Asian Energy Security: The Maritime Dimension

Asian Energy Security

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Asian Energy Security The Maritime Dimension Edited by Hongyi Lai

ASIAN ENERGY SECURITY

Copyright © Hongyi Lai, 2009. All rights reserved. First published in 2009 by PALGRAVE MACMILLAN® in the United States—a division of St. Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Where this book is distributed in the UK, Europe and the rest of the world, this is by Palgrave Macmillan, a division of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. ISBN-13: 978–0–230–60642–5 ISBN-10: 0–230–60642–3 Library of Congress Cataloging-in-Publication Data is available from the Library of Congress. A catalogue record of the book is available from the British Library. Design by Newgen Imaging Systems (P) Ltd., Chennai, India. First edition: March 2009 10 9 8 7 6 5 4 3 2 1 Printed in the United States of America.

Contents

Acknowledgments 1. Introduction: Understanding and Enhancing Energy and Maritime Security in Asia Hongyi Lai

vii

1

2. China’s Oil Diplomacy in Asia Hongyi Lai

27

3. Security of China’s Energy Imports Hongyi Lai

49

4. China’s Mercantilist Oil Strategy and its Implications for U.S.–China Relations Yuanming Alvin Yao

79

5. Japan’s Energy Diplomacy and Maritime Security in East Asia Peng Er Lam

115

6. The Maritime Dimension of Energy Security in East Asia: Legal Implications Keyuan Zou

135

7. Traffic Pattern, Safety, and Security in the Straits of Malacca Takashi Ichioka

157

8. Piracy and Energy Security in Southeast Asian Waters Ke Xu

183

9. The Security of Sea Lanes in Southeast Asia Joshua H. Ho

205

List of Contributors

227

Index

231

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Acknowledgments

The topic of energy security and related maritime security is not only highly relevant for today’s world facing relatively high oil prices, as the price of Dubai crude oil (destined for Asia) per barrel rose steadily from $12 in 1997 to $68 in 2007 and even surpassed $140 in some periods in 2008; it is also meaningful for regional integration in East Asia. Chapters two–six in the volume originated from presentations delivered at the workshops and meetings for the Network of East Asian Thinktanks (NEAT) Working Group on Energy Security Cooperation in East Asia in Singapore in 2005 and 2006. As the editor I thank the following individuals or institutions for respective reasons—Professor John Wong at the East Asian Institute (EAI) of National University of Singapore for launching the energy project for the working group; the EAI administrative staff for arranging the workshops and meetings for the NEAT working group; participants at the workshops and meetings for their feedbacks; the EAI for hosting my visit in the summer of 2008 to finalize the manuscript and University of Nottingham for enabling me to pursue the project; Drs Peng Er Lam and Elspeth Thomson for editing several chapters at an earlier stage; anonymous reviewer(s) for the helpful comments. Last but not least, the volume’s publication benefits from strong support from editorial staff at Palgrave Macmillan, especially Anthony Wahl, and help from Emily Hue and Asa Johnson. Hongyi Lai University of Nottingham United Kingdom

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1 Introduction: Understanding and Enhancing Energy and Maritime Security in Asia Hongyi Lai

In the recent decade Asia has become an important player in the world energy market and international energy politics. This can be attributed to Asia’s rising energy demand and its initiatives in securing its energy supplies around the world. Meanwhile, a greater number of Asia nations have a higher stake in energy security and security of sea lanes for energy transport. As a result, they have taken a series of precautionary measures. These developments have profound regional and global implications. This volume aims to investigate these important issues. Contributors to the volume survey the external initiatives undertaken by China and Japan, the two largest East Asian energy consumers, to secure energy supplies and maritime energy transport. They also examine strategic areas critical for energy sea lanes for both economic giants, such as the Straits of Malacca, the South China Sea, and the East China Sea. They examine the rationale for Japan’s and China’s external energy security, as well as their interaction with their neighbors, major oil producers, and littoral states to ensure energy security and energy sea lanes. In addition, they also look at a host of energy-related issues of both giants, which have attracted attention from the region, major powers, and even the United States. These issues include implications of China’s and Japan’s oil diplomacy for Asia and the United States, China–Japan disputes over the East China Sea, the traffic

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volume and pattern and the security of the Straits of Malacca, and piracy and maritime terrorism in Asia. The issues being examined also include bilateral and regional cooperation in enhancing maritime security, stipulations of international law of sea regarding the Straits of Malacca and maritime zones in East Asia, and the state of major disputes over territorial waters involving China and Japan. The volume will also discuss theoretical issues related to energy and maritime security in Asia. The most conspicuous issue is the provision of global public goods. Energy security can be regarded as public goods for major oil consumers in Asia, while maritime security is a global good for all nations engaged in trade. Contributors try to come to grips with the issue of how to provide for these global goods while containing unnecessary tensions. About half of the chapters in this volume were originally presented at the workshops and meetings for the Network of East Asian Thinktanks (NEAT) Working Group on Energy Security Cooperation in East Asia in Singapore in 2005 and 2006. The NEAT is a secondtrack network for East Asian regionalism. The majority of the contributors are thus interested in empirical and policy issues related to energy and maritime security. In examining these issues, they also ponder how Asian nations can minimize their conflict and tensions over energy and maritime security and how they can further their mutual energy and maritime security through cooperation, instead of cutthroat competition and rivalry. They offer useful and constructive suggestions.

Growing Energy Profile of Asia Prior to the 2000s, especially in the 1980s and 1990s, Japan was the largest oil consumer in Asia. In 1995, Japan consumed 268 million tons of crude oil, accounting for 8.2 percent of the world’s oil consumption, just behind the United States and the European Union (EU). On an individual country basis and prior to 2003 Japan was the second largest oil consumer after the United States in the world (table 1.1), much larger than Germany. Japan’s heavy consumption of crude in the 1990s had to do with its large economy and the predominant role of oil in its primary energy supply (over 50 percent from 1965 to 1999).1

Introduction Table 1.1

3

Oil consumption of major economies, 1985–2005 Oil consumption (million tons)

Share of world’s oil consumption (%)

Country

1985 1995

2005 1985

1995

2005

China Japan India

90 206 43

160 268 75

327 244 116

3.2 7.4 1.6

4.9 8.2 2.3

8.5 6.4 3.0

Asian Giants

339

503

687

12.1

15.5

17.9

United States EU (25 countries)

720 602

808 652

945 700

25.7 21.5

24.8 20.0

24.6 18.3

Dependency on oil imports (%) 1985 1995

2005

⫺39.1

7.0

44.7

30.8 49.8

68.7

30.3 52.5

67.2

Notes: Oil data for the same country from different sources in this volume may vary slightly. However, these data are still informative. Subtotals of Asia in this and next tables may differ slightly from sums of rounded data of the relevant countries and sub-regions. Source: Zhongguo Chanye Ditu Bianweihui and Zhongguo Jingji Jingqi Jiance Zhongxin (Zhongguo Chanye Ditu in short), eds. Zhongguo nengyuan chanye ditu (Atlas of China’s Energy Industry) 2006–2007 (Beijing: Shehui kexue chubanshe, 2006), 5–6.

Nevertheless, in the recent years Japan’s dominant position in crude consumption in Asia has given way to a rising China and, to a much lesser extent, to India. In 1985, Japan accounted for 7.4 percent of the world’s oil consumption, China 3.2 percent, and India 1.6 percent. By 2005, however, China’s share rose to 8.5 percent, India’s share to 3 percent, whereas Japan’s share declined to 6.4 percent (table 1.1). Since 2003 China has replaced Japan as the largest oil consumer in Asia and the second largest one in the world, just after the United States.2 Now China, Japan, and India parallel the EU in their aggregate oil consumption. Back in 1985, the three Asian nations consumed 339 million tons of oil, slightly over half of the consumption of the EU (which was 602 billion tons). By 2005, oil consumption of the three Asian economic giants doubled to 687 million tons of crude, accounting for 17.9 percent of the world’s total. Their total was at a par with the EU, which registered 700 million tons and accounted for 18.3 percent of the world’s total (table 1.1). If we expand Asia to include East Asia, India, and the Oceania, by 2004 the share of the Organization for Economic Co-operation (OECD) Pacific (namely, Japan, Korea, Australia, and New Zealand), China, India, and the other parts of Asia combined to account for

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27.4 percent of the world’s oil demand, close behind 30.3 percent of OECD North America that comprised of the United States, Canada, and Mexico, but far surpassing OECD Europe’s 17.7 percent. In particular, OECD Pacific and China accounted for 17.7 percent, exactly the same as OECD Europe (table 1.2). Asia–Oceania is projected to be the largest oil market by the end of this decade. According to the International Energy Agency (IEA), the combined share of OECD Pacific, China, India, and the rest of Asia will edge over the OECD North America and will emerge as the largest oil market by 2010. This will take place despite the declining share of OECD Pacific in the world’s oil consumption, from 10.1 percent in 2004 to 7.6 percent in 2030 (table 1.2). The driving force for Asia’s rising energy profile is the robust growth of oil demand from China, other Asia, and India. China’s share in the world’s oil consumption is projected to further increase by 1.8 percentage points from 2004 to 9.4 percent in 2010 and to Table 1.2 Oil demand and percentage of oil demand satisfied through imports, 2003–2030 2003

2004

2010

2020

2030

World oil demand total and breakdown in the reference scenario World Oil Demand 79.2 82.1 92.5 104.9 (million barrels per day)

115.4

Share of the World Demand (%) OECD North America 30.4 OECD Europe 18.3 OECD Pacific 10.6 China 6.8 India 3.2 Other Asia 6.4

30.3 17.7 10.1 7.6 3.2 6.6

29.1 16.2 9.3 9.4 3.6 7.1

27.7 14.7 8.3 10.7 4.1 7.9

26.5 13.6 7.6 11.4 4.5 8.6

Pacific Asia

27.4

29.4

31.0

32.1

56.7 79.9 95.4 73.2 81.4 79.5

64.7 85.4 95.5 81.7 88.5 86.9

27.0

Percentage of oil demand satisfied through imports (estimates) OECD North America 45.4 46.5 OECD Europe 58.6 70.7 OECD Pacific 92.8 94.2 China 43.5 59.8 India 69.2 72.7 Other Asia 64.8 68.2

Source: Computation from data in International Energy Agency, 2005, World Energy Outlook 2005: Middle East and North Africa Insights. Paris: OECD/IEA, pp. 83, 90.

Introduction

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11.4 percent in 2030. The share of other Asia will grow by 0.5 percentage point from 2004 to 7.1 percent in 2010 and to 8.6 percent in 2030; India’s share by 0.4 percentage point to 3.6 percent in 2010, and to 4.5 percent in 2030 (table 1.2).

International Implications of Asian Energy Security Rapid growth in oil consumption in Asia, especially East Asia, has already had extensive implications for international economy, political economy, and international security. First of all, Asia is becoming an important economic power in the world. China, India, and Japan accounted for 12.3 percent of the world’s exports of goods and services, dwarfing the U.S. 11.2 percent. In 2004 the three Asian giants jointly produced 17.4 percent of the world’s GDP in U.S. dollars in exchange rate in 2004. This share is expected to reach 19.1 percent in 2020.3 Second, in tandem with its dynamic growth, Asia has also become major energy consumers. Currently, in terms of energy use, China and India account for 12 and 5 percent of the world total, respectively, compared to U.S. 24 percent.4 The Asia-Pacific also accounts for over 27 percent of the world’s oil consumption. Furthermore, the dependency of Asia and Oceania on imported crude has been growing unabated in the recent decade. By 2004 as much as 93 percent of the oil consumption in OECD Pacific needed to be imported. This astoundingly high dependency ratio is projected to go up to 94 percent by 2010 and to 95 percent by 2020. “Other Asia,” which is obtaining about 65 percent or more of their crude oil from the world market, will see their dependency on oil imports further rise to 80 percent by 2020 (table 1.2). In this regard China and India will witness the most drastic changes. Back in 1985, China was still a net exporter of crude oil, whose exports were equivalent to nearly 40 percent of its oil consumption. But by 1995, 7 percent of China’s oil demand was filled by imports. China’s imports dependency ratio surged to 44.3 percent in 2005. It was at a par with the share of OECD North America. According to the IEA projection, China’s dependency ratio could be 60 percent in 2010, noticeably ahead of that of OECD North America (which is

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projected to be 47 percent). Deepening reliance on oil imports is also taking place in India. In 1985, only 31 percent of India’s oil demand needed to be met by imports. This ratio soared to 69 percent in 2005. India’s oil imports dependency ratio is projected to be 73 percent in 2010, at a par with that of OECD Europe. In 2030, China’s and India’s dependency ratio will reach 82 percent and 89 percent, respectively, at a par with OECD Europe and far exceeding that of OECD North America (table 1.2). Furthermore, rapid growth in oil demand in Asia, along with the growth in oil demand in the rest of the world, is believed to have contributed to the surge in oil price in the recent decade. It will continue to play a role in sustaining a high level of oil price in the coming years. Take, for example, the price at the Dubai Crude market whose oil is destined for Asia. The price per barrel of crude was only US$18.5 in 1996. After declining from 1997 to 1999, it shot up to US$26.2 in 2000. After another two years of slight decline, it recovered to US$26.8 in 2003. It increased to US$33.6 in 2004 and US$49.4 in 2005. A similar but slightly higher price could be seen at the Brent Crude for the European markets. 5 For some period in 2007 and 2008, crude price even approached or surpassed the range of $100 and even $140 per barrel. Moreover, China’s joining the global hunt for oil has a complex effect on political economy and security in the world, at least in Asia. Several chapters in this volume are devoted to this topic.6 China’s oil-related external initiatives have attracted worldwide attention in the recent years. For example, in a recent book written for U.S. policymakers, leading China experts in the United States made the following observation on China’s energy diplomacy: “China’s need for an uninterrupted and secure supply of natural resources, particularly energy (oil and natural gas), has become an increasingly strategic element of Beijing’s international relations.”7

