Center for a New American Security

Chatham House published a new study last week examining the implications of maritime choke points for the global energy market. The study, Maritime Choke Points and the Global Energy System: Charting a Way Forward, is timely considering tensions in the Persian Gulf where Iran has hinted at the possibility of closing the Strait of Hormuz in response to recent threats (economic and military) against its nuclear program.

The study generally provides a great overview of the challenges associated with seaborne oil transportation through several vulnerable straits and canals. For those interested in understanding the nature of China’s Strait of Malacca Dilemma, the international waterway through which it receives approximately 65 percent of its oil imports, the report offers some useful insights. In particular, the authors make an important distinction between the Straits of Hormuz and Malacca, noting that, “Whereas there are no alternative maritime routes to the Strait of Hormuz for oil exports from the Persian Gulf, shipments through the Straits of Malacca and Singapore could be re-routed, though at additional cost, through other waterways such as the Lombok Strait.” Such a distinction may seem insignificant, but it could have an effect on China’s strategic calculus over what role it might decide to play in helping keep the Strait of Hormuz open in case of a closure, including, perhaps, by supporting UN Security Council resolutions or other policies that may seem anathema to Beijing.

The report also reinforces the national security rationale behind ratifying the Law of the Sea Convention (UNCLOS). According to the authors, “The UNCLOS bargain accepted twelve nautical miles as the maximum extent of a state’s territorial sea but, in order to ensure freedom of navigation through key international straits, UNCLOS established a regime of ‘transit passage’ applicable to ‘straits used for international navigation’.” What is more, the authors note that “In signing UNCLOS in December 1982, Iran claimed that the benefits of UNCLOS, such as ‘transit passage’, did not apply to non-signatory states.”

Yesterday, China’s nationalist newspaper Global Times published a report arguing that Beijing should make the Philippines pay for increased cooperation with the United States, what Chinese officials perceive as a balancing act unfolding in the region. According to the Global Times:

Given the recent active maneuvers of the US military in China's neighboring area, the lack of a response from China would be inappropriate, though it is also impossible to react strongly toward every move by the US. It is thus necessary to single out a few cases and apply due punishment.

The Philippines is a suitable target to impose such a punishment. A reasonable yet powerful enough sanction can be considered. It should show China's neighboring area that balancing China by siding with the US is not a good choice.

The report adds that Beijing should use economic coercion to compel the Philippines into suspending its ongoing activities with the United States: “China may consider cooling down its business ties with the Philippines. One step forward in military collaboration with the US means a step backward in economic cooperation with China. In the long run, China may also use its economic leverage to cut economic activities between ASEAN countries and the Philippines.”

The call from the Chinese national newspaper comes on the heels of increased military cooperation between the United States and the Philippines. In November 2011, the United States agreed to transfer a second Hamilton-class cutter to the Philippines to provide additional resources for the Philippine Navy to conduct maritime security activities, including in the South China Sea where China and the Philippines have ongoing territorial disputes. Earlier this month, the United States announced that its annual exercise with the Philippine marines will be conducted off of Palawan island instead of the main island Luzon. (Increased Chinese oil and natural gas exploration 50 miles off the island of Palawan has exacerbated tensions between the Philippines and China in recent months.) Most recently, the United States and the Philippines agreed last week to closer military cooperation moving forward. According to The Washington Post on Sunday, “The Philippines said it is considering more joint military exercises and a greater presence by American troops.”

A new post by Andrew Erickson and Gabe Collins in The Wall Street Journal’s China Real Time Report blog paints a great picture of how economic opportunities in the Arctic may redraw geopolitical relationships.

Erickson and Collins write that “Denmark has made a strategic decision to prioritize its economic relationship with China and is now becoming the key gateway for Beijing’s commercial and strategic entrée into the Arctic,” including being an advocate for China to have permanent membership on the eight-seat Arctic Council. In particular, Denmark seeks to use Greenland’s mineral wealth (including coveted materials like rare earths, uranium and iron ore) as a means of fostering stronger economic ties with China (Erickson and Collins note that exports have been steadily increasing between both countries over the last several years).

While both may gain in the near term (Greenland in particular will benefit from Chinese investments in infrastructure that the island is thin on, including more power lines and power stations), it is not hard to see that China benefits more from this new arrangement over the long term. As Erickson and Collins describe, “From Beijing’s perspective, having Chinese companies buy several billion dollars per year worth of pharmaceuticals and machinery and doing container shipping business with Maersk is well worth it to gain access to Arctic negotiating tables and Greenland’s minerals.”

