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Alyssa Chen

Sitting 100km (62 miles) off the coast of Malaysia’s Sarawak state, the Luconia Shoals have become yet another source of tension in the South China Sea between Beijing and its neighbours.
The shoals are off the northwestern coast of Borneo and fall well within Malaysia’s exclusive economic zone (EEZ), giving Kuala Lumpur exclusive sovereign rights over the natural resources. But China objects to Malaysia’s exploration activities based on its “nine-dash line” claim of sovereignty over the Spratly Islands, which include the Luconia Shoals.
In a leaked diplomatic note sent to Malaysia in February, China expressed “grave concerns and strong dissatisfaction” towards Malaysia’s oil and gas exploitation in the shoals, and asked it to immediately halt activities.
Malaysian Prime Minister Anwar Ibrahim stood firm, saying it would not bow to pressure from China.
“We have never intended in any way to be intentionally provocative, unnecessarily hostile. China is a great friend, but of course we have to operate in our waters and secure economic advantage, including drilling for oil in our territory,” Anwar said early this month.
The stand-off is one of many in the region where a rising China is competing with other claimants for the South China Sea’s natural resources – mainly fish, oil and gas.




What resources does the South China Sea have?
The South China Sea is one of the top five fishing zones in the world, accounting for around 12 per cent of the international wild catch and about 20 per cent of East Asia’s total seafood output, according to the Common Fisheries Resource Analysis released in 2022 by the Centre for Humanitarian Dialogue.
Home to more than 3,000 fish species, the waters help feed and support millions of people across Southeast Asia.
A 2015 scientific study by China on fish stocks estimated that the Spratly Islands had around 1.8 million tonnes in fish stocks, with an annual catch potential of 500,000 to 600,000 tonnes.
The South China Sea is also believed to have substantial hydrocarbon reserves. Assessments vary widely, but US energy company Rystad estimated there were around 3.6 billion barrels of petroleum and other liquids and 40.3 trillion cubic feet of natural gas in proved and probable reserves in the South China Sea.
Maritime experts say that most of those reserves are in the shallow waters around the South China Sea, much of it in areas subject to overlapping claims.
The main contested areas with huge potential for oil and gas are Reed Bank in the northeast of the Spratly Islands near the Philippines, the Luconia Shoals off Malaysia and Vanguard Bank off the southern coast of Vietnam.


Who is drilling the South China Sea for energy?
The 1982 United Nations Convention on the Law of the Sea (Unclos) gives coastal states full sovereignty over natural resources within territorial waters and exclusive sovereign rights to exploit and manage natural resources within a 200 nautical-mile EEZ and continental shelf.
Beijing has long drilled for oil and gas in uncontested areas off the coast of Hainan and Guangdong provinces, but the far southern area of the South China Sea is untapped.
China has never tried to commercially exploit oil and gas in that southern portion of the South China Sea, and could probably never make use of oil and gas off Borneo or the Philippines, according to Gregory Poling, director of the Southeast Asia programme at the Centre for Strategic and International Studies (CSIS) in Washington.
For decades, Vietnam and Malaysia have been active in oil and gas exploration, tapping rich resources off their coastlines. The Philippines is setting its sights on Reed Bank, which is reported to have gas reserves that could meet the country’s energy needs for up to 75 years.
Georgi Engelbrecht, a senior analyst for the Philippines at the International Crisis Group, said that although Beijing had not targeted the southernmost areas, Chinese vessels had harassed those from Malaysia, the Philippines and Vietnam.
“China’s actions in the South China Sea have made it more difficult for other claimants to fully exercise their rights to their maritime entitlements, effectively preventing them from consummating new hydrocarbon exploitation in areas that fall within the nine-dash line,” Engelbrecht said.
In the past decade, China has transformed seven reefs in the Spratlys into artificial islands that now serve as hubs for coastguard and naval forces, along with fishing fleets.
According to Zheng Zhihua, a research associate professor specialising in maritime affairs at Shanghai Jiao Tong University, the Chinese coastguard – aided by China’s bold island-building project – has conducted routine patrols in areas where oil and gas extraction is under way.
“China’s maritime presence can now extend over contested waters much more effectively than before. Before land reclamation efforts, patrolling the South China Sea was not as feasible as it is today,” Zheng said.
Nonetheless, according to Poling, Beijing has consistently failed to stop oil and gas development by claimant states in the past three years, with numerous important energy projects – particularly in Vietnam, Indonesia, and Malaysia – progressing since 2021.