Existing Views on Asia’s Energy and Maritime Security There is a limited but growing body of literature on Asian energy markets and on maritime security. The existing literature on Asian

Introduction

7

energy security looked at Asia’s current and future energy consumption, domestic energy sources and structure; Asian economies’ efforts to expand energy production and improve energy efficiency; external economic implications of energy consumption and imports of major Asian oil consumers such as China and Japan.8 Several studies were devoted to efforts by China, especially those by its state oil corporations to tap on overseas oil markets and acquire oil fields in the Middle East, Africa, Central Asia, and Russia.9 A few studies also examined China’s and Japan’s moves to secure sea lanes, as well as China’s plans of a strategic oil reserve and to build an oil refinery, as well as energy policies until the late 1990s.10 While these studies are informative, they also have their apparent and increasingly severe limits. First, as these studies were largely based on data up to the late 1990s or even earlier, their analyses appeared to be out-of-date. In the 2000s, the oil price has shot up, drastically altering the outcomes of some of the existing energy initiatives by Asian consumer nations.11 China’s dependence on oil imports has deepened at a surprisingly rapid pace, and more importantly, China’s and Japan’s efforts to secure its oil supplies and oil transport routes have been intensified. Both nations have also embarked on many new initiatives in their oil quest abroad. It is necessary to incorporate these new developments in our analysis. Second, we still need a systemic overview and a reasonable evaluation of China’s and Japan’s oil diplomacy through carefully analysing their ongoing conflict and competition with other Asian nations over oil. China is widely expected to compete against Japan, South Korea, and India for supplies of oil and gas around the world. Some analysts also fear that China’s active courting for oil from Iran would compromise the international pressure on Iran to halt its nuclear weaponry program. Some others have even foreseen conflicts between China and other nations over oil and gas. Michael Klare, for example, predicted that China might clash militarily with other claimant states in Southeast Asia due to their conflicting claims over the oil and gas resources in the South China Sea. In addition, China and Japan might resort to the use of their naval forces in defending their overlapping claims over islets and reefs in the East China Sea.12 An observer in 2005 proclaimed that China’s quest for oil security might destabilize international security.13

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Even some of the recent informative studies of China’s oil diplomacy have not been immune from these unwarranted negative views. They played up controversial aspects of China’s oil quest, especially its efforts to make energy deals with “rogue states” such as Sudan, Iran, and Myanmar. They also exaggerated China’s strained ties with claimant states in the South China Sea and with Japan over energy resources.14 They have left out positive developments in the recent years, such as China’s oil cooperation with India and Southeast Asia in the South China Sea, its self-restraints in its interaction with Japan, as well as its shift toward the West’s stance over Iraq and Iran. Most of the oil imports of China and Japan have been shipped on sea and many of China’s and Japan’s energy sea lanes pass Southeast Asia, the South China Sea, and the East China Sea. Inevitably, maritime security assumes importance and requires close analyses. There is a body of literature on maritime security, especially in Southeast Asia. Most of the literature is dedicated to maritime piracy in Southeast Asia. The research can be categorized into several types. A number of studies approach piracy from a historical perspective. They examine the evolution of these illicit activities over different eras and their complex relations with the state and the society.15 A good number of analyses focus on contemporary maritime piracies and possible terrorist activities by probing the concept, characteristics, and magnitude of piracy, its ties with terrorism, as well as its geopolitics, criminology, and economics.16 Another category of research investigates the role of states, including littoral states and big powers such as the United States and Japan, in the crackdown on piracy.17 An additional stream of literature also discusses maritime strategies, as well as disputes in the South China Sea.18 While these studies on maritime security are illuminating, they largely fail to make the connection with energy security in Asia, despite the latter’s growing importance that has been described earlier. Therefore, maritime piracy is seen more as a threat to seaborne trade and navigation in the region, especially in Southeast Asia, in general. Little is known about the possible effects of piracy on the energy security of China and Japan, as well as their stance and responses toward the issue. In addition, a number of these studies, which were published a couple of years ago, also left out a good number of the latest developments in the region regarding maritime security.

Introduction

9

Energy and Maritime Security in Asia This volume sets out to shed light on two important issues. The first issue is energy security in China and Japan. Under this purview is the importance of oil imports for these two giants, their initiatives for securing oil imports, interaction between them as well as their interaction with other Asian neighbors. Responses and the role of the United States are also taken into account. The second issue is energy-related maritime security in Asia. It encompasses the security of energy sea lanes for China and Japan, as well as China’s shipping capacity, offshore oil and gas development, and disputes over territorial waters with neighbors in Asia. It also includes maritime piracy and terrorism, as well as schemes Japan and China have introduced to ensure sea lanes or alternate routes in Asia. The Straits of Malacca and Singapore are a particularly vital, narrow but somewhat fragile, waterway for Asian energy security. It is an increasingly busy international channel, as traffic density is projected to increase from 94,000 ships in 2004 to 141,000 in 2020. In the following paragraphs the gist of the arguments of the volume is outlined with the purpose of clarifying the state of energy security in China and Japan and oil- and gas-related maritime security in Asia. It offers a quick glimpse at some of the prominent issues that will be explored in greater depth in the volume. As I suggests in chapter two “China’s Oil Diplomacy in Asia,” the most dramatic change in Asia’s energy security is China’s bursting into the global oil market as a major consumer. Driving China’s thirst for oil are its booming auto and aviation markets. Since the early 1990s China has been reducing its exports of oil and increasing its imports of oil. China’s policymakers and state oil corporations were quick to appreciate the role of oil in the nation’s economic security. They have orchestrated a series of measures to increase oil supplies overseas. This is reflected in the shift of China’s geographic sources of oil imports. By 1995, China relied heavily on oil from the Asia-Pacific as well as the Persian Gulf, especially secondary producers such as Oman and Yemen. Since then, China strove for faster expansion of oil imports from the Persian Gulf and Africa, as well as Russia and Kazakhstan. Through leadership exchange and corporate cooperation, China has

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forged closer energy ties with larger producers in the Gulf, such as Saudi Arabia and Iran, as well as Russia and Kazakhstan. However, in doing so China also needs to do a delicate balancing act. In March 2008, China supported the adoption of Resolution 1803 at the UN Security Council, which pressured Iran to halt its uranium-enriching activities for its nuclear weaponry program. Meanwhile, China continues to conclude energy deals with Southeast Asia and Australia, despite the latter’s declining share in China’s oil imports. China has also made some tangible progress in joint exploration of gas and oil resources in the South China Sea with other claimant states, such as Vietnam and the Philippines. In chapter three “Security of China’s Energy Imports,” I suggest that China’s dependence on oil imports has also given rise to its growing concerns with maritime security. China’s most important energy route is the sea lane through the Indian Ocean and the Straits of Malacca, through which over three-quarters of China’s oil imports need to go. China is concerned with disruption of its energy cargo along the Straits of Malacca by piracy, congested traffic, possible collisions, terrorist attacks, and especially by naval forces of major powers. China has opposed the U.S. patrol of the Straits, is concerned with Japan’s prominent role in aiding littoral states, and has supported littoral states’ central role in enhancing the Straits’ security. China has offered to aid the littoral states over enhancement of the Straits’ security and has won the littoral states’ acceptance of its aid. China has also contemplated alternate routes on land to bypass the Straits, including land-based rail and pipelines with Kazakhstan and Russia, railroads through Southeast Asian Peninsula, and transport lines through Pakistan, or through Myanmar. It has made some progress in this regard. Furthermore, China has started to reduce its reliance on foreign fleets for transporting its imports including oil. Contrary to the predictions of armed conflict, China, Vietnam, and the Philippines have agreed to joint energy exploration in the disputed waters of the South China Sea. China and Japan have also reached an agreement to extract gas in the disputed waters in the East China Sea. The Chinese efforts to ensure energy security have broad international ramifications. As noted, the United States is one of the powers in the world that has been heeding closely China’s oil diplomacy.

Introduction

11

In chapter four entitled “China’s Mercantilist Oil Strategy and Its Implications for U.S.–China Relations,” Yuanming Alvin Yao provides an in-depth discussion on China’s approach to energy security as well as the U.S. responses. In response to growing dependence on oil imports, the Chinese government has adopted domestic administrative measures. Yao maintains that China has relied on a mercantilist approach rather than a market one to guarantee its oil security. This is due to the constraints imposed by institutional fragmentation, strategic thinking, and vested interest concerns. Meanwhile, in order to prevent oil tension and an uncertain China, the U.S. government has adopted a hedging strategy toward China through a mixture of energy cooperation and military preparedness. Nevertheless, more needs to be done in order to prevent unnecessary conflict from erupting between the two powers over oil. Japan is the other major oil consumer in Asia. A resource-poor island nation, it imports over 80 percent of its primary energy supply and 99 percent of its oil. In chapter five “Japan’s Energy Diplomacy and Maritime Security in East Asia,” Peng Er Lam provides a brief historical overview of Japan’s quest for oil, as well as its strategies to mitigate its reliance on imported oil and gas. Nevertheless, despite these measures, in Japan’s strategic considerations the maritime security of its oil tankers amounts to a “matter of life and death.” Japan has attempted to ensure an unimpeded flow of energy resources through a largely nonmilitary and multifaceted approach. It relies on its U.S. ally to maintain a command of the sea. From 1977 onward it has also sought to play an active political role in the region by reconciling the noncommunist ASEAN with the communist Indochinese countries for the sake of regional order and stability. Importantly, Japan has actively forged friendly relations with energy-producing countries and littoral states along Japanese shipping lines, and engages in maritime cooperation with East Asian states. Lam also examines the prospects for an energy partnership in East Asia. As Asia’s thirst for energy heightens the significance of maritime security, maritime disputes between Asian nations have also developed, attracting attention and arousing concerns in the region and beyond. In chapter six entitled “The Maritime Dimension of Energy Security in East Asia: Legal Implications,” Keyuan Zou examines international laws in two areas most relevant to maritime security in

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East Asia at the regional level. The first is security of sea lanes in East Asia, which are used for energy transportation. The other is offshore oil and gas development, in particular in the disputed maritime areas where territorial and/or maritime boundaries are not yet delimited. Zou introduces the legal framework for establishment and expansion of maritime zones, as well as legal status of straits used for international navigation and for suppression of piracy and maritime terrorism. He also examines the sticky legal issues of overlapping territorial and maritime claims and safety of navigation. Zou suggests that two cooperative schemes, namely, joint development and regional security cooperation, can help to defuse many maritime disputes. Among the important waterways for cargo shipping in Asia, none is as important as the Straits of Malacca. Nevertheless, the actual pattern of traffic through the Straits has rarely been examined despite a great deal of attention devoted to the Straits. In chapter seven entitled “Traffic Pattern, Safety, and Security in the Straits of Malacca,” Takashi Ichioka provides a valuable close examination of the issue. He draws upon the results from two recent surveys on vessel traffic through the Straits of Malacca and Singapore that were jointly conducted by Ministry of Land, Infrastructure and Transport of Japan (MLIT) and the Nippon Foundation. He reveals the traffic pattern of shipping through the Straits in 1994 and 2004 and its projected trend. The data he presents include the number and tonnage of vessels, number of vessels by ship types, tonnage of vessels by flag states, tonnage of vessels by nationalities of parent company, tonnage of vessels by nationalities of last calling ports, tonnage of tanker vessels by nationalities of last calling ports, as well as projected number and tonnage of vessels in 2010 and 2020. Ichioka discusses the relevance of the traffic pattern for energy security. He also examines important issues related to the use of Straits, including navigation safety, environmental protection, maritime terrorism, as well as efforts by Japan and littoral states in enhancing Straits’ security. He also introduces the latest development in the comprehensive cooperative framework over the Straits’ security at the International Maritime Organization (IMO)–sponsored Singapore meeting held in 2007. One of the long-standing issues that have hampered maritime security in Southeast Asia, especially the Straits of Malacca and Singapore, is piracy. In chapter eight entitled “Piracy and Energy

Introduction

13

Security in Southeast Asian Waters,” Ke Xu gives an overview of maritime piracy in Southeast Asia and the responses to it. Drawing on the data on piracy from the Piracy Reporting Centre of the International Maritime Bureau (IMB), he examines the types of pirates, places of piracy activities, and victim ships, and discusses the impact of piracy on energy transport on the sea. Later he examines two phases of antipiracy cooperation (before and after 9/11) by taking into account some recent development as well as their results. In examining antipiracy initiatives, he also takes note of the role of major nations, such as Japan, China, littoral states, as well as forums and initiatives, such as ASEAN Regional Forum (ARF), Asian Security Summit (Shangri-la Dialogue), Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP), and IMO. At the end he assesses outstanding obstacles, legal problems, and challenges for antipiracy cooperation in the region. A main obstacle is the divergence of interests and political priority between the two large littoral states (namely, Indonesia and Malaysia) and user states, as well as insufficient aid from users and user states of the Straits for these two states to ensure the security and safety of the Straits. While piracy and maritime terrorism can be viewed as a potential threat to maritime shipping and trade, some scholars dispute its extent and the level of its risks. In chapter nine entitled “The Security of Sea Lanes in Southeast Asia,” Joshua H. Ho confirms the economic importance of the Malacca, Singapore, Lombok, and Sunda Straits and major ports in Singapore, Malaysia, and Indonesia in global trade and especially for rising Asia. He discusses piracy and maritime terrorism on major sea lanes in Southeast Asia and assesses their threats. In particular, he examines systemically national, bilateral, and multilateral initiatives taken by the littoral and concerned countries as well as multilateral arrangements for ensuring maritime security in the region. He contends that the aforementioned threats to the sea lanes in the region have been overstated and that the aforementioned measures have further lowered the risks.