One of the challenges with writing a paper like “The Role of Natural Resources in the South China Sea,” one of six chapters that appears in our new report, Cooperation from Strength: The United States, China and the South China Sea, is to make it accessible to a broad audience (i.e., those intimately familiar with resource issues in the region and those who know nothing about those issues at all). To do that I chose to avoid narrow recommendations that would have distracted the reader from the broader message I hoped to convey: that despite the complexity of resource challenges in the region (and potential for conflict), the United States can encourage policies that help promote peaceful competition over resources in the South China Sea, and thereby promote regional stability.

But for those interested, I’d like to share some ideas for how U.S. policymakers can encourage cooperation around several of the issues that I explore in the paper, beginning with energy. As I argue in the paper, the United States needs to focus beyond energy and give attention to fisheries, minerals and climate change, which are important resource issues that affect geopolitical behavior in the Asia-Pacific region. But I thought it would be good to start with energy, given that that’s where a lot of attention has been and is likely to be in the near future (for better or worse). Here’s what I would propose:

First, the United States should propose that APEC measure the hydrocarbon resources in the South China Sea in order to develop more realistic estimates.

Countries in the region are growing increasingly suspicious of unilateral efforts to survey oil and natural gas in contested territorial waters, in part because they may signal that the surveying country intends to develop those resources on its own – including in contested waters. For example, in May 2011, China severed the cables of an oil and natural gas survey vessel in Vietnam’s territorial waters. A similar incident in June 2011 involved a Chinese fishing boat ramming a Vietnamese survey ship. (Visit our Flashpoints feature for more information about these and other incidents.)

Yesterday, the Center for a New American Security (CNAS) released its new report, Cooperation from Strength: The United States, China and the South China Sea, a six-chapter volume featuring a capstone chapter authored by Patrick M. Cronin, CNAS Senior Advisor and Senior Director of the Asia-Pacific Security Program, and Robert D. Kaplan, CNAS Senior Fellow, to help U.S. policymakers understand the trends affecting American interests in the South China Sea. It includes insightful chapters on U.S. strategy in the South China Sea, maritime security, diplomacy and the rule of law, natural resources and partnership building by some of the world’s leading experts on the Asia-Pacific region. 

This morning at 9 AM, CNAS will host the launch event at the Willard Hotel in Washington. To view the live webcast, tune in at http://www.cnas.org/LIVE.

We’ll have more on the actual report later.

This weekend, Reuters reported that China may reshuffle its cabinet in 2013 to create an energy “super-ministry” that would take control of China’s now-scattered energy policies. The sweeping reform would merge the responsibilities of agencies like China’s National Energy Administration, the state energy regulator, the National Development and Reform Commission (NDRC), the body charged with setting energy prices, and may even reign in powerful and often amorphous state-owned energy companies, like the China National Petroleum Corporation or China National Offshore Oil Corporation (CNOOC).

Experts say an energy super-ministry may help Beijing bolster is energy security policy. Indeed, a new ministry with centralized powers may enable Beijing to overcome bureaucratic hurdles that have prevented it from creating important energy policies that conflict with bureaucratic interests, such as establishing a strategic petroleum reserve or developing streamlined policy to reduce greenhouse gas emissions. Yet reshuffling the cabinet won’t be easy given the vested interests of energy bureaucrats, as well as other agencies that could be affected by the change. “A government official directly involved in Chinese energy policy said the sprawling NDRC is likely to be the biggest stumbling block in the restructuring plan,” Reuters reported. “The challenge will not merely be the NDRC, already a huge ministry with considerable powers over the energy sector, but also others with a say in policy, like the water resources, transportation or agriculture ministries.”

Yesterday, U.S. and Chinese officials met in Beijing for their annual military review, known as the Defense Consultative Talks. The meeting between the countries’ senior defense officials comes on the heels of President Obama’s trip to the Asia-Pacific where he emphasized a greater U.S. military presence (including in Australia), and Secretary of State Hillary Clinton’s announcement that the United States will pivot from the Middle East to Asia as it draws down from its conflicts in Iraq and Afghanistan. During the talks, Chinese General Ma Xiaotian urged the United States and China “to enhance communication, to expand common ground, to promote mutual understanding.” Under Secretary of Defense Michèle Flournoy said she hoped the two militaries could “agree on issues and interests that the two sides share.”

As policymakers look for opportunities to strengthen military ties, they should consider environmental cooperation, in particular humanitarian and disaster response and climate adaptation, which may facilitate better cooperation between the two countries, serving as a means for confidence building and increasing transparency that could help defuse tensions over the expanding U.S. and Chinese naval presence in the Western Pacific, including the South China Sea. 