Why are South China Sea energy projects controversial?
In 2014, Vietnam and China had a tense three-month stand-off after China’s Haiyang Shiyou 981 oil rig went into position in waters near the Paracel Islands. Beijing and Hanoi both claim the area and the stand-off was the worst diplomatic crisis between the neighbours in decades.
The confrontations at sea were matched by widespread anti-China protests in Vietnam, which occasionally turned violent and targeted Chinese-owned businesses.
The 1982 Unclos regime provides a legal framework that theoretically regulates resources exploration and development, but states often interpret it differently, according to maritime observers.
China does not view Unclos as the sole foundation of its maritime claims. Instead, it also draws on the broader, historical claims of the nine-dash line to demarcate its claim, maintaining that the Unclos treaty does not override its historical rights, according to Engelbrecht.
“Its interpretation of Unclos is also not always consistent with other countries’ understanding. So what we have here is basic legal friction, or even conflict, between how China sees the situation and how international rules envision it,” he said.
A Hague tribunal ruled in 2016 that Beijing’s nine-dash line claim was incompatible with the Unclos treaty and it had no legal basis. Beijing did not take part in the legal process nor did it accept it.
Ian Storey, a senior fellow at the Singapore-based ISEAS-Yusof Ishak Institute, said “the nub” of the South China Sea dispute lay in the fact that China’s nine-dash line overlapped with other claimants’ EEZs, which countries deem to be their legal right to exploit under Unclos.
Poling, of CSIS, agreed, adding that Beijing had adopted a stringent stance: within its nine-dash line, nothing should proceed without China’s explicit permission – “no oil and gas development, no fishing, no law enforcement, and no military activity”.
This stance was “clearly inconsistent with international law as it is understood” by other countries, which maintain that their maritime rights are only governed by the Unclos treaty, he said.
Some states have also not legally settled their maritime limits, adding to frictions, according to Elina Noor, a senior fellow in the Asia Programme at the Carnegie Endowment for International Peace.
“This results in, for example, differences in interpretation of where claimants’ continental shelf areas extend to or end. When states have attempted to clarify the outer bounds of their continental shelf areas … China has objected,” Noor said.
In late 2022, Hanoi and Jakarta successfully finalised long-running negotiations to delineate the borders of their EEZs in the region.
In a concerted effort to define the outer limits of their continental shelves, Vietnam and Malaysia teamed up in 2009 to file a joint submission. In contrast, China has not filed any such submissions, either on its own or with other claimants.
Zheng from Shanghai Jiao Tong University said Beijing would have a tough legal task to claim historical rights over oil and gas resources in the region, since technologies essential for underwater oil and gas extraction were only in widespread use after World War II.
“In ancient times, it was technically impossible to extract these resources, which weakens the argument for historical rights in this aspect,” he said.


What could make the tensions worse?
Resource competition is one of the major factors exacerbating the South China Sea row, according to Zheng.
“If Beijing takes assertive actions in response to the oil and gas extraction by rival claimants, maritime tensions will inevitably escalate, particularly with Vietnam or Malaysia,” he said.
The oil and gas industry contributes about 20 per cent to Malaysia’s annual GDP, according to the Malaysian Investment Development Authority.
“Malaysia’s national interest is intricately woven with these natural resources. Any forthcoming conflicts over these vital resources, which threaten to undermine their interests, could sharply escalate tensions in the South China Sea,” Zheng added.
Noor said sharper contests at sea were anticipated as the reserves of these resources dwindled and demand surged.
“With countries turning to rare earth minerals (REMs) for the export and use of ‘clean’ technology, as well as China’s dominance in extracting them, it’s entirely possible that this race for REMs will open up another competitive front in the SCS seabed, not only among coastal states but other interested powers in the region,” Noor said.
Engelbrecht said the Philippines placed immense importance on Reed Bank, an area rich with vast untapped commercial reserves with the potential to be a future spot of contention.


