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The Hague Tribunal Ruling On South China Sea Raises Tensions

An international tribunal in The Hague, Netherlands, has ruled against China’s territorial claims in the South China Sea, spurring concern about Asia’s biggest economy’s next moves. China immediately rejected the Permanent Court of Arbitration’s ruling and said its army will defend what it deems to be its legitimate territorial claims to a basin that is not just rich in oil and gas, but is also a major waterway connecting Asia, Europe, and the Middle East.

(Click to enlarge) 

Image source: NPR

The news worried the energy and the shipping industry alike: the South China Sea is the only economically viable channel for oil tankers and large dry bulk carriers in the region.

Commenting on the court’s ruling, Peter Hinchliffe, secretary general of the International Chamber of Shipping in London said, “It is vital that merchant ships are allowed to go about their lawful business on the world's oceans without diversion or delay. We will of course be monitoring for any interference in the coming weeks.”

Should China get really serious about its claims and force ships to find another route to and from Asian markets, everyone involved will suffer higher insurance and transportation costs, to say the least. However, this is unlikely to happen, according to several shipping and insurance sources who spoke to Reuters. Related: Merger Of Libya’s Rival Oil Companies Meaningless Without Control Over Oilfields

The so-called South China Sea dispute between China, the Philippines, Vietnam, Taiwan, Malaysia and even tiny Brunei, has been going on for a long time, and heated up recently when China stepped up its policies of securing as much of the basin’s oil and gas reserves as possible, despite dwindling demand.

The region is already home to many neighborly tensions, and the likelihood of these increasing is significant since China didn’t just reject The Hague court’s ruling—it said it did not recognize it at all. While the Philippines may consider it a win, and while it is almost certain that China will not move to close this major shipping route, it remains to be seen what Beijing is keeping up its sleeve for later use.

By Irina Slav for Oilprice.com

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