Energy and Maritime Security as Public Goods One of the aims of the volume is to explore ways in which energy and maritime security in East Asia can be enhanced, especially through

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collective efforts. Energy security and related maritime security can be easily conceived of as regional and even global public goods. Security in these two arenas clearly benefits economies involved in the region. Specifically, energy security can help to satisfy energy needs for economic activities, stabilize energy prices, and contain inflation for the region and even much of the world due to the role of East Asia as the world’s manufacturing center. Maritime security, on the other hand, is vital for smooth cargo shipping, trade and business transaction, and for smooth functioning of the relevant economies. Overall, energy and maritime security helps sustain economic growth in the region and affects the well-being and stability of the world economy. Nevertheless, benefits from public goods and the costs for provisioning the goods may vary widely among nations and users. Partly because “public goods” are consumed on a nonexclusive basis, any nation can consume them. Nations may reap the most benefits from the “goods” without having to provisioning them (or free ride).19 How to provide for these public goods thus constitutes challenges for Asian nations. Some of these issues will be examined closely in the following sections. Clearly, energy and maritime security requires collective and concerted efforts. Nations may be tempted to act unilaterally on the expenses of other economies. For example, a government may prefer to cut an exclusive deal with energy suppliers (such as the Persian Gulf or Russia) beneficiary to itself but at the expenses of the other Asian economies. In this case, enhanced security of one nation in either aspect may be viewed by its neighbors as insecurity. For example, Japan feels uneasy toward China’s rapid inroads into the Russian and Persian Gulf oil and gas markets out of the fear that China would drain away resources available for Japan. In addition, provision of public goods also involves two complex issues—national sovereignty and priority. For example, Indonesia and Malaysia, two developing nations with painful history of colonial rule, strongly resist interference from outside powers, particularly from more powerful or developed nations, in its national security affairs related to the Straits of Malacca. Both rejected offers from the United States to send its navy and from Japan to send its coast guards to patrol the Straits. Furthermore, different national priority

Introduction

15

is the other complicating issue. As Xu suggests in chapter eight, some littoral states, especially Indonesia, value other domestic issues more than the security of the Straits. In contrast, primary user states as well as Singapore attach greater importance to the Straits security than Indonesia and Malaysia. At the annual Shangri-La Dialogue in 2007, a regional security conference, the Indonesian defense minister Juwono Sudarsono asked Asia’s wealthiest nations to provide ships and technical assistance for patrolling the Straits. According to him, Indonesia’s defense budget was less than 1 percent of its GDP, or about $3.2 billion a year, and poverty relief was more important than fleet expansion. 20 Therefore, any approach to the security of the Straits needs to factor in these sensitive issues. However, plausible solutions can still be worked out. In this volume, chapter contributors ponder over the solutions and lessons regarding regional cooperation for energy and maritime security. In the following segments, I attempt to discuss measures for improving the provision of energy and maritime security in Asia as public goods and sum up the views of the chapter contributors.

Turn Unilateral Endeavor into Joint Initiatives As stated, over energy and maritime security, it is in Asian nations’ interests that they pool their resources together and jointly strive for collective energy and maritime security. For that reason, joint initiatives are preferable to merely single-minded and narrow-focused efforts by individual nations. As far as energy security is concerned, Lam argues in chapter five that an East Asian oil stockpile can be established to help reduce the effects of a sudden and unexpected regional energy crisis. He even proposes an East Asian energy consortium to explore and extract oil and gas in Asia and other regions. He suggests that the consortium will be funded by ASEAN Plus Three (China, Japan, and South Korea) countries and local entrepreneurs to extract concessions in regions beyond East Asia. ASEAN, China, Japan, Korea, India, Australia, and New Zealand, other member states of the Second East Asia Summit (EAS) convened in Cebu, the Philippines, in January 2007. They signed a landmark Cebu Declaration on East Asian Energy Security. Acting upon the suggestions from Track II think tanks, Asian leaders pledged to work

16

Hongyi Lai

together to enhance energy security by declaring to ● ●

● ● ●

enhance the efficiency and environmental performance of fossil fuel use; reduce dependence on conventional fuels through improving energy efficiency and conservation, hydropower, renewable energy, biofuel, and civilian nuclear power; encourage open and competitive regional and international markets; mitigate greenhouse gas emission; and pursue and encourage private investment in energy resource and infrastructure.

In addition, these nations welcomed various project proposals on cooperation in energy security. They agreed to establish an EAS Energy Cooperation Task Force, based on the existing ASEAN Energy Sectoral mechanisms.21 On August 22, 2007, the EAS energy ministers, supported by the EAS Energy Cooperation Task Force, held an inaugural meeting in Singapore. The EAS energy ministers made the following recommendations on cooperation, which were iterated by the East Asian summit held in Singapore in November 2007: (a) formulating the first voluntary energy efficiency goals and action plans in 2009, and monitoring of progress toward each country’s own goals; (b) enhancing cooperation on biofuels; and (c) promoting energy market integration.22 Regarding security of the Straits, Ichioka, Xu and Ho document in their chapters a host of bilateral and multilateral measures for promoting Straits’ security and cracking down on piracy. These practical measures include information sharing, joint radar surveillance by littoral states, coordinated or cooperative maritime patrols, and technical and financial assistance from powers in the region and international organizations. As Ichioka reports in chapter seven, at the Singapore meeting in 2007 the littoral states, user states, and other stakeholders agreed on the Cooperative Mechanism, which comprised of the Co-operation Forum, the Project Co-ordination Committee, and the Aids to Navigation Fund. Therefore, through these multilateral forums and initiatives user states and provider states are addressing the provision of public goods at the Straits.

Work Together, Instead of against Each Other, for Collective Security As Lam argues in his chapter, while “energy nationalism” still drives nations in Asia toward unilateral gains in energy, there is still a great

Introduction

17

deal of space for energy cooperation among nations to flourish. Lam maintains that East Asian countries can cultivate a habit of cooperation amidst unavoidable competition and that this will be highly conducive to a nascent East Asian regionalism. Indeed, Asian nations are beginning to head in that direction. Take China and India, for example. In the past both competed fiercely for stakes in oil fields overseas. As I observe in chapter two, China has cooperated with India on international oil markets. China teamed up with India in jointly exploring the Yahavaran oilfield in southern Iran. China also encouraged India and its rival Pakistan to build an Iran–Pakistan–India “peace pipeline.” These initial cooperative gestures will go a long way in erasing deep-seated suspicion among these nations; more will be better. It is useful to recall that European integration started with energy cooperation. The formation of the European Coal and Steel Community (ECSC) in 1951 represented arguably the first substantial stride toward European economic integration. If Asian nations can eschew “economic nationalism” and work together, instead of against each other, they can evade a mutually destructive zero-sum game and improve energy security for all. More can be done. As Yao reports in chapter four, even though China and the United States have forged cooperation on energy through various bilateral dialogues, other things can also be done. China needs to show its determination to apply domestic demand-side measures and a market approach, as well as a willingness to cooperate with the United States and multilateral mechanisms without neglecting international norms. China’s raising of its fuel prices in November 2007 and in mid-June 2008 (by 10 percent and 17–18 percent, respectively) may be a step in that direction. 23 Given the unprecedentedly high crude oil price (around US$130– 143 per barrel around mid-June and early July in 2008) and the projected tight supply yet growing demand, it is in the interests of East Asia, an emerging major oil consumer in the world, to collectively bargain with oil producers to achieve a fairer price and stable supplies. In addition, Asian oil consuming nations can work together and with the United States and the EU in improving energy efficiency and developing alternative, sustainable, and environment-friendly energy sources, such as solar power. Higher energy efficiency would ease Asia’s demand for energy; alternative energy sources can reduce Asia’s

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Hongyi Lai

structural reliance on oil as an energy source. Both measures will help reduce the already high oil price.

“Users” Should Pay “Providers” of Public Goods Clearly, as far as security of the Straits of Malacca and other strategic waterways are concerned, mainland China, Japan, South Korea, Hong Kong, Taiwan, and Gulf states are “users.” According to data on dead weight tonnage of vessels passing the Straits of Malacca at the last calling port in 2004, detailed in Ichioka’s chapter (seven), the top users of the Straits were Singapore (accounting for 29.5 percent of the total), China including Hong Kong (10.7 percent), Japan (7.8 percent), Malaysia (5.9 percent), Saudi Arabia (5.4 percent), United Arab Emirates (4.6 percent), and Korea (4.3 percent). These users benefit tremendously from unimpeded flows of goods and energy inputs through the Straits. The other important chokepoint, as Ho suggests in chapter nine, is the Lombok Strait between Indonesia’s Borneo and Sulawesi. Indonesia and to a lesser extent Malaysia, on other hand, are clearly “providers.” They bear most of the financial and administrative burdens of providing for security and safety for navigation and environmental protection along the Straits. Keeping sea lanes open in the Straits incurs a certain amount of expenses. For the sake of simplicity, let us focus on the Straits of Malacca in the following discussion. It was estimated around 2007 that introduction of new navigational safety measures at the Straits would cost US$300 million over the next decade, or around US$40 million (€33 million) a year. 24 As far as piracy in concerned, as suggested by Xu in chapter eight, installing an antipiracy command and control center between the Strait of Singapore and Jakarta would cost Indonesia US$38.5 million. However, littoral states, especially Indonesia and to a lesser extent Malaysia, could only reap limited benefits from trade and cargo shipping along the Straits. According to Ke Xu (chapter eight), only about 10 percent tankers passing through the Straits called at Malaysian and Indonesian ports. 25 Meanwhile, Indonesia only suffers lightly from piracy, one of the most prominent challenges to the security of the Straits that user states and the shipping industry are most concerned with. While Indonesian waters are the most pirates-infested in the world, only

Introduction

19

a few victim ships of piratical attack, as observed by Xu in chapter eight, belong to Indonesia, and the economic loss for Indonesia is minimal. Yet, littoral states, especially Indonesia and Malaysia, are urged to bear the brunt of the responsibilities and costs for cleaning up piracy. Therefore, it is fair that heavy users help to cover these expenses for the safety and security of the Straits. As Lam suggests in chapter five and Ichioka in chapter seven, for a long time, Japan has been the only user of the Straits that responds to calls from Indonesia and Malaysia for a cost-sharing arrangement, 26 while China, South Korea, and other users sit on the sideline. No wonder, as Xu notes in chapter eight, Malaysia and Indonesia regard other user states as “free riders.” Japan’s total financial support for the safety and security of the Straits of Malacca so far amounts to about US$130 million. The Nippon Foundation alone has given more than US$125.5 million. Japan’s Foreign Ministry allocated 40 million Japanese yuan to support the Singapore-based information sharing center for the Straits. Fortunately, in recent years China, India, South Korea, and the United States have started to show their interests in offering assistance. As I document in chapter three, China has started to abandon its hand-off stance toward Straits’ security in the recent years. In September 2005, China sent its first delegation to the meeting on the maritime security of the Straits of Malacca. It has offered to provide aid to littoral states such as Indonesia and Malaysia. It has earned positive responses from them. Other users of the Straits can also follow suit by offering material and manpower assistance to littoral states. In 2006 the United States was reported to promise to give an early warning system to Indonesia, which would be installed at several points along Indonesia’s territory on the waterway, as well as on maritime patrol aircrafts (MPAs). The United States also promised to exchange intelligence information with the three littoral countries on the situation and condition of the Straits.27 It is encouraging to learn, as Ichioka reports, there has been noticeable progress. In September 2007, after over three years of hard work by the three littoral countries and IMO, littoral and user states agreed on the Co-operative Mechanism, which provided a platform for them to exchange views and take up projects to keep the Straits safe. Littoral states proposed six projects, including the maintenance of navigational safety aids,

20

Hongyi Lai

removing wrecks in the Straits and setting up of a tide, current, and wind measurement system. These projects would be overseen by the Project Co-ordination Committee. The six projects would cost about US$50 million. China, the United States, Australia, Japan, South Korea, and Indonesia either showed their interests in or pledged their support for some of the projects. 28 This is indeed a landmark stride toward sharing of responsibilities and costs for safe shipping in the Straits. Nevertheless, as Ichioka suggests, the participation of user states in managing the projects, as well as cooperation and contribution from the shipping industry remain unresolved issues. It remains to be seen whether the progress will lead to adequate and sustained funding of security of the Straits.

Outside Powers Help Out and Respect “Providers” There have been proposals from the United States that its naval forces joined the patrol of the Straits to ensure its security. These proposals were rejected by Indonesia and Malaysia on the ground that these initiatives infringed upon their sovereignty. Nevertheless, probably pressured by the U.S. proposals, Indonesia, Malaysia, and Singapore have agreed to conduct coordinated patrols along the Straits, which can help to reduce piracy along the Straits. Japan has provided littoral states patrol boats and has helped trained coast guards. As Ho documents in great details in chapter nine, a great variety of measures for protecting the Straits have been taken, significantly improving the security of the waterways. However, as Ke Xu points out, there are limits to these measures. Indonesia and Malaysia, by allowing “coordinated” rather than joint patrols, rule out “hot pursuit” into a neighbor’s territorial waters. This may prevent the law enforcement agencies from catching pirates red-handed in the Straits of Malacca and weaken the effectiveness of the patrols. Joint patrols cannot be conducted partly because Malaysia and Indonesia are not the signatory parties to the Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (SUA Convention). Nevertheless, any workable schemes for Straits’ security inevitably require direct support and involvement of the littoral states. As proposed by Singapore and revealed by Ho in chapter nine, littoral states are bound to play a primary role in Straits’ affairs, assisted by user

Introduction

21

states, facilitated by consultation, and within the confines of international law.

