Removing Chinese Oil Rig Won’t Cool China-Vietnam Hostilities

TAIPEI (TheStreet) -- China's removal of a giant oil rig from waters disputed by Vietnam gives Hanoi everything it wanted -- but it will not resolve the bigger problem of bad blood between the two countries or calm tensions in an internationally prized ocean.

Beijing said July 15 it had removed a $1 billion rig that was placed in the South China Sea on May 2. The rig was operated by China's state-owned CNOOC (traded in Hong Kong), and was positioned in water that Vietnam -- long trustful of its Communist neighbor -- had sighted for its own exploration.

The rig's removal ahead of its expected end-of-mission in August answered loud demands from Hanoi. But it will solve few problems in the long term. Vietnamese officials chided China even after the rig's removal, and their state media say more rigs are coming.

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Withdrawal of the rig from the Gulf of Tonkin site also doesn't address the core of Sino-Vietnamese disputes, which is that Vietnam just can't stand China right now.

Lack of resolution on the bigger issue sustains the risk of more upsets and keeps at least an orange flag raised over the 3.5 million-square-kilometer sea where commercial drillers, marine shippers and six governments are testing the waters that boast strategic ocean lanes and undersea fossil fuel reserves.

"In my opinion, new rigs continue to prove China's big ambition to control the whole Sea, despite of other countries' legal rights and benefits," says Hoang Thu Huyen, Vietnam country manager with investment consultancy Dezan Shira & Associates.

Her opinion is typical of views in Vietnam. Boat-ramming incidents near the oil rig in May led Vietnam to become the scene of violent anti-China protests that rippled into a wave of protest against other foreign investors too.

Vietnam said last month at least one more Chinese rig was on the way. Whether or not it reaches Vietnamese-claimed waters, Beijing has not renounced plans to keep exploring for oil in the South China Sea.

Its maritime ambitions have upset the Philippines since a stand-off in 2012, and tiffs with Vietnam go back to the 1970s when the South China Sea dispute appeared big on the horizon. Scholars expect China to extend its claims, which are a boon to CNOOC and the nation's fast-growing economy.

"Today an ever more powerful Chinese Communist Party, rejecting the world created by the West, imagines the Chinese imperial heritage as glorious and seeks to attain once again supposedly ancient glories," says Edward Friedman, China specialist and professor emeritus at the University of Wisconsin.

Vietnam is hyper-aware of China's designs. Its distrust precedes the placement of the Haiyang Shiyou 981 oil well. A war in 1979 killed bilateral relations for 11 years.

The continued threat of a blow-up over China's next maritime move has even the mellower governments on edge. Malaysia is quietly hoping China avoids its fossil fuel claims. Taiwan is extending military facilities on Taiping Island, the biggest in the sea.

Vietnam is courting the United States, its old wartime foe, as a closer ally. On Saturday its president asked that the U.S. government drop a ban on sales and transfers of arms. A closer U.S.-Vietnam alliance would add pressure to China, which fears the rival superpower's influence in Asia.

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Marine shippers could get caught in the next incident, though experienced companies such as Evergreen Marine (EVGZF) are confident they can find safe lanes. About half the world's shipping traffic uses the South China Sea.

Drillers such as Forum Energy (FEP:London) and Exxon-Mobil (XOM) face risk, as China could make the first move on an ocean tract believed rich in oil or natural gas. Vietnam is increasingly likely to pounce first to stay ahead of China. And maybe that's not all.

"The ruling groups in Hanoi have to be discussing what they can do to stop the Chinese from stealing their maritime territory and the Vietnamese future," Friedman says. "The issue of a serious military response has to be on the table in Vietnam."

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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