previously suspended two offshore projects with a Spanish firm due to Chinese pressure. Vietnam’s difficult position is one example of how, globally, geopolitics is raising the stakes for offshore resource exploitation — and how competition over offshore resources is in turn increasing geopolitical risks. It is a potentially combustible mix that raises security risks and hinders potential economic development.
Disputes between countries over which states have the right to exploit offshore resources — including gas, oil, minerals and fisheries — are not rare. There are many examples of bilateral disputes and, within crowded maritime areas such as the Arabian Gulf, there can be multiple cases of disputes between two or more countries.
However, in most of the world in recent decades, these disagreements have not led to large-scale conflicts, even though small-scale security incidents may occur. The 1982 UN Convention on the Law of the Sea was partly designed to create a framework for managing rival claims to ocean and offshore resources. It includes “territorial waters,” over which a state has full sovereignty, plus an Exclusive Economic Zone, within which a state has the right to exploit the area’s natural resources. The UNCLOS is a useful tool for managing disputes, but it has limitations; for example, when different states’ EEZs overlap, the states must try to agree on a maritime boundary.
While the Arabian Gulf, Caspian Sea and other parts of the world feature long-running disputes over ownership of offshore resources, three areas are emerging as maritime hotspots for geopolitical offshore competition: The eastern Mediterranean, the South China Sea and the Arctic.
The eastern Mediterranean has emerged as an important area thanks to discoveries in recent years of major offshore natural gas fields. The fields have the potential to serve as a significant energy source for several coastal states and for export to Europe and elsewhere. However, geopolitical tensions have hindered development. Cyprus and Israel have mostly taken a cooperative approach, but Lebanon has challenged some of Israel’s claims and the two countries have not agreed on maritime borders. Hostile Israeli-Palestinian relations completely undermined efforts to develop the Gaza Marine gas field, which could have been an economic and energy boon for the Palestinians. Turkey disputes Cyprus’ rights to gas fields and blocked ships from drilling earlier this year. While Egypt’s offshore gas fields lie clearly within its boundaries, geopolitical tensions have complicated Cairo’s efforts to use existing infrastructure to turn the country into a regional gas hub.
Meanwhile, tensions have been heating up in the South China Sea, as China makes broad claims to sovereignty over most of the sea, while other coastal states argue for their share based on more standard territorial claims. The South China Sea dispute is partly about competition between regional states for access to offshore oil, gas and mineral reserves, as well as fishing rights. There is also a global dimension, given the sea’s importance to navigation, with an estimated $3.37 trillion of trade passing through the sea in 2016, according to think tank CSIS. Beijing’s expansive claims in the sea and growing assertiveness have turned the South China Sea into a global priority and potential flashpoint for conflict.
Disputes between countries over which states have the right to exploit offshore resources — including gas, oil, minerals and fisheries — are not rare
Kerry Boyd Anderson
As sea ice retreats due to climate change, the Arctic is another emerging hotspot. The significant loss of ice is opening up the region to exploration for oil, gas and minerals. Navigation routes may also be opening up. With the longest Arctic coastline, Russia has a jump-start on potential competitors in terms of developing Arctic resources, but other countries are looking to compete. Even China is attempting to benefit through investments and plans to help develop a “Polar Silk Road” with Russia.
In the eastern Mediterranean, South China Sea and Arctic — as well as other areas — geopolitical rivalries and disputes over territorial waters and EEZs are not the only challenges. Individual countries’ regulatory approaches, fluctuations in oil and gas markets, ups and downs in investments, technical challenges related to exploration and extraction, and other economic and business issues all affect the various countries’ ability to develop their offshore resources. Geopolitics is one factor layered on top of these others.
Political rivalries related to offshore resources have two important effects: The potential to increase the risk of conflict, and to hinder economic development. In most cases, countries with disputes over EEZs or offshore resources are unlikely to engage in serious conflict with each other solely related to these issues. However, disagreements over maritime control can reflect and exacerbate other tensions in a relationship. Furthermore, small-scale incidents at sea, such as military ships blocking or harassing fishing vessels or drillships, can spark wider conflicts.
The more likely impact is that tensions damage countries’ ability to resolve disputes peacefully and to cooperatively develop offshore resources. In many cases, the coastal countries and their potential trade partners would significantly benefit from exploiting offshore resources. However, tensions and disputes can deter investors, hinder exploration and extraction, and raise costs. There is significant potential lost when countries are unable to work together to develop mutually beneficial infrastructure and efficient approaches toward the creation of energy hubs or the best ways to develop and export resources. Countries that can use offshore resources to enhance economic development and regional cooperation will benefit far more than those who remain locked in hostile competition.
- Kerry Boyd Anderson is a writer and political risk consultant with more than 14 years’ experience as a professional analyst of international security issues and Middle East political and business risk. Twitter: @KBAresearch