Use “Interstate Rivalry” for a Higher End While user states, such as Japan, help out providers of security of the Straits, they are not completely without their own political aims. As Lam suggests, Japan also wants to take advantage of maritime safety issues to play a more active political role in Southeast Asia, including maritime and energy security in East Asia. For that reason, Japan is willing to broaden the use of its naval forces including joint patrols with littoral states. Japan’s proactive projection of its forces abroad and its active involvement has aroused suspicion from China. China fears, as I point out in chapter three and Xu in chapter eight, that Japan would exercise a predominant influence over Straits’ security and earn the rights to deploy forces abroad. When the China–Japan rivalry over Straits’ security seems malign, it can become a constructive course if transformed constructively. China’s fear about Japan’s dominance over Straits’ security is one of the key motivations for it to offer aid to littoral states for Straits’ security in the recent years. Therefore, littoral states or providers of global public goods can intelligently manage rivalry among major powers and persuade them to contribute to global public goods out of their self-interests not allowing their rivals to claim a dominant role over the matter. Open calls, public acceptance, and transparent revealing by littoral states of technical and financial assistance from user states and users for global public goods will serve this purpose.

Refer Territorial Disputes to the Third Party and Conduct Joint Explorations As Zou notes in chapter six, there are disputes among Asian nations over territorial waters. The best examples are multiple and overlapping claims for islets and waters in the South China Sea by mainland China, Vietnam, the Philippines, Indonesia, Malaysia, Brunei, and Taiwan, as well as disputes among China, Korea, and Japan for the East China Sea. Unrestrained territorial disputes in these strategic waters could disrupt and hamper international trade and destabilize the region. Nevertheless, as Zou also observes, there have been

22

Hongyi Lai

positive paths out of these territorial quandaries. Some Southeast Asian claimant parties refer their disputes to the International Court of Justice (ICJ). The best cases are the case of Sovereignty over Pulau Litigan and Pulau Sipadan between Malaysia and Indonesia, and the case concerning Sovereignty over Pedra Branca/Pulau Batu Puteh, Middle Rocks, and South Ledge between Malaysia and Singapore. Although China has not followed suit, the referral of territorial disputes in the South China Sea and the East China Sea to a neutral third international party can be a solution that is worth exploring. Furthermore, there have also been positive prior examples of bypassing territorial disputes through joint exploration. In March 2005, for example, state-owned oil companies from China, the Philippines, and Vietnam signed a tripartite agreement on joint seismic surveying activities in the South China Sea. In June 2008 it was reported that China and Japan had reached a tentative agreement to jointly explore gas in the disputed areas of the East China Sea (see chapter three for more discussion). In the spirit of joint exploration and development more can be done by the claimant states of the South China Sea and between China and Japan in the East China Sea and to rein in strong nationalist sentiments at home. The aforementioned developments seem to point to a right direction. In conclusion, Asian economic dynamism is heightening the importance of energy and maritime security. Indeed, smooth supplies of energy and smooth flow of seaborne cargo call forth national efforts and multilateral initiatives. Due to long-standing habits and narrowly conceived national interests, nations in the region are still troubled by mutual suspicions, cutthroat competition, and possible escalating tensions over energy and maritime security. Nevertheless, as shown earlier, energy and maritime security in Asia is a pubic good and requires collective efforts, whereas any unilateral pursuit by individual Asian nations is doomed to fail. In this context, Asian nations can better ensure stable energy supplies and smooth maritime trade only through concerted efforts, multilateral schemes, and fair sharing of responsibilities. Asian countries have made tentative collective efforts to enhance energy and maritime security. How far they can go remains to be seen. Nevertheless, such a collective endeavor can not only help advance regional peace and development, but also be conducive to East Asian regionalism.

Introduction

23

Notes 1. For a breakdown of sources of primary energy supply in Japan, see Akira Miyamoto, “Natural Gas in Japan,” in Natural Gas in Asia: The Challenges of Growth in China, India, Japan and Korea, eds. Ian Wybrew-Bond and Jonathan Stern (New York and Oxford: Oxford University Press, 2002), 114 (figure 4.2 “Total Primary Energy Supply”). 2. Zhongguo Chanye Ditu Bianweihui and Zhongguo Jingji Jingqi Jiance Zhongxin (Zhongguo Chanye Ditu, in short), ed. Zhongguo nengyuan chanye ditu 2006–2007 (Atlas of China’s Energy Industry, 2006–2007) (Beijing: Shehui kexue chubanshe, 2006), 5. 3. L. Alan Winters and Shahid Yusuf, “Introduction,” in Dancing with Giants: China, India, and the Global Economy, eds. L. Alan Winters and Shahid Yusuf (Singapore: The World Bank and Institute of Policy Studies, 2007), 6, 15. 4. Zmarak Shalizi, “Energy and Emission,” in Dancing with Giants, 135. 5. Zhongguo Chanye Ditu, ed. Zhongguo nengyuan chanye ditu 2006– 2007, 39. 6. In this volume, Asia is broadly defined in a geographical term to encompass East Asia, Southeast Asia, South Asia, and West Asia (the Persian Gulf and beyond). Given limited space, the volume focuses on energy security of China and Japan, as well as maritime security in Southeast and East Asia. 7. Fred Bergsten, Bates Gill, Nicholas R. Lardy, and Derek Mitchell, China: The Balanced Sheet (New York: Public Affairs, 2006), 129–130. 8. See D. Yergin, D. Eklof, and J. Edwards, “Fueling Asia’s Recovery,” Foreign Affairs 77, no. 2 (March–April 1998); Robert Manning, The Asian Energy Factor: Myths and Dilemmas of Energy, Security and the Pacific Future (New York: Palgrave, 2000); Ian Wybrew-Bond and Jonathan Stern, eds., Natural Gas in Asia: The Challenges of Growth in China, India, Japan and Korea (Oxford and New York: Oxford University Press, 2002); Der Mehden and Fred R. Con, Japan’s Relations with Primary Energy Suppliers (Houston: Rice University, James A. Baker III Institute for Public Policy, 2000); P. Crompton and Y. R. Wu, “Energy Consumption in China: Past Trends and Future Directions,” Energy Economics 27, no. 1 (January 2005): 195–298. 9. See J. Calabrese, “China and the Persian Gulf: Energy and Security,” Middle East Journal 52, no. 3 (Summer 1998): 351–366; D. Kerr, “The Chinese and Russian Energy Sectors,” Post-Communist Economies 11, no. 3 (September 1999): 337–372; M. C. Spechler, “Crouching Dragon, Hungry Tigers: China and Central Asia,” Contemporary Economic Policy 21, no. 2 (April 2003): 270–280. 10. Erica Downs, China’s Quest for Energy Security (Santa Monica, CA: Rand, 2000); Mikkal Herberg, “Asia’s Energy Insecurity: Cooperation

24

11.

12. 13. 14.

15.

16.

Hongyi Lai or Conflict?” in Strategic Asia 2004–05, eds. Ashley Tellis and Michael Wills (Washington, D.C.: The National Bureau of Asian Research, 2004), 349–377; Euan Graham, Japan’s Sea Lane Security, 1940–2004: A Matter of Life and Death? (London and New York: Routledge, 2006). Also see Amy Myers Jaffe and Steven Lewis, “Beijing’s Oil Diplomacy,” Survival 44, no. 1 (Spring 2002): 115–134; Philip Andrews-Speed, Xuanli Liao, and Roland Dannreuther, The Strategic Implications of China’s Energy Needs (Oxford and New York: Oxford University Press for IISS, 2002). Some of the conclusions in a number of the aforementioned studies were rendered invalid. For example, most industry analysts dismissed the China–Kazakhstan pipeline as economically infeasible as the world oil price was at a low U.S.$10–12 a barrel, below the threshold of $15 for the pipeline to be viable. For their dismissal, see Downs, China’s Quest for Energy Security, 25. These pessimistic estates were paled by the high crude oil price that even hovered over $130 a barrel for some periods in 2008. Michael Klare, Resource Wars: The New Landscape of Global Conflict (New York: Henry Holt and Company, 2001), xi–xii, 109–137. Chietigj Bajpaee, “China Fuels Energy Cold War,” Asian Times, March 2, 2005. See David Zweig and Bi Jianhai, “China’s Global Hunt for Energy,” Foreign Affairs 84, no. 5 (September/October 2005): 25–38; Pak K. Lee, “China’s Quest for Oil Security: Oil (Wars) in the Pipeline?” The Pacific Review 18, no. 2 (June 2005): 265–301. An exception is Hongyi Harry Lai, “China’s Oil Diplomacy: Is It a Global Security Threat?” Third World Quarterly 28, no. 3 (2007): 519–537, which offered an opposite view and briefly discussed some developments in China’s oil diplomacy up to 2004–2005. See, e.g., See Stefan Eklöf, Pirates in Paradise: A Modern History of Southeast Asia’s Maritime Marauders (Copenhagen: NIAS Press, 2006); Adam J. Young, Contemporary Maritime Piracy in Southeast Asia: History, Causes, and Remedies (Singapore and Leiden: Institute of Southeast Asian Studies (ISEAS) and International Institute for Asian Studies (IIAS), the Netherlands, 2007); Carolin Liss, “Maritime Piracy in Southeast Asia,” Southeast Asian Affairs 2003 (Singapore: Institute of Southeast Asian Studies, 2003), 52–68. Two volumes stand out in this regard—Derek Johnson and Mark Valencia, eds., Piracy in Southeast Asia: Status, Issues and Responses (Singapore and Leiden: Institute of Southeast Asian Studies and International Institute for Asian Studies, the Netherlands, 2005); Graham Gerard Ong-Webb, ed., Piracy, Maritime Terrorism and Securing the Malacca Straits (Singapore and Leiden: ISEAS and IIAS, 2006). A specific study on maritime terrorism is Tamara Renee Shie, “Ports in a Storm? The Nexus between Counterterrorism, Counterproliferation, and Maritime

Introduction

17. 18.

19.

20.

21.

22.

23.

24.

25.

26. 27.

28.

25

Security in Southeast Asia,” Issues & Insights 4, no. 4 (Hawaii, Honolulu: Pacific Forum CSIS). Kwa Chong Guan and John Skogan, eds., Maritime Security in Southeast Asia (London and New York: Routledge, 2007). See Liselotte Odgaard, Maritime Security between China and Southeast Asia (Aldershot and Burlington: Ashgate, 2002); Jürgen Schwarz, Wilfried A. Herrmann, and Hanns-Frank Seller, eds., Maritime Strategies in Asia (Bangkok: Whie Lotus Press, 2002); Jon M. Von Dyke and Mark J. Valencia, “How Valid are the South China Sea Claims under the Law of the Sea Convention?” Southeast Asian Affairs 2000 (Singapore: Institute of Southeast Asian Studies, 2000), 48–63. For a treatise on public goods, see Mancur Olson, The Logic of Collective Action (Cambridge: Harvard University Press, 1971). For discussion on global goods, see Inge Kaul, Pedro Conceicao, Katell Le Goulven, and Ronald Mendoza, eds., Providing Global Public Goods (Oxford: Oxford University Press, 2003). “Indonesia Requests Maritime Security Help from Japan, China, Korea,” posted at http://www.voanews.com/english/archive/2007-06/ 2007-06-03-voa10.cfm?CFID=42731512&CFTOKEN=93407242 on June 3, 2007 (accessed April 20, 2008). “Chairman’s Statement of the Second East Asia Summit,” posted at http://www.aseansec.org/19303.htm on January 15, 2007 (accessed April 20, 2008). “Chairman’s Statement of the 3rd East Asia Summit (Singapore, November 21, 2007),” posted at http://www.aseansec.org/21127.htm, accessed July 3, 2008. For a brief report on the issue, refer to Andrew Batson, “China Lifts Energy Prices for Domestic Consumers,” Wall Street Journal, June 19, 2008, posted at http://online.wsj.com/article/SB121388580377088575. html. The Associated Press, “Security Costs in Malacca, Singapore Straits Estimated at US$300 Million,” International Herald Tribune, March 13, 2007. There is also a disagreement between the littoral states and the international shipping community about who should shoulder the costs of policing the sea lanes in the waters. This dispute impedes anti-piracy efforts. See Eklöf, Pirates in Paradise, 160–161. Ibid., 161–162. “U.S. Offers Early Warning System to Secure Malacca Strait,” posted at http://english.people.com.cn/200604/23/eng20060423_260421.html on April 23, 2006 (accessed April 23, 2008). Khushwant Singh, “Malacca Strait Users to Help Keep Waterway Safe and Clean,” Straits Times, September 5, 2007; Jasmine Yin, “Global Support for Strait Protection,” Today Online, September 7, 2007.

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2 China’s Oil Diplomacy in Asia Hongyi Lai

Introduction As the demand for oil in Asia soars, so does the potential for competition and tension among Asian countries. China is now the second largest consumer of oil in the world. Its global efforts to search for and secure oil imports have profound implications for both the world oil market and relations in the Asia-Pacific. This chapter examines China’s diplomatic efforts to tap overseas oil and safeguard its oil transport routes. It also discusses China’s competition and cooperation with Asian countries with respect to oil. It is argued here that although China’s growing energy needs may intensify the competition for oil in Asia, there can also be constructive cooperation in this sector. There is a growing body of studies and reports on China’s oil diplomacy and energy security in the recent decade. Initially it was mainly concerned with China’s current and projected energy demand, supply, and structure; efforts to explore domestic sources and raise energy efficiency; and the implications of China’s energy demand and imports on global energy markets.1 In the recent years it has paid increasing attention to China’s aggressive search for oil supplies abroad and problems with its oil quest. For example, some studies also discuss the efforts of China’s state oil corporations to obtain oil imports from and expand into overseas oil markets, especially those of the Middle East, Central Asia, and Russia.2 China’s oil diplomacy until

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Hongyi Lai

the 1990s and the actors involved in formulating energy policy are also covered.3 Others broadly survey China’s international oil diplomacy, especially its effect on China–U.S. relations, but there is yet no broad overview of China’s oil diplomacy in Asia alone and how China might compete and cooperate with its Asian neighbors.4 Therefore, this chapter attempts to chart China’s oil diplomacy from the 1990s to the present, as well as its competition and cooperation with other Asian countries in terms of oil. It begins by tracking the evolution of China’s search for oil supplies in West Asia, Russia, and Central Asia, and the securing of oil routes in South and Southeast Asia. It then examines the competition and cooperation between China and Asian countries with respect to oil and concludes with suggestions for further cooperation.

China’s Growing Oil Demand China’s rapidly growing economy has driven up its consumption of oil, from 88 million tons in 1980 to 368 million tons in 2007.5 It became the world’s second largest oil consumer in 2003. The increase in oil imports has mirrored the rapid increase in oil demand. In 2007, China imported 203 million tons of crude and oil products, up 6 percent from 2006.6 China became a net importer of oil products in 1993 and a net importer of crude oil in 1996. As its domestic oil production stagnates and consumption soars, its dependence on imports of oil reached 55.2 percent in 2007, up from 7.3 percent from 1995 (see table 2.1).7 As the country’s auto and aviation markets continue to expand, fuel demand and imports will continue to increase sharply. Automobiles currently account for one-third of total oil consumption. This share is projected to grow to 50 percent in 2020 as the Chinese government is promoting the auto market as a pillar industry for economic growth.8 One conservative estimate projects oil demand to grow to 400 million tons, domestic oil production to remain at about 170 million tons, and oil imports to reach 230 million tons in 2020. This would raise its dependence on imports to 58 percent. Most of the increase in China’s future oil demand must be satisfied through imports.9 Hence the government in recent years has been proactive in procuring more and more oil import sources. In November 2003, President Hu Jintao declared that oil and finance constituted two major elements of China’s

China’s Oil Diplomacy in Asia Table 2.1

29

China’s production, consumption, and imports of oil (million tons)

Year

Production

Consumption

Imports

Exports

Self-sufficiency Ratio (%)

1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2007

106.0 124.9 138.3 149.0 162.6 164.8 168.9 169.6 175.9 181.4 186.7

87.6 91.7 114.9 160.7 230.1 232.2 245.7 271.3 317.0 325.4 368.0

0.4 0.7 2.8 17.1 70.3 60.3 69.4 131.9 172.9 171.6 203.1

13.3 31.2 24.9 18.8 10.3 7.6 7.2 25.4 22.4 28.9 19.2

121.0 136.2 120.4 92.7 70.7 71.0 68.7 62.5 55.5 55.7 44.8

Notes: China’s self-sufficiency ratio is the ratio of production to consumption. Sources: The production and consumption data for 2005 are from “China’s Oil Consumption, Imports Decreased in 2005,” China Daily, February 3, 2006; Data from 2003 to 2005 came from National Statistical Bureau, China Statistical Yearbook 2006, Beijing: China Statistical Press, table 7.4, BP Statistical Review of World Energy June 2008.

national economic security. Oil has necessarily become a significant focus in China’s diplomatic work.

China’s Oil Diplomacy: West Asia (the Persian Gulf) For the Chinese, the portion of the Middle East to the east of Turkey belongs to West Asia and is definitely part of Asia. In order to meet the growing demand for oil, China has striven to expand its imports from the largest oil-producing countries, first those in the Middle East.10 It succeeded in making this region its single largest crude oil supplier. In 1995, the Asia-Pacific and the Middle East regions were China’s two dominant sources of oil imports, accounting for 42.3 and 45.4 percent of total imports, respectively (see table 2.2). By 2000, however, the Middle East’s share increased sharply to 54 percent, whereas that of the Asia Pacific (mostly Southeast Asia) fell to 15 percent. Rising oil demand in Asia itself has resulted in its oil exports declining. In 1995, imports from the Middle East were primarily from smaller oil producers, such as Oman and Yeman, while those from large producers such as Iran and Saudi Arabia were surprisingly small

30

Hongyi Lai Table 2.2 China’s regional sources of imported crude oil, 1995–2003 (%) Regions

1995

2003

2007

Middle East Africa Asia-Pacific CIS (Russia & Kazakhstan) Europe South America

45.4 10.8 42.3 0.2 2.1 0

51.3 24.4 15.3 7.2 1.8 0.4

45.0 32.5 3.5 12.6 ? 4.7

Note: CIS stands for confederation of independent states. Sources: Yearbook of China’s Economic Foreign Relations and Trade 2002, 2003; Fereidun Fesharaki, “Energy Security in Asia Pacific,” lecture at the Institute of Southeast Asian Studies, Singapore, June 8, 2004; “In 2007 China’s Petroleum Imports Approach 200 Million Tons,” posted at http://news.xinhuanet.com

Table 2.3

China’s primary sources of crude oil imports, 1995–2003 (%)

Country

1995

2003

2005

Rank, 2003

Rank, 2005

Saudi Arabia Iran Oman Angola Yemen Sudan Congo Russia Kazakhstan Vietnam Indonesia Malaysia Australia Brunei Norway Equatorial Guinea

2 5.4 21.4 5.9 14.5 0 0.1 0.2 0 4.4 30.9 3.5 0.4 0 0

16.8 13.8 10.3 11.2 7.8 6.9 4.1 5.8 1.3 3.9 3.7 2.2 2.0 1.7 1.1

17.5 11.2 8.5 13.7 5.4 5.2 4.1 10.1

1 2 4 3 5 6 8 7 14 9 10 11 12 13 15

1 3 5 2 6 7 8 4

3.2

2.9

9

10

Note: Countries in bold have dramatically increased their share in China’s oil imports from 1995 to 2003; countries that are underlined have significantly dropped in their share. Sources: Yearbook of China’s Economic Foreign Relations and Trade, 1996/97, 1998, 2002, 2003. Data for 2005 came from Zhongguo nengyuan gongye chanye ditu, 2006–2007 (Atlas of China’s Energy Industry)(Beijing: Shehui kexue chubanshe), 42.

(see table 2.3). However, Iran and Saudi Arabia surpassed Oman and Yemen to become China’s top two oil suppliers in 2003. In 1987 and 1988, before formal diplomatic relations were established in July 1990, China–Saudi ties warmed when Saudi Arabia

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purchased several dozen DF-3 IRBMs (surface-to-surface) missiles from China.11 Since 1995, leadership exchange meetings concerning oil have become frequent. The Saudi minister of petroleum (later the minister of petroleum and mineral resources) visited China in 1995, 1997, and 2004. The Saudi minister of finance and economy visited China in 1996 and the minister of commerce visited in 1998. China’s state councilor overseeing trade visited Saudi Arabia in 1995 and 2002. The countries signed a memorandum on economic and trade cooperation in 1998. Top leader exchanges have also strengthened bilateral ties, trade, and investment in oil. In 1999, the then president Jiang Zemin visited the Kingdom and oversaw the signing of a memorandum on petroleum cooperation: Saudi exports of oil and oil products to China; Saudi investment in oil refineries in China; and Chinese investment in Saudi oil fields.12 In this year leaders of the two nations declared that they forged “strategic oil partnership.”13 Due to stronger political ties and economic exchanges, Saudi Arabia’s share of China’s total oil imports increased from 2 percent in 1997 to 17 percent in 2003, becoming the largest single source (see table 2.3). When Saudi–U.S. ties became sour in the wake of “9/11” in 2001, Saudi oil shipments to the United States declined. In contrast, SinoSaudi ties improved and Saudi oil exports to China increased. China Petroleum and Chemical Corporation (Sinopec) obtained the right to explore natural gas in Saudi Arabia’s al-Khali Basin. In 2001 Saudi Arabia’s state oil company, Saudi Aramco, teamed up with ExxonMobil Corp. and Sinopec in a US$3.5 billion petrochemical refinery in Fujian, China. The Fujian project will also be capable of processing typical high-sulfur crude from Saudi Arabia and is expected to come online at the end of 2008. In 2004, for the first time in twenty-five years Saudi Arabia granted rights to foreign companies to explore three gas and oil fields in the kingdom, and one of the oil fields was granted to a major Chinese oil corporation.14 The Saudis also pledged to build a natural gas refinery in Fujian; in return, China agreed to invest in Saudi Arabia’s bauxite and phosphate industry. Later in November 2006 it was reported that Saudi Aramco reached a preliminary agreement with Sinopec in purchasing 25 percent stake in an oil refinery in Qingdao, China.15 Meanwhile, exchanges of state leaders also helped sustained rapid progress in the energy cooperation between the former “Middle

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Kingdom” and the Middle Eastern Kingdom. In January 2006, King Abdullah bin Abdul-Aziz, upon coming to throne, chose China, instead of the United States, as the first country for his visit abroad. Both nations signed an agreement that included a clause stating that the Kingdom would help with China’s building of strategic oil stockpiles and a new refinery in the south (in Hainan Province with a storage capacity of 25–30 millions tons).16 In April 2006, President Hu returned a visit to Saudi Arabia. During his visit the Saudi company Saudi Aramco signed a memorandum with the Chinese Sinopec Group, pledging to supply Sinopec and its affiliates with 1 million barrels of crude oil per day by 2010.17 In 2007 Saudi Arabia supplied 26.33 million tons of crude to China, up by 10.3 percent from 2006. The kingdom regained its position as the top foreign oil supplier to China, after conceding the status to Angola from February to August of 2006.18 Iran is the second largest oil producer in the Middle East, close behind Saudi Arabia. The ending of the Iran–Iraq war in 1988 and the subsequent peace speeded up bilateral political and economic exchange with China. Since 1988, mutual visits by senior leaders (vice president, or vice-premier and above) of the two countries have been taking place at least once every other year. The important ones included the Iranian president’s visits to China in 1992 and 2000, and the visit of Qiao Shi, chairman of the Standing Committee of the National People’s Congress, to Iran in 1996. The leaders talked about energy cooperation at some of these highprofile visits. During the then vice president Hu Jintao’s visit to Iran in 2001, two oil pacts were signed, one for the transport of crude oil from countries around the Caspian Sea, and the other for cooperation between Chinese and Iranian national oil corporations. During President Jiang Zemin’s visit in 2002, the leaders signed a framework agreement on oil and gas cooperation.19 Visits by Vice Premier Li Lanqing and State Councilor Wu Yi, both responsible for foreign trade, also facilitated oil trade. Since 9/11, Iran’s nuclear program has been coming under increasing scrutiny by the West, especially the United States and the European Union. Iran, however, adopted a defiant stance toward Western pressure upon its nuclear processing activities. China took a delicate stance to balance its growing need for oil and international

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opposition against the Iranian nuclear program. On the one hand, it supported Iran’s rights for peaceful use of the nuclear facilities and forged energy cooperation with the Islamic republic. Reportedly, Beijing has provided Tehran with surface-to-air based on land and ships. 20 On the other hand, it expressed its opposition to any nuclear weaponry program in Iran. On March 3, 2008, China surprised many Western critiques of its energy with Tehran by supporting the adoption of Resolution 1803 at the Security Council of the United Nations. The resolution pressured Iran to halt uranium-enriching activities for its nuclear weaponry program by expanding embargo on the country. 21 In October 2004, Sinopec inked a memorandum of understanding with Iran whereby the company would buy 250 million tons of liquefied natural gas within thirty years and develop the new Yadavaran Field in southern Iran, while Iran would sell 150,000 barrels of crude oil per day to China for twenty-five years at market prices after commissioning of the field. The oil and gas deal was reportedly the largest energy deal between the two nations. This tentative deal immediately drew international attention and negative reaction from the West. In December 2007, U.S. intelligence found Iran had terminated nuclear weapon development as early as 2003, which undermined critically the ground for new sanctions. A few days later, China and Iraq completed part of the deal that was estimated to be worth US$2 billion. Sinopec signed a $2 billion “buyback” agreement with Iran to develop the field into a production facility of 185,000 barrels per day (b/d) in the first phase, rising later to a peak of 300,000 b/d. 22 As a result of improved ties, China–Iranian trade exploded. It soared from just US$200 million in the mid-1990s to US$7.5 billion in 2004, expanded to US$9.5 billion in 2005 and dramatically jumped to around US$20 billion in 2007, including $7 billion of oil. China’s imports of crude oil from Iran soared after 1995. In 2000, China imported 7 million tons of crude oil from Iran, accounting for 83 percent of China’s total imports from that country. By 2003, Iran was the second largest source of foreign oil for China behind Saudi Arabia. In 2005 China imported 14 million tones of crude oil from Iran, equivalent to 11 percent of its oil imports. Iran was the third largest source of foreign oil for China in that year (table 2.3).23

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China is not alone in reaching out to Iran for oil. Japan is making similar efforts. In February 2004, Japan sealed a $2 billion deal to develop Iran’s Azadegan field despite pressure from the United States to back off.24 Clearly, both China and Japan favor a softer and more cooperative approach toward Tehran than Washington prefers. Finally, China and Iran have cooperated militarily, to the displeasure of Washington. The U.S. Central Intelligence Agency reported to the U.S. Congress that Chinese companies have assisted Iran with the production of ballistic missiles. Beijing has reportedly provided Tehran with surface-to-air based on land and ships. By 2005, the Bush administration had imposed sixty-two sanctions on Chinese firms for violating controls on the transfer of weapon technology to Iran and other states. 25 China also has cultivated ties with other West Asian oil producers. It has regular foreign, trade, and petrochemical ministerial exchanges with Oman and ministerial exchanges with Yemen, the fifth and sixth largest oil suppliers in 2005, respectively. The Yemenese president visited China in 1998. 26 China has also signed other trade and investment agreements with both countries. China has also intensified its economic ties with the Arab world, prompting Japan’s quick courting of the Gulf states. In September 2004, China and the fifteen-member Arab League agreed to set up a Cooperation Forum on politics and the economy. The forum serves to widen market access and expand trade and investment cooperation, especially with respect to oil and gas. 27 China makes its efforts to improve its ties with Middle Eastern countries against the backdrop of Japan making overtures to the Middle Eastern countries. In March 2006, Japan tried to forge an FTA with the six Gulf Cooperation Council states that aimed to strengthen trade ties with the Gulf countries.28

Finding New Oil Sources: Russia Though China has succeeded in increasing imports from the Middle East and Africa, it has two concerns. First, while the Middle East accounts for about half of China’s total crude oil imports, the U.S. predominance in the region and terrorist activities by radical Islamic groups have cast a long shadow. Second, over 75 percent of China’s

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oil imports from the Middle East and Africa goes through the 1,100kilometer Straits of Malacca. As China lacks a blue-water navy, hostile moves in or near the Strait by external powers or terror groups would acutely disrupt its oil supplies. Since the late 1990s, and especially under the leadership of Hu Jintao since 2003, China has actively sought oil from Russia and Central Asia in order to reduce the reliance on the Middle East and the Straits of Malacca. In doing so China aims to create oil transport routes that avoid the Straits of Malacca. For years Russia has been one of the largest oil exporters outside the Persian Gulf and is the third largest oil producer in the world. More importantly, Russia is pushing hard for an invitation to the second East Asian Summit and wants to develop Siberia by strengthening its economic ties with East Asia. 29 In addition, China–Russia oil ties are overshadowed by Japan– Russian ties. Back in 1999 China and Russia declared a strategic partnership. They also launched annual bilateral energy cooperation talks within their China–Russian regular meeting mechanism. China’s courting of Russia for oil has paid off. Imports from Russia have increased sharply in recent years from merely 0.2 percent of China’s total crude oil imports in 1995 to 2.1 percent in 2000 and 5.8 percent in 2003, thereby becoming China’s seventh largest oil supplier in 2003. In 2005 Russian exports of crude to China reached 12.8 million tons, up by 18.6 percent from 2004, accounting for 10 percent of China’s imports. Robust growth propelled Russia to be the fourth largest crude supplier to China (see table 2.3). Russia has become one of the fastest growing oil exporters to China since 2000. Two large issues loom over future China–Russian relations: Russian oil exports to China by rail and a trans-Siberian oil pipeline. China has intensified its diplomatic efforts to reach a favorable outcome for both. Premier Wen Jiabao visited Moscow in September 2004 and promised to invest US$12 billion in Russia’s infrastructure and energy sectors by 2020. He also confirmed support for Russia’s WTO bid. In return, Russia pledged to further cooperation with China in the oil and gas industries and to increase oil exports by rail to China to ten million tons in 2005 and fifteen million tons in 2006. 30 Energy cooperation was high on the agenda during Russian prime minister Mikhail Fradkov’s visit to China in November 2006 and Chinese premier

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Wen Jiabao’s visit to Russia in November 2007. 31 According to Zhou Jiping, deputy general manager of the China National Petroleum Corporation (CNPC), China and Russia have made “historic breakthroughs” in investment and cooperation in the petroleum industry in 2006. The two countries signed agreements on establishing two joint venture companies for oil and gas exploitation and building a pipeline transporting Russian crude oil to the Chinese border. 32 China warmly hosted the visit of Russian President Putin in 2004, hoping to create friendly bilateral ties conducive to progress in talks on the trans-Siberian pipeline. 33 However, China’s efforts to reach a favorable plan for this pipeline have been complicated by Japan’s involvement, which has caused the Russians to prevaricate somewhat. Though China and Russia have been negotiating for a pipeline to transport oil from Siberia to northern China for the last decade, Russia announced in January 2005 that it would build the line from Taishet in Siberia’s Irkutsk region to Nakhodka on the east coast near Japan so as to enable Russia to export oil to Japan and South Korea. In April that year the Russian government decided to terminate the first stage near the Chinese border. Then, in November, when visiting Japan, President Vladimir Putin declared that no final decision had been made as to whether the pipeline would be built first to Nakhodka or to Daqing in Heilongjiang Province. 34 According to Russia’s pipeline monopoly Transneft, the first section of the pipeline would extend sixteen hundred kilometers from Taishet to the town of Skovorodino and would have been completed in 2008. By 2010, depending on the Russian government’s decision, this pipeline could provide China 0.6 million barrels per day, or it could provide Nakhodka 1 million barrels per day. The Russian government is clearly playing off China and Japan against each other. Nevertheless, it may carefully watch overtures that these competing countries are making to obtain energy supplies from elsewhere in the world.

Forging Cooperation with Central Asia The Central Asian region around the Caspian Sea, which is part of the Commonwealth of Independent States, constitutes a new source of oil for China. In that region, Kazakhstan is potentially the largest oil supplier for China. As early as 1992, China had started to develop trade

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ties with Kazakhstan by sending Li Lanqing, its minister of foreign trade and external cooperation, to establish diplomatic relations. Cooperation between China and Kazakhstan in petroleum and gas officially began in September 1997, when Vice Premier Li Lanqing signed an agreement for cooperation in this sector during another visit to Kazakhstan. Also during Li’s trip, the CNPC signed an agreement with the Kazakh minister of energy and mineral resources for the exploration of oil fields and construction of a pipeline.35 There have been two key developments. One was the agreement signed in 1997 to pour US$2.5–3 billion in the construction of a 3,088kilometer pipeline from Atasu in central Kazakhstan to Dushanzi in Xinjiang. Construction was completed in December 2005. The initial capacity is ten million tons per year, though the full capacity will reach twenty million tons. The other is the CNPC’s takeover in 1997 of a 60 percent stake in the Kazakh oil company Aktobemunaigaz, and its plan to invest a large amount in this company over twenty years.36 Oil trade has made Kazakhstan the largest trading partner with China among the former Soviet Central Asian republics. China has also been seeking oil deals with Kyrgyzstan. Premier Wen visited this country on his way to Russia in September 2004. He and Prime Minister Nikolai Tanayev signed a compendium on potential cooperation areas and programs for the next ten years, especially communications and energy. 37

China’s Competition for Oil in Asia Asia is the fastest growing oil market in the world. China’s growing demand for oil inevitably results in its competition with other major Asian oil consumers. China and Japan are currently locked in disagreements over oil and gas. They are not only vying against each other to get their favored route for Russia’s trans-Siberia pipeline (see earlier), they are also involved in tense disputes over the extraction of gas in the East China Sea that separates them. China and Japan’s exclusive economic zones (EEZs) on the sea overlap. They have also competing claims over islets (Diaoyutai or Senkaku Islands being the most prominent) and reefs in the East China Sea. China is exploring and extracting gas in the East China Sea on the Chinese side of the

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middle line of the territorial water between China and Japan. Japan strongly objects to this. Both countries have held several rounds of talks over joint gas exploration in this area. More discussion on the topic can be found in chapters three and five. Until very recently, China was also competing with India for energy resources. Relations had been cool since 1962 when India lost a brief border war with China. However, in January 2005, the two governments agreed to establish an India–China Strategic and Cooperative Partnership for Peace and Prosperity. Recognizing that competition was causing more harm than good, it was agreed that they would strive to work together in a number of areas including agriculture, tourism, cultural exchanges, traditional medicine, water, military cooperation, air and shipping links, and energy. In October 2004, China outdid India’s largest oil company, the state-owned Oil and Natural Gas Corporation (ONGC), in winning the purchase of an oil field from Shell in Angola.38 China promised US$2 billion in aid for Angola, compared to India’s offer of US$200 million. Pleased with the Chinese offer, the Angolan government asked the state-owned oil company, Sonangol, to exercise its right to purchase the field from Shell, paving the way for the Chinese eventually winning the bid. In 2005, China again defeated India in acquiring PetroKazakhstan, a Canadian oil-producer in Kazakhstan, 39 and in January 2006, China National Offshore Oil Corporation (CNOOC), China’s largest offshore oil and gas producer, outlasted ONGC to get a 45 percent stake in a Nigerian oil field.40 If all goes according to plan, however, energy competition between the two countries will be a thing of the past. Some details of the new cooperation are provided here.

China’s Cooperation with the Rest of Asia Since 2000, China has made noticeable progress in oil and gas cooperation in the South China Sea and with Southeast Asian and South Asian nations. The South China Sea has considerable deposits of oil and gas. Oil production in the region is around 2.5 million barrels per day and has increased gradually over the past few years, as China, Malaysia, and Vietnam increase production. China, Taiwan, Vietnam, Malaysia, Brunei, and the Philippines all claim part or all of the Spratly and Paracel Islands.41 A temporary solution has been

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reached in the form of the Joint Declaration on the Conduct of the Parties, signed in November 2002 by China and the ten ASEAN members. It stated all concerned should “resolve their territorial and jurisdictional disputes by peaceful means.” In March 2005, three oil companies from China, Vietnam, and the Philippines concluded a historical agreement in Manila for joint exploration of oil and gas resources within the area agreed by them in the South China Sea.42 China has also intensified its cooperation with Indonesia in gas exploration and trade. In September 2002, China signed a US$8.5 billion liquefied natural gas (LNG) contract with Indonesia. Indonesia would supply for twenty-five years from the Tangguh gas field in its most eastern province of Papua, up to 2.6 million tons or approximately 3.6 billion cbm of LNG per year to a planned terminal in China’s Fujian Province.43 In October 2006 the final agreement on the aforementioned deal was signed between CNOOC and Indonesia on China’s purchase of LNG from Indonesia. In January 2002, Chinese oil producer CNOOC Ltd. agreed to pay $585 million to buy nine subsidiaries from the Spanish firm Repsol-YPF that operated in five oil and gas fields in Indonesia. CNOOC expected to buy working reserves that were estimated at 360 million barrels of oil equivalent. Reportedly this is the company’s largest investment abroad and the deal turned CNOOC into the largest offshore oil producer in Indonesia. The deal would boost the company’s production by around 17 percent.44 In July 2007, it was reported that China National Petroleum Corporation, CNOOC, and Sinochem Corporation, together with the Sinopec Corp., would invest US$14 billion in petroleum projects in Indonesia. China is one of the top three Asian investors in Indonesia’s energy sector.45 In the recent years, Indonesia has appeared to regain its place as the top East Asian oil supplier to China. In 1995, Indonesia supplied 30.9 percent of China’s oil imports and was the indisputable largest oil supplier for China overall. This share declined sharply to 6.5 percent in 2000. By 2003, Vietnam edged over Indonesia to be the largest oil supplier in East Asia (encompassing Southeast Asia). In 2005, Indonesia’s share was 3.2 percent. With an overall ninth rank it was the only East Asian nation among the top ten crude suppliers for China in 2005 (table 2.3).

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Even though China is involved in occasionally heated disputes with Vietnam over territorial water claims near the Spratly Islands, both have not refrained from embarking upon energy cooperation. In November 2006, CNOOC announced that it signed the “Agreement on the Joint Exploration in the Contract Zone of the North Bay” with Petro Vietnam. According to the agreement, both sides would conduct joint oil/gas exploration in cross-country formations of the North Bay, or the Gulf of Tonkin in the South China Sea.46 In 2007, Ho Chi Minh City based Far East Investment–Trading Joint Stock Co. and China National Overseas Engineering Corp. unfolded a $360-million plan to build an oil refinery in Vietnam’s southern Can Tho City by the end of the year. The oil refinery, which was scheduled to start operation in 2013, will be able to process two million tons of crude oil a year.47 Similar cooperation is also taking place between China and the Philippines, another claimant state in the Spratly Islands. In January 2008, China Oilfield Services Ltd., the drilling unit of CNOOC, the country’s third largest oil firm by assets, disclosed that it signed a two-year multimillion dollar contract to provide directional drilling services for thirty-four geothermal wells to state-run Philippine National Oil Co. This is the first time it is providing directional drilling services outside China.48 In September 2007, during his visit to Australia ahead of the APEC summit in Sydney Chinese President Hu Jintao attended the signing of a twenty-year energy pact between Chinese and Australian firms. According to the multibillion dollars energy deal between PetroChina International and Royal Dutch Shell, Australia would sell LNG to China.49 As mentioned earlier, China and India are making progress with several energy cooperation agreements. In January 2006, they inked in Beijing a “Memorandum for Enhancing Cooperation in the Field of Oil and Natural Gas,” paving way for cooperation in energy exploration, production, storage and stockpiling, research and development, and conservation. They hoped that their cooperation would help bring down prices in Asia. Mani Shankar Aiyar, the visiting Indian petroleum and natural gas minister who signed the memo, stated: Both China and India recognize that unbridled rivalry between them only results in the seller of the assets being benefited irrespective

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of which of the two countries wins the bid . . . Therefore, it does make sense . . . to have circumstances in which India and China march shoulder to shoulder. I don’t think it is necessary for either India or China to purchase its energy security at the expense of the other. 50

China and India are already working together in extracting oil in Iran. The Yahavaran oilfield in southern Iran has become a SinoIndian–Iranian joint project, with India, China, and Iran holding 20, 50, and 30 percent stakes, respectively.51 In late 2005, CNPC and ONGC make a joint bid for Petro-Canada’s stake in Al Furat Petroleum, a venture also involving Syrian Petroleum and Syria Shell Petroleum Development.52 In recent years, China has encouraged its ally Pakistan to enter a détente with India, with whom it has viewed rather bitterly since the partition of the subcontinent in 1947. An improvement in Indo-Pakistani relations since January 2004, coupled with higher oil prices, has raised the possibility for both countries to launch for an Iran–Pakistan–India “pipeline,” which extends 2,737 kilometers from Iran’s South Pars field to India. About 765 miles of it would pass through Balochistan, an unruly tribal area in Pakistan. Pakistan has even pledged that it will not terminate gas flow, even in case of Indo-Pakistan tension or hostilities.53 Though China and Japan are in a standoff over access to oil and gas resources in Siberia and the East China Sea, Japan’s Ministry of Economy, Trade and Industry has formed an energy group that is dedicated to providing China with oil stockpiling technology. The Japanese government is also keen to help all Asian nations with developing non-oil energy alternatives, such as wind and solar power, and also improve energy consumption efficiencies.54

