Gazprom-Vietnam: All Hands on Deck in South China Sea

A deal struck earlier this month between Russia's state gas giant, Gazprom, and Vietnam's state oil and gas group, PetroVietnam, has geopolitical underpinnings aimed at China's prowess in the South China Sea.

The 6 April Gazprom-PetroVietnam deal grants the Russian gas giant two licenses to explore the Moc Tinh and Hai Thach fields in the South China Sea off the Vietnamese continental shelf and gives Gazprom a 49% stake in the fields, which translates into some 55.6 billion of cubic meters of natural gas for Russia.

While the fields are in Vietnamese waters, the deal comes as China's ongoing territorial disputes in the South China Sea are heating up and Russia's presence is not incidental. 

The deal with Vietnam comes only a month after Vladimir Putin was elected to the Russian presidency. Statements by Chinese officials are indicative of their concern and the links they make between the gas venture and wider territorial disputes. "China hoped companies from countries outside the South China Sea region would respect and support efforts by directly concerned parties in resolving disputes through bilateral negotiations," said Chinese Foreign Ministry spokesman Liu Weimin. 

At the heart of the matter is the South China Sea. Ten days ago China and the Philippines entered into a standoff in the South China Sea, after Chinese surveillance ships intervened to stop a Philippines warship from arresting Chinese fishermen near the disputed Scarborough Shoal area. Today, the standoff continues, with Beijing deploying an advanced fishing patrol vessel to the area. Both sides claim the Scarborough Shoal as an "integral part" of their territory (incidentally, the area has natural gas potential).

There is no dearth of claims on the territory in the South China Sea, from China, the Philippines, and Vietnam to Taiwan, Malaysia and Brunei. Among other aspects of the multilayered territorial disputes, China is holding 21 Vietnamese fishermen, taken into custody in early March for fishing in disputed waters of Hoang Sa (Paracel) Islands.

The South China Sea is of strategic significance to Russia as well. As the US makes its own South China Sea footprint from the Philippines, Russia responds via Vietnam, while China clearly sees the potential for wider confrontation here.

So far, the US has chosen to wait out the China-Philippines standoff. Though Washington signed a Mutual Defense Treaty with Manila, that treaty, officials say, is apparently open to interpretation and it is unclear whether it calls for the US to come to the Philippines' aid to protect a claim on territory in the South China Sea, even in the event of an open conflict in the area.

In the meantime, over the past couple of decades, Russia has taken pains to rebuild its Soviet-era relations with Vietnam. Those efforts have included an $8 billion loan for the construction of the country's first nuclear power plant. Moreover, Russia's advanced weapons technology exports to Vietnam include a checklist that makes China uncomfortable as they have helped the country build up impressive defense capabilities should anything go awry in the South China Sea.

Beyond that, Russia has apparently pledged to build a submarine base and a shipyard in Vietnam. The final push would be Vietnam's eventual agreement to allow Russia to reopen its Soviet-era military base on its territory. In short, Russia has rendered Vietnam less vulnerable to Chinese aggression, and the latest gas deal which establishes a footprint in the disputed South China Sea is a bulwark that Beijing does not appreciate.  

The US has also made some gains in Vietnam. On Tuesday, the two countries announced they would conduct five days of "non-combatant" naval exchange activities next week in the port city of Danang, meant to "underscore the closer ties between the US and Vietnam". It is a clear message to China amid its standoff with the Philippines. The announcement comes as the US and the Philippines are four days in to similar naval war games scheduled to last for two weeks.   

By. Charles Kennedy for Oilprice.com