Is there scope for joint projects in the South China Sea?
Beijing has floated the idea of joint development projects until sovereignty is settled but rival claimants have not been keen.
“Southeast Asian countries have so far refused to enter into joint development projects with China for one simple reason: China is not legally entitled to ownership of the resources inside their EEZs,” Storey said. “Why should they share with China what doesn’t belong to it?”
Noor said other claimants feared such partnerships might compromise their future territorial claims.
“Even if joint development were to be carried out without prejudice to the sovereignty issue, a demonstration of willingness to explore or exploit resources with China in another claimant’s EEZ or continental shelf would give the appearance of acceding to China’s claim in the future,” she said.
In 2018, when Rodrigo Duterte was president of the Philippines, Manila and Beijing signed a memorandum of understanding signalling their willingness to pursue joint exploration and development.
Manila’s decision in 2020 to lift the ban on offshore oil and gas exploration reopened the door for joint energy projects with China. Yet no definitive agreement was forged, and negotiations eventually faltered and the moratorium reinstated.
In 2005, Vietnam, China and the Philippines signed an agreement, paving the way for a joint marine seismic survey in the South China Sea.
However, in 2008 Manila failed to renew the deal as sovereignty concerns rose. The Philippine Supreme Court also declared the arrangement unconstitutional last year, casting doubt on the prospect of future collaboration.
According to Zheng, the 2016 Hague arbitration ruling further affirmed the maritime rights of claimant states within their EEZs.
Regarding the Spratlys, Engelbrecht said: “Attempts by claimants to extend joint development to areas near the Spratlys have mostly failed due to differences over how to define disputed areas and increasingly heated politics.
“Joint development as a confidence-building measure has certainly potential but is not compatible with the current political situation … It is unlikely to be implemented in the near term, similar to regional fisheries cooperation, as incentives and realities do not match up.”
Geopolitics aside, states would also have to address environmental issues.
“There cannot be a persistent and competitive push for exploitation in and around the region’s waters without meaningful mitigation,” Noor said. “This calls for fresh thinking beyond the tired, old paradigms of strategic and resource competition.”


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South China Sea

Who is winning the fight for the South China Sea’s resources?

A diplomatic note regarding Luconia Shoals in the South China Sea has drawn attention to nations’ resource rights in the disputed waterway. Photo: Handout

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An oil platform operated by Petronas off the coast of Malaysia. Photo: Petronas Malaysia / Handout via AFP

Malaysian Prime Minister Anwar Ibrahim waves the national flag in Putrajaya last month. Photo: AP

Chinese coastguard and naval ships are pictured from a Philippine coastguard vessel near a disputed South China Sea shoal last month. Photo: AFP

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Vietnam’s top leader To Lam receives credentials from China’s newly named envoy He Wei on Tuesday. Photo: Embassy of The People’s Republic of China in Vietnam

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Malaysian Prime Minister Anwar Ibrahim speaks during a plenary session of the Eastern Economic Forum in Vladivostok, Russia, on Thursday. Photo: Roscongress Foundation via Reuters

Malaysia’s Prime Minister Anwar Ibrahim with Chinese President Xi Jinping at the Great Hall of the People in Beijing in March 2023. Photo: Xinhua

Why Malaysia has stayed quiet but firm on South China Sea: ‘let sleeping dogs lie’

A Chinese coastguard ship passes a Philippine vessel during a resupply mission to Sabina Shoal in disputed waters of the South China Sea on Monday. Photo: AFP

A Kasturi-class corvette of the Royal Malaysian Navy fires a missile during a military exercise in the South China Sea in 2021. Photo: Bernama/dpa

Malaysia’s Prime Minister Anwar Ibrahim. Photo: Bloomberg

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A China Coast Guard ship is seen from a Philippine Coast Guard vessel in disputed waters of the South China Sea. Photo: TNS

The United Nations Security Council. The Philippines plans to bring its territorial dispute with China to the UN. Photo: AP

An aerial view shows the BRP Sierra Madre on the contested Second Thomas Shoal, in the South China Sea. Photo: Reuters

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Claimants are competing for fish, oil and gas amid unresolved maritime boundaries and differing interpretations of law


Claimants are competing for fish, oil and gas amid unresolved maritime boundaries and differing interpretations of law.


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Who is winning the fight for the South China Sea’s resources?

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Claimants are competing for fish, oil and gas amid unresolved maritime boundaries and differing interpretations of law

Claimants are competing for fish, oil and gas amid unresolved maritime boundaries and differing interpretations of law