Conclusion As China’s dependence on oil imports increases, it will naturally intensify its efforts to secure supplies from the largest producers in the world, especially West Asia, Russia, and Central Asia. As demonstrated in the earlier discussion, in the wake of its growing dependence on oil imports since 1993, China has scored a number of points in securing its oil supplies in the recent decades. First, it has

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successfully tapped the largest oil markets in the world, namely, the Gulf states. Until the-mid 1990s China relied on both the Middle East and the Asia-Pacific (primarily Southeast Asia and Australia) as its two major sources of imports. By 2000 the Middle East had emerged as the largest oil supplier for China. In 2007 the region continued to supply 45 percent of China’s crude imports. In particular, China has expanded impressively its imports from the two largest oil producers in the Persian Gulf, that is, Saudi Arabia and Iran, and has reduced its previous heavy dependence on smaller Gulf producers such as Oman and Yemen. After the 9/11 attacks, Saudi Arabia has seen its ties with Washington sour, and Iran even slipped into a near confrontation with the United States. Both Gulf states see China as a worthy major player with which they should cultivate closer ties. China takes advantage of the situation to expand its ties with both Gulf states. Nevertheless, China has done so cautiously without agitating Washington. For example, as stated earlier, China did not finalize its deal to develop a new and large oil field in Iran until the CIA cleared Iran of suspicion of developing a nuclear program. Second, China has also made rapid inroads in obtaining oil supplies from Russia and Central Asia. This aims to diversify China’s overseas oil supplies away from the Persian Gulf. In 1995 the Confederation of Independent States (CIS) was still a negligible player in China’s oil supplies. In 2007 the CIS had emerged as the third largest source of crude oil for China. Its significance has continued to grow afterward. Also, China continues to expand its energy cooperation with Southeast Asia and Australia. China’s state oil companies are exploring oil and gas fields in Indonesia and would import LNG from Indonesia and Australia. Third, China appears to have learned to disentangle territorial disputes from normal energy cooperation. CNOOC would team up with Petro Vietnam in Joint Exploration in the Contract Zone of the North Bay. The Chinese and Vietnamese oil firms are cooperating in building an oil refinery in Vietnam. China is even willing to engage in joint energy exploration in the South China Sea where it has territorial disputes with Southeast Asian neighbors. Oil firms from China, Vietnam, and the Philippines entered an agreement on joint oil and gas exploration in the area.

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Fourth, China has shown its willingness to cooperate with Asian rivals, India in particular, on international oil markets. China has teamed up with India in jointly exploring the Yahavaran oilfield in southern Iran. According to experts, more energy cooperation between China and India can be done and their competition for oil can be lessened.55 China has encouraged Asian rivals India and Pakistan to embark on energy cooperation by supporting an Iran–Pakistan–India peace pipeline. In the coming years, oil will likely loom larger in China’s diplomatic, trade policy, and security arrangements. Without doubt, the oil factor will increasingly affect China’s relations with major oil exporting countries, major powers, and China’s own neighbors. Some observers predict that China’s rising demand for oil and quest for oil security could destabilize international and regional security and threaten the country’s “peaceful rise.”56 However, Asia’s need for oil imports could generate cooperation as well as competition. The key is to prevent competition from damaging intercountry relations. Through cooperation in oil exploration, procurement, transport, and stockpiling, Asian countries can build trust in their pursuit for energy security and foster peace in the region.

Notes The author thanks Prof. John Wong for materials and comments on earlier drafts. He also thanks Peng Er Lam and Elspeth Thomson for their editing. 1. See chapter 5, “China: In Search of an Energy Policy,” in Robert Manning, The Asian Energy Factor: Myths and Dilemmas of Energy, Security and the Pacific Future (New York: Palgrave, 2000), 85–118; Gao Shixian, “China,” in Rethinking Energy Security in East Asia, ed. Paul Stares (Tokyo: Japan Center for International Exchange, 2000), 43–58; P. Crompton and Y. R. Wu, “Energy Consumption in China: Past Trends and Future Directions,” Energy Economics 27, no. 1 (January 2005): 195–298. 2. See J. Calabrese, “China and the Persian Gulf: Energy and Security,” Middle East Journal 52, no. 3 (Summer 1998): 351–366; G. X. Ji, “China versus Asian Pacific Energy Security,” Korean Journal of Defence Analysis 10, no. 22 (Winter 1998): 109–141; D. Kerr, “The Chinese and Russian Energy Sectors: Comparative Change and Potential Interaction,” Post-Communist Economies 11, no. 3 (September 1999): 337–372; J. P. Dorian, U. T. Abbasovich, M. S. Tonkopy, O. A. Jumabekovich, and

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3.

4. 5. 6.

7.

8. 9. 10. 11. 12.

13.

14. 15.

16.

Hongyi Lai D. X. Qiu, “Energy in Central Asia and Northwest China: Major Trends and Opportunities for Regional Cooperation,” Energy Policy 27, no. 2 (May 1999): 281–297. Philip Andrews-Speed, Xuanli Liao, and Roland Dannreuther, The Strategic Implications of China’s Energy Needs (Oxford and New York: Oxford University Press for IISS, 2002); Amy Myers Jaffe and Steven Lewis, “Beijing’s Oil Diplomacy,” Survival 44, no. 1 (Spring 2002): 115–134; Mikkal E. Herberg, “Asia’s Energy Insecurity: Cooperation or Conflict?” in Strategic Asia 2004–05, eds. Ashley J. Tellis and Michael Wills (Seattle: The National Bureau of Asian Research, 2004), 348–354. See David Zweig and Bi Jianhai, “China’s Global Hunt for Energy,” Foreign Affairs 84, no. 5 (September/October 2005): 25–38. BP Statistical Review of World Energy June 2008, 12; China Statistical Yearbook 2006, table 7.4. Data and computation use the following sources: BP Statistical Review of World Energy June 2008, 20; BP Statistical Review of World Energy June 2007, 20. BP, BP Statistical Review of World Energy June 2008 (London: BP, 2008), 20. For a discussion of China’s oil development strategy, refer to John Wong and Wong Chee Kong, “China’s New Oil Development Strategy Taking Shape,” EAI Background Brief, no. 13 (Singapore, East Asian Institute, April 28, 1998). “China May Become the Third Largest Auto-Producing Country in the World,” Lianhe zaobao (United Morning Post), February 5, 2005. “China Needs to Reshape its Thinking for Seeking Oil Abroad,” Guoji xianqu daobao (International Herald Leader), December 31, 2004, 4. See Wong and Wong Chee Kong, “China’s New Oil Development Strategy Taking Shape.” Lu Ning, The Dynamics of Foreign-Policy Decision-Making in China (Boulder, CO: Westview Press, 2000), 122–126. See various news items about China–Saudi relations that are posted at http://www.chinaembassy.org.sa and http://www.fmprc.gov.cn (accessed October 5, 2004). Hao Jun, Shiyou xiaoying: Quanqiu shiyou weiji de beihou (The Effects of Petroleum: Behind Global Petroleum Crises) (Beijing: Qiye guanli chubanshe, 2005), 291. Ibid. Chietigj Bajpaee, “China Fuels Energy Cold War,” Asian Times, March 2, 2005; “Sinopec–Saudi Refinery Deal to Boost Aramco Foothold in China,” Xinhua News Agency, November 27, 2006. “China, Saudi Arabia Extend Energy Ties,” posted at http://www. atimes.com on January 25, 2006; “Saudi Arabia Signs Important Energy Pact with China,” posted at http://www.peacehall.com/news/ (Source: BBC Chinese) (accessed January 23, 2006); “China, Saudi Arabia Forge

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17. 18.

19.

20. 21.

22.

23.

24. 25.

26. 27.

28.

29.

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Closer Relationship,” China Daily, January 24, 2006; “Big Deals in Gulf–China Trade Boom,” The Associated Press, April 11, 2007. “Sinopec–Saudi Refinery Deal to Boost Aramco Foothold.” “Saudi to Return as China’s Top Oil Supplier—Aramco,” Reuters news, September 6, 2006; “Saudi Is Still China’s Top Crude Supplier,” Middle East Oil & Gas Review, January 23, 2008. Zhongguo waijiao gailan (A Survey of China’s Diplomacy), 1993, 108–109. Zhongguo waijiao (China’s Diplomacy), 2002, 109; Zhongguo Waijiao (China’s Foreign Affairs), 2003, 174. “China–Iran Oil and Weapons Trade Grows,” Asia News, November 14, 2007. “Zhongguo tongyi zhicai Yilang neimu: weihu zunyan, jinggao bie zai duikang” (An Inside Story of China’s Agreement to Impose Sanctions on Iran—Safeguard Dignity and Warn Not to Continue Confrontation), Shijie xinwenbao (World News Journal), March 7, 2008, posted at http://news.wenxuecity.com/messages/200803/news-gb2312-537910. html (accessed March 8, 2008). “China, Iran Sign Biggest Oil and Gas Deal,” China Daily, October 31, 2004; “Iran Speeds Up Demining of Yadavaran Field after Sinopec Signs Up,” Platts Commodity News, January 6, 2008; “Beijing Invests in Iran Oil Project,” South China Morning Post, January 7, 2008. “China–Iran Oil and Weapons Trade Grows,” Asia News, November 14, 2007; “Deepening China–Iran Ties Weaken Bid to Isolate Iran—Tehran Increasingly Important in Beijing’s Energy Quest,” Washington Post, November 18, 2007, A20. “Japan Secures Financing to Develop Iran’s Azadegan Oil Field,” posted at http://www.gasandoil.com/goc/company/cnm41683.htm. Bajpaee, “China Fuels Energy Cold War”; David Cortright and George A. Lopez, “Bombs, Carrots, and Sticks: The Use of Incentives and Sanctions,” posted at http://www.armscontrol.org/act/2005_03/ Cortright.asp (accessed March 2, 2005). Zhongguo waijiao gailan (A Survey of China’s Diplomacy), 1993–1995; Zhongguo waijiao (China’s Diplomacy), 1996–2003. “An Action Plan for China–Arab State League Cooperation Forum” and “An Announcement for China-Arab State League Cooperation Forum,” posted at http://www.fmprc.gov.cn (accessed October 5, 2004). “Japan, 6 Persian Gulf Nations to Hold Preparatory FTA Talks in May,” posted at http://www.tmcnet.com/usubmit/-japan-6-persian-gulfnations-hold-preparatory-fta-/2006/02/14/1369983.htm on February 14, 2006. The first East Asian Summit was held in Kuala Lumpur on December 14, 2005. It was attended by the heads of state/government of ASEAN, Australia, China, the Republic of India, Japan, Korea, and New Zealand. Russia was invited as a guest of the government of Malaysia. For more

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30. 31.

32. 33.

34. 35. 36.

37. 38. 39. 40. 41. 42.

43.

44.

Hongyi Lai details, see the chairman’s statement posted at http://www.aseansec. org/18104.htm (accessed February 24, 2006). “Sino-Russian Economic Ties in Strong Momentum,” China Daily, September 23, 2004. “Oil Deals Flow during Russian Prime Minister’s China Visit,” The Associated Press, November 10, 2006; “Energy to Top Chinese PM’s Moscow Agenda,” The Press Trust of India Limited, November 5, 2007. “China, Russia Make ‘Historic Breakthroughs’ in Oil Industry Cooperation in 2006,” BBC News, November 9, 2006. “Premiers of China and Russia Settled for Goals in Oil and Gas Cooperation,” posted at http://wwwmlr.gov.cn (accessed September 27, 2004). Kwan Weng Kin, “Putin Keeps Japan Guessing on Oil,” Straits Times, November 22, 2005. Information posted at China Ministry of Foreign Affairs website http:// www.fmprc.gov.cn on August 21, 2003 (accessed October 2, 2004). Information posted at U.S. Department of Energy website http:// www.eia.doe.gov (accessed October 2, 2004); “Ground Broken on Sino-Kazakhstan Oil Pipeline,” at http://bjtoday.ynet.com (accessed October 16, 2004); “The Construction of Sino-Kazakh Petroleum Pipeline Starts: Oil Exports to China Can Reach 10 Million Tons a Year,” posted at http://cn.news.yahoo.com (accessed September 29, 2004); “An Illustration on China’s Petroleum Transport Routes,” Zhongguo guojia dili (China’s National Geography), December 2004: 56–57. Meng Yan “China, Kyrgyzstan Tap Co-operation Potential,” China Daily, September 23, 2004. “In a Battle over West African Oil Field China Defeats India with ‘Heavy Gold,’ ” Lianhe zaobao, October 16, 2004. “India is Casting a Wide Net in its Hunt for Energy,” International Herald Tribune, January 24, 2006: 12. “India, China to Sign Pact on Cooperation,” Washington Post, January 10, 2006. China paid $2.3 billion for this. “South China Sea Region,” posted at U.S. Department of Energy Website http://www.eia.doe.gov/emeu/cabs/schina.html (accessed January 3, 2006). “China, Vietnam Agree to Promote South China Sea Joint Exploitation,” posted at People’s Daily Online http://english.people.com.cn on July 20, 2005. “China Also Engages in Energy Trade with Southeast Asia,” People’s Daily, September 27, 2002; “China and Indonesia Sign Natural Gas Import Contract,” Xinhua News Agency, October 9, 2006. “With Iraq Deal Dissolved by War, Beijing Looks Elsewhere,” Washington Post, July 13, 2005: D01; “CNOOC Buys Indonesian Oil Fields,” CNN, January 21, 2002, posted at http://www.uofaweb. ualberta.ca/chinainstitute/nav03.cfm?nav03=43658&nav02=43617& nav01=43092 (accessed January 26, 2008).

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45. “Indonesia Favours US$14bn Oil Investment from China,” Ta Kung Pao, July 30, 2007. 46. “CNOOC Conducts Exploration with Vietnamese Company,” China Chemical Reporter, December 6, 2006. 47. “Vietnam, China to Build Oil Refinery in Can Tho,” Vietnam News Brief Service, July 9, 2007. 48. “China Oilfield Services Inks Drilling Svc Deal in Philippines,” Dow Jones International News, January 23, 2008. 49. “Hu at Signing of 20-Year China–Australia Energy Pact,” Reuters News, September 3, 2007. 50. For a detailed report, see “China, India Sign Energy Agreement,” China Daily, January 13, 2006. For another report, see “India, China to Sign Pact on Cooperation,” Washington Post, January 10, 2006. 51. Chietigj Bajpaee, “India, China Locked in Energy Game,” Asia Times, March 17, 2005. 52. “India is Casting a Wide Net in Its Hunt for Energy,” 12. 53. Bajpaee, “India, China Locked in Energy Game.” 54. “Japan Has a Good Solution to the Oil Issue,” Lianhe zaobao, October 15, 2004. 55. Conversation with an expert on international oil markets in U.K., December 2007. 56. Bajpaee, “China Fuels Energy Cold War.”

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3 Security of China’s Energy Imports Hongyi Lai

Introduction As the world’s second largest oil consuming nation and like other nations such as the United States, China views oil as a strategic economic resource. China’s rising demand for oil imports and its heavy reliance on sea lanes for oil transport has resulted in Chinese policymakers’ concerns with sea lanes security. In the recent years China has stepped up its efforts to secure its energy transport routes. A small and growing literature discussed China’s efforts to secure sea lanes, plan a strategic oil reserve, and build oil refineries, while some studies analyzed actors in energy policies until the late 1990s.1 There was a gloomy view about China’s growing oil diplomacy. In particular, some analysts, notably Michael Klare, have claimed that China’s quest for oil and gas resources and sea lance security would clash with those of other Asian oil consumers and that the clashes might burst into military conflict in the South China Sea and East China Sea.2 One analyst also remarked: “China’s quest for energy resources on the world stage is creating a destabilizing effect on international and regional security.” The observer singled out the South China Sea, the East China Sea, and the Straits of Malacca as potential spots for conflict over energy resources and sea lane security. 3 Other argued that “China’s willingness to promote cooperative regional solutions to Asia’s energy security concerns has been very limited.”4

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It is thus necessary to sort out facts from claims over China’s quest for energy security. In this chapter an attempt has been made to provide an overview of China’s external initiatives for ensuring the security of sea transport of oil imports and then examine their implications for the region. It is argued in this chapter that China has started to take close note of external developments and make preparations in order to ensure smooth transport of oil imports and peaceful exploration of energy resources in nearby waters. First of all, China has been concerned with and opposes the great powers’ military involvement in security of the Straits of Malacca, the critical route of China’s oil imports. However, it is also receptive to technical assistance and dialogues to enhance the security of the Straits. China has also contemplated alternate routes on land to bypass the Straits through cooperation with Pakistan, Myanmar, and other Southeast Asian nations and by expanding its oil imports from Russia and Central Asia. China has opted for joint exploration for energy resources in the South China Sea and the East China Sea where it is involved in territorial disputes with neighbors, while actively guarding against Taiwan’s de jure independence. It wants to build its own fleet for transporting its oil imports. Nevertheless, contrary to many pessimistic predictions, China’s efforts to secure its energy transport and offshore exploration have not generated armed naval clashes. China has even made progress in joint exploration with other nations in the South China Sea and the East China Sea. Toward the end, this chapter also discusses sea lane security as a public goods (or global goods) and points out areas where China and other Asian countries can cooperate.

Sea Lane Security for Oil Imports By 2003, China’s importing sources were the Middle East, which accounted for 51.3 percent of its oil imports, followed by Africa (24.4 percent), Asia-Pacific (15.3 percent), Russia and Kazakhstan (7.2 percent), Europe (1.8 percent), and South America (0.4 percent) (see table 2.2 in chapter two). Even though other countries, such as Venezuela, Brazil, Ecuador, and Canada, may play an increasing

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role in China’s crude oil imports, their relative contribution to China’s oil imports was still insignificant by 2003. 5 It is thus apparent that China’s oil imports have to go through the following routes. The most important route is the sea lane through the Indian Ocean and the Straits of Malacca. All the crude oil from the Middle East, Africa, and Europe has to be shipped via this route. By 2003, the route accounted for 77.5 percent of China’s oil imports. The second route is the sea lane across the South China Sea for oil from Southeast Asia and Australia, through which 15.3 percent of China’s oil imports was shipped. The third route can be loosely classified as the land route through Euroasia, namely, transport of oil through rail and pipelines from Russia and Central Asia. It accounted for 7.2 percent of China’s oil imports in 2003. The fourth route is sea lanes across the Pacific Ocean for oil from Americas. Its share in China’s oil imports is less than 1 percent. It thus appears that by 2003 as much as 92.5 percent of China’s oil imports needed to be shipped on sea. The only exception was oil from Russia and Kazakhstan whose exports to China would go through these nations and Mongolia. In addition to crude oil, China also imports oil products, including gasoline, diesel oil, kerosene, and fuel. South Korea, Singapore, and Russia were largest exporters, each supplying at least 14 percent of China’s imports from 1997 to 2002. The other suppliers were Japan, Malaysia, and the Philippines.6 China is also investing in refinery overseas. In September 2004, Sinochem bought South Korea’s smallest refiner, Inchon Oil, for about US$549 million. This was the first time China’s took over a foreign oil company.7 Compared with imports of crude oil described in the preceding paragraph, China’s imports of oil products largely avoid the Straits of Malacca. They tend to go through the South China Sea, the North China Sea, or the East China Sea. They are less vulnerable as they avoid a narrow “choke point.” In short, as far as China’s imports of crude and processed oil are concerned, what concern China’s policymakers the most is China’s security of sea lanes, especially those passing through the Straits of Malacca, and to a lesser extent, through the South China Sea. In particular, over 70 percent of China’s imported crude oil from

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the Middle East, Africa, and Europe have to go through the India Ocean and the Straits of Malacca, and the South China Sea and the East China Sea (including the Taiwan Strait), while a big chunk of China’s imported processed oil is also shipped through the South China Sea.8 China’s energy experts suggested during 2001–2005 that its heavy reliance on sea lanes in crude imports was susceptible to disruption for the following reasons. First, China has not developed a sizable strategic oil stockpile. China indeed was planning to build four strategic stockpile bases. Even if they were completed in 2005 as planned, they would have only five million tons of oil, satisfying the nation’s consumption for ten days. China has made decent progress in building for its Strategic Petroleum Reserve (SPR). It is expected that by the end of 2008 the first four bases of its SPR will be completed. China’s SPR would have the capacity of holding one hundred million barrels of oil, or about one month of its net import of crude oil.9 This level of strategic stockpile, however, was dwarfed by the U.S. stockpile for 118 days and Japan’s for 169 days. It was even below the 90-days requirement the International Energy Agency puts forward for its member nations.10 Second, China could easily fall prey to the “oil price trap,” whereby China acquired crude or oil products at high prices and sold them for consumers at low prices. China had yet to establish its own future oil market. While China’s oil imports accounted for over 2 percent of the world’s production, it had only 0.1 percent of the weight in price setting of the oil price. Oil prices were largely set by the Western countries and multinational oil corporations.11 There was a third and crucial factor that only heightened the Chinese sense of the vulnerabilities of sea lanes for its oil shipment. China offers very limited defense for its oil shipment over sea; it lacked a blue-water navy. Despite rapid expansion in its navy, China could only project its military power in the territorial water in the South China Sea, the East China Sea, and especially the Taiwan Strait. In contrast, China’s powerful neighbors all had a capable deep-water navy or highly developed and mobile naval fleet. They included even India, which exercises considerable power over the India Ocean, Japan, which had sophisticated naval vessels, and Russia, which had a powerful fleet in the Far East that could partly

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rival the U.S. navy. Furthermore, China’s navy and air forces were years behind those in these nations as well as those in the United States. Here it is worthwhile to give a brief overview of China’s navy and its conception of sea power. Since the 1950s the People’s Republic of China has embarked on building its navy in order to defend itself from the Nationalist and the U.S. attacks on the sea. The regional focus of China’s naval power has changed significantly in the subsequent decades. From the 1970s to the early 1990s, China’s People’s Liberation Army Navy (PLAN) watched closely the South China Sea due to heated territorial disputes with some of the claimant states, especially Southern Vietnam. However, since the early 1990s, the PLAN has been more concerned with the Taiwan Strait. In the recent four years concerns with the security of the Straits of Malacca have grown, but have not been eclipsed by China’s dominant concerns with de jure independence of Taiwan.12 Since the early 1980s, and especially during the 1990s, there has been a lot of talk about China’s blue-water ambitions. In the late 1990s, an author in China cited Alfred T. Mahan and advocated that China should develop its sea power (hai quan). This was, he argued, to safeguard its “silk roads” on the sea (commercial sea lanes), protect its territorial water, exercise jurisdiction over its exclusive economic zone, and ensure its exploration of resources of fishery and seabeds.13 According to China’s military strategists, China needs two layers of naval power. One is sea control, whereby the PLAN would assert control within an inner line of defense covering China’s three offshore areas: the Qiongzhou Strait and especially the Bohai Strait and the Taiwan Strait. The other is sea denial, whereby the PLAN can operate far away from home. This is to break the first chain of traditional U.S. ocean frontiers of containment against Chinese stretching from Japan through the Liuqi (Ryukyu) Islands to Taiwan and the Philippines. Should China acquire sea denial capabilities, the PLAN could also operate around the Straits of Malacca to protect sea lanes from blockades. China’s ambition to establish its own sea power, however, has remained largely unfulfilled. Two informed analysts described the state of China’s naval power as follows: “As of 2003, however, although the Chinese navy

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has increased its basic war readiness over the past decade, its overall progress is stagnant. It cannot even exercise sea control in its own coastal waters.”14 Arguably, despite new war planes and war ships China has acquired in the recent years, China’s navy is by and large not a blue-water navy. Even though China has tried to develop its own aircraft carriers, technological bottlenecks have prevented it from achieving its own ambition.15 In the following sections major areas of concerns regarding sea lanes related to China are discussed. For the reasons mentioned earlier, in the case of unexpected hostilities, China’s sea lanes would become almost defenseless under attacks from these neighbors. Once its oil shipment over sea is disrupted, it would wreak havoc on China’s oil markets and may cause the price of its oil products to skyrocket. The only hope China can expect is that through its strategic partnership with Russia it could lessen disruption and attacks from a hostile power. For this reason, China is very much concerned with security of its sea lanes. It has responded vigorously in recent years toward external developments that could affect the security of its sea lanes. It has also taken measures to enhance the security of its oil imports. The key issues relevant to security of China’s oil transport will be discussed in the following sections.

Straits of Malacca The Straits of Malacca are the lifeline of East Asian economies. Each year over half of the tonnage of the world’s commercial shipments passes through the Straits of Malacca, Sunda, and Lombok. Oil flows through the Straits of Malacca and into the South China Sea are three times larger than through the Suez Canal/Sumed Pipeline, and fifteen times larger than oil flows through the Panama Canal. In 2002 oil shipped through the Straits of Malacca amounted to 10.3 million barrels per day. Tonnage through Malacca is primarily crude oil and liquefied natural gas (LNG), followed by coal and iron ore. About two-thirds of the tonnage via the Straits is crude oil from the Persian Gulf.16 Out of China’s crude imports shipped over sea, only those from Venezuela and other North and South American countries will be

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transported across the Pacific without passing the Straits. The rest of them have to follow the route of the Indian Ocean through the Straits of Malacca and into South China.17 According to Chinese statistics, in 2002, nearly 93 percent out of 69.4 million tons of crude oil China imported was transported by oil tankers. The majority of the imported crude came from the Middle East and West Africa, as they accounted for 50 and 23 percent, respectively, of China’s imported crude that year. Altogether, these two regions made up 73 percent of China’s crude imports.18 In addition, a substantial amount of China’s cargo has to pass through the Straits. The Chinese claimed around the year 2004 that each day about 140 ships sailed along the Straits, that 80 percent of transport commodities for production and daily life was destined for China, and that a majority of the ships sailing through the Straits and to China carried oil.19 If the Straits were disrupted, a huge volume of China’s cargo and oil shipments will have to be detoured and would be delayed. For this reason, the director of the economic bureau of the Policy Research Office for the Central Committee of the Chinese Communist Party decried: “Whoever controls the Straits of Malacca can endanger China’s oil security any time.”20 As stated, the lack of a blue-water navy undermines China’s military capacity of escorting and protecting its own cargo and tanker ships along the Straits should they face hostilities. But due to the significance of the waterways for the Chinese economy, China still continues to rely on the Straits. For this reason, in December 2003, President Hu Jintao stated that China faced the “Malacca Dilemma” and stressed that China should strive to get out of it. 21 China is particularly concerned with the security of sea lanes along the Straits also for one additional reason. Unlike the open high sea, the long and relatively narrow Straits are prone to disruption of piracy, congested traffic, possible collisions, and control by an external great power. The Straits are 800 kilometers long and about 40 nautical miles (nm) wide, and contain many small islands