In January, CNAS will release its study on the South China Sea, including a chapter on how natural resources affect the behavior of states in the region. There has been a lot of attention paid to natural resources and whether or not competition over access to oil, natural gas, fisheries and minerals could lead to conflict in the region. Too often the issues are over-simplified though, and there is either an implicit or explicit assumption that it’s competition over natural resources that could lead to overt conflict. But natural resources have a more nuanced role in international relations, particularly in the South China Sea, and understanding this role can actually enable states to manage their resource issues and avoid instability and conflict.

Competition over natural resources is rarely, if ever, the sole precipitator of conflict. [There is a vast literature on this topic, and though I won’t develop a literature review here, there are some notable sources worth exploring, including the work by our friends at Woodrow Wilson Center’s Environmental Change and Security Program and their New Security Beat blog.] Instead, tensions related to competition over natural resources have the potential to exacerbate existing diplomatic or political grievances between states, which can contribute to instability or conflict.  But there are ways to relieve tensions over natural resources. Indeed, where competition over natural resources appears to lead to instability or conflict, it is more often than not a proxy for other challenges states are facing, particularly with governance or other related trends.

President Obama returned stateside on Sunday after a nine-day trip across the Asia Pacific, ending with a stop at the East Asia Summit in Bali over the weekend. The president’s visit to the annual summit was the first time that an American president attended the forum, in what seems like a demonstration of the growing U.S. commit to pivot from the Middle East to Asia.

The South China Sea was perhaps the foremost security concern shared by the leaders attending the summit. Despite China’s preemptive announcement last week that it would not debate the South China Sea at the multilateral East Asia Summit – preferring bilateral negotiations on this issue instead– President Obama and other regional leaders confronted Chinese Premier Wen Jiabo about its controversial territorial claim to nearly the entire South China Sea. According to The New York Times, President Obama said that, “while we are not a claimant in the South China Sea dispute, and while we do not take sides, we have a powerful stake in maritime security in general, and in the resolution of the South China Sea issue specifically — as a resident Pacific power, as a maritime nation, as a trading nation and as a guarantor of security in the Asia Pacific region.”

President Obama and Premier Wen met on Saturday to discuss the issue, according to news reports. The New York Times reported that:

Mr. Wen acknowledged that he did not want to discuss the issue at the summit, but added that it would be “impolite” not to answer the concerns of his country’s neighbors, according to Xinhua [the official Chinese government news service]. He then defended China’s stance on the sea, according to the news service and an Obama administration official who briefed reporters on the condition of anonymity.

The State Department’s new Bureau of Energy Resources will open today in a reorganization of the department’s efforts to manage the geopolitical implications of energy resources. According to its 2010 inaugural Quadrennial Diplomacy and Development Review, the department’s new bureau will “unite our diplomaticand programmatic efforts on oil, natural gas, coal, electricity, renewable energy,energy governance, strategic resources, and energy poverty.” This includes promoting clean and alternative forms of energy, especially through diplomatic efforts to encourage countries like China to reduce its import tariffs on foreign-made clean energy technologies. At last week’s APEC summit in Honolulu, President Obama called on Asia-Pacific states to reduce their tariffs on energy and other environmental technologies to 5 percent. "We will unabashedly support the export of U.S. technology, working with countries to put in a level playing field," said Carlos Pascual, former ambassador to the Ukraine and Mexico, who will lead the new energy bureau. Ultimately, Pascual told The Wall Street Journal, the bureau’s goal will be to manage the "geopolitics of the energy world."

The new bureau opens as tensions around energy resources in the South China Sea continue to grow. Today, while traveling in the Philippines, Secretary of State Hillary Clinton said that the United States seeks a peaceful resolution of the territorial disputes in the South China Sea, where states such as China, the Philippines and Vietnam are competing in part for claims to potentially rich deposits of oil and natural gas. “We are strongly of the opinion that disputes that...exist primarily in the West Philippine Sea between the Philippines and China should be resolved peacefully," Secretary Clinton said in a joint briefing with Philippine Foreign Affairs Secretary Albert del Rosario, according to The Wall Street Journal. "The United States does not take a position on any territorial claim because any nation with a claim has a right to assert it. But they do not have a right to pursue it through intimidation or coercion." Meanwhile, China has preemptively rejected any discussion of the South and East China Seas ahead of this week’s annual East Asia Summit in Bali, where Asia-Pacific leaders will meet to discuss, among other issues, maritime security – including territorial disputes in those contested waters.