Rosneft has decided to pull out of the South China Sea. Some of the Russian energy giant’s oil and gas projects with Vietnam there are located within the so-called nine-dash line drawn by China. But this move does not mean that Russia wants to give up its local interests completely. Some analysts believe that the other Russian state-owned energy company that took over will probably continue to face Chinese pressure.
South China Sea project with Vietnam to change hands by the end of June
The Russian energy giant has decided to withdraw from the South China Sea region, a representative of Rosneft was quoted as saying by Russia’s main media agency Interfax on May 4. Rosneft will give up its oil and gas projects in the region with Vietnam. Stakes in these projects will be sold to another Russian state-owned energy company, Overseas Oil Corporation, by the end of June.
Rosneft began working with Vietnam years ago to exploit oil and gas resources in the South China Sea region. The joint projects include Block 06-1, Block 05-3/11, and the laying of a gas pipeline from the South China Sea to the Vietnamese shore, among others.
Starting from 2013 and 2019, Rosneft started drilling exploratory wells in blocks 05-3/11 and 06-1, respectively. In recent years, Vietnamese leaders have also visited Rosneft’s headquarters in Moscow during their visits to Russia.
Deep inside the nine-dash line, China is not happy
Block 06-1, however, happens to be located within the so-called nine-dash line, as China has defined and claimed. 05-3/11 is adjacent to block 06-1 and is also partially within the nine-dash line. Russian energy media reported that one of the gas fields in Block 06-1 project even penetrates 85 kilometers into China’s demarcation line, which has led to fierce protests and opposition from China. Rosneft has responded that it is conducting oil and gas exploration activities in Vietnamese waters in full compliance with the oil and gas exploration licenses issued by Vietnam and Vietnamese law.
China has publicly expressed its displeasure with Russian energy companies helping Vietnam exploit oil and gas resources in disputed areas of the South China Sea for years. Many Russian scholars of Chinese and Southeast Asian issues were surprised by China’s move at the time, arguing that the smart thing for China to do would be to settle their differences under the table.
Rosneft is not the only energy giant that has withdrawn from the South China Sea under Chinese pressure. Similar to Rosneft, Spain’s Statoil has also withdrawn from the South China Sea for more than four years under Chinese pressure, abandoning its oil and gas partnership with Vietnam in the disputed area.
Rosneft is now Russia’s largest energy company, and its president, Sechin, is considered one of Putin’s closest cronies. Although Rosneft wants to make money from both Vietnam and China, it seems that China is becoming increasingly important to Rosneft. Rosneft currently dominates the export of large quantities of Russian crude oil to China via oil pipelines. In recent years, Russia and Saudi Arabia have been competing with each other, alternating as the largest foreign oil suppliers to the Chinese market.
Entering the South China Sea back in the 80s
The company that took over Rosneft’s cooperation with Vietnam in the disputed area of the South China Sea is the Russian “Overseas Oil Company”. Unlike Rosneft, which has huge interests in China, OJSC, which is 100 percent state-controlled, has no ties to China. However, Vietnam is the most important foreign market for OOCL.
“OOCL was established by the Soviet government in the 1960s, and its business at that time mainly involved the exploration and exploitation of oil and gas resources in Cuba, the Middle East, Africa, Southeast Asia and other regions that were then allies of the Soviet Union. In particular, during the years of Sino-Soviet relations and after the armed conflict between China and Vietnam, the Soviet Union began to help Vietnam explore and exploit oil and gas resources in the South China Sea, as Soviet military forces entered Vietnam and used the port of Cam Ranh Bay. To this end, in 1981 the Soviet state-owned Overseas Oil Company formed a joint venture with Vietnam, in particular, the Vietnam United Oil Company.
According to Russian energy sources and the media, the Russian-Vietnamese joint venture PetroVietnam became the largest and most profitable Russian joint venture abroad during the period from the collapse of the Soviet Union until 2000. For many years, the operations of OJSC and VNOC in the South China Sea have brought significant annual revenues to the Russian state treasury.
Russia won’t give up the South China Sea, India has a bigger share, and the fight continues
Although Rosneft has withdrawn, the company’s operations in the South China Sea have been taken over by the Overseas Oil Company, indicating that the Russian state-owned energy company is still cooperating with Vietnam and continues to explore and develop oil and gas resources in the disputed South China Sea region, a move that shows that Russia does not want to give up its interests in the South China Sea region and Vietnam. interests in the South China Sea region and Vietnam. In addition, in Block 06-1, in addition to Russian and Vietnamese energy companies, the Indian government-owned Oil and Natural Gas Corporation (ONGC) has a 45% controlling stake in the block.
Some analysts in the Russian energy sector believe that the withdrawal of Rosneft from the South China Sea, where Russia and China are currently working together against the US and the West, indicates that Russia is giving in to China in order to take care of Russian-Chinese relations. However, it is likely that the Russian state-owned company will also continue to face pressure from China after “OJSC” takes over, and it will be interesting to see how Russia reacts in the future.
The Southeast Asian region is becoming increasingly important for Russia as it begins its diplomatic shift to the East and Asia years ago. Developing relations with some Southeast Asian countries could balance Russia’s relations with China and avoid Russia’s over-reliance on China. On the other side, Russia also tries to play the role of another independent force, giving Southeast Asian countries an alternative to the two powers, the United States and China. Vietnam, in turn, is considered by Russia as an important bridgehead for promoting Southeast Asian diplomacy.
Rokshin, a scholar of Southeast Asia, said Russia has a long history of interest in Vietnam, especially in two major areas: energy cooperation and arms exports.
Rokshin: “As for Russia’s relations with Vietnam, there are very good factors here that can promote the development of relations between the two countries, such as cooperation in the field of oil and gas and military technology. Because in these cooperation is not only beneficial for Russia, but also more beneficial for some Southeast Asian countries.”
But some Russian scholars on China worry that the withdrawal of Rosneft from the South China Sea could lead to more aggressive Chinese diplomacy. China may next put pressure on Russia in areas such as Russian arms sales to Vietnam as well as India.
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