India Drops Claim to Unlock Offshore Oil in China Contrast

If good fences make good neighbors, that may explain why much of Asia’s recent territorial tension has centered on the ocean.

India took a step toward tighter ties with Bangladesh this month in surrendering its four-decade claim to a swathe of the Bay of Bengal about the size of Lake Ontario, opting to heed a United Nations-backed ruling. Bangladesh praised its neighbor’s move, with the head of state-run oil monopoly Petrobangla saying the newfound clarity will unlock drilling opportunities.

The decision provides a contrast with China, which declines to acknowledge any UN jurisdiction in its dispute with the Philippines over maritime claims. The difference in approach shows why tensions are rising in the South China Sea as companies ramp up oil and gas investment in the Bay of Bengal.

“This is a showcase judgment of how countries can reach an amicable agreement,” said S. Chandrasekharan, New Delhi-based director of the South Asia Analysis Group, referring to India and Bangladesh. “The South China Sea is a glaring example of how one intransigent country can hold up everything.”

The Permanent Court of Arbitration on July 7 awarded about 19,500 square kilometers (7,500 square miles) to Bangladesh, some 76 percent of the area under dispute with India. The move followed a decision last year that clarified Bangladesh’s sea border with Myanmar.

Exploration On

“The award puts an end to a long standing issue between India and Bangladesh which has impeded the ability of both countries to fully exploit the resources in that part of the Bay of Bengal,” V.K. Singh, junior minister in India’s Ministry of External Affairs, told lawmakers yesterday. “The peaceful settlement of this issue on the basis of international law symbolizes friendship, mutual understanding and goodwill between the two countries.”

The cooperation has opened up access to energy exploration for India and Bangladesh, which now account for less than 1 percent of the world’s proven gas reserves, according to estimates by BP Plc. By year’s end, Bangladesh plans to auction 18 oil and gas blocks in the Bay of Bengal, including 10 previously claimed by India, according to Hossain Mansur, chairman of state-run Petrobangla.

“It’s now a big opportunity for us to explore sea blocks for oil and gas without disruptions,” Mansur said by phone from Dhaka on July 23.

India Studying

Oil Natural Gas Corp. (ONGC), India’s biggest energy explorer, will study the blocks and may make a bid, according to D.K. Sarraf, its New Delhi-based chairman.

“It’s good for the oil and gas industry,” Sarraf said by phone of the Bangladesh ruling. “This should increase activity in the region.”

In the South China Sea, oil and gas exploration has been contentious. Chinese ships have cut the cables of survey vessels working for Vietnam and the Philippines, while state-run China National Petroleum Corp. this year moved a deepwater rig into a disputed area despite objections from its neighbors.

Paul Reichler, a Washington-based lawyer for Foley Hoag LLP who represented Bangladesh in its case against India, is also working for the Philippines as it seeks a ruling from the same court on China’s claims. China has declined to participate, telling the court last year it “does not accept the arbitration initiated by the Philippines.”

‘Odd Man Out’

“The fact India has accepted this judgment without question puts a little pressure on China,” Reichler said, adding that China is the first country to refuse to participate in arbitration under the UN law of the sea. “It makes China look that much more like the odd man out.”

The South China Sea is estimated to have as much as 30 billion metric tons of oil and 16 trillion cubic meters of gas, which would account for about one-third of China’s oil and gas resources, according to the official Xinhua news agency. Vietnam and the Philippines reject China’s “nine-dash map” of the waters as a basis for joint oil and gas development.

“India, Bangladesh and Myanmar have all demonstrated that countries can successfully settle their disputes through impartial third-party arbitration,” Philippine Foreign Secretary Albert del Rosario said in a text message. “We are confident that the tribunal will find in favor of our position against China’s Nine-Dash Line. I am sure the international community will receive such a development positively and that China will appreciate its value in the long run.”

Vietnam Ammunition

Vietnam has prepared evidence and is awaiting the “appropriate timing” to take legal action against China, Prime Minister Nguyen Tan Dung told Bloomberg News on May 30. Vietnam’s foreign ministry didn’t respond to e-mailed questions.

Without some sort of international settlement, tensions between the two countries will flare again, Le Hong Hiep, a lecturer at Vietnam National University in Ho Chi Minh City, said by phone.

India’s acceptance of the UN’s ruling gives Vietnam more ammunition in its “public opinion warfare” with China over disputed territory, Hiep said.

Bikram Singh, India’s retiring army chief, told reporters today that a land border dispute with China would be resolved peacefully, building on goodwill from a meeting earlier this month in Brazil between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping. Xi said then the two countries should work together to give developing countries a stronger voice in setting global rules, Xinhua said.

China Power

“The Chinese leadership around Xi Jinping is ready to get into difficulties with its neighbors in order to consolidate its preeminence in the region and to rebalance its power vis-a-vis other players including the United States,” said Jean-Pierre Cabestan, director of government and international studies at Hong Kong Baptist University.

China’s foreign ministry in March repeated its rejection of the Philippines arbitration case, saying it prefers direct negotiations to resolve the dispute. The Philippines is illegally occupying some of China’s islands and reefs in the South China Sea, Foreign Ministry spokesman Hong Lei said on March 30.

“If you’re a big power and know you’re more powerful, you don’t want to be constrained by international law,” said Li Mingjiang, associate professor and coordinator of the China program at the S. Rajaratnam School of International Studies in Singapore. “You want to use political and other means to resolve the dispute.”

To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Arun Devnath in Dhaka at adevnath@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Sam Nagarajan

India Drops Claim to Unlock Offshore Oil in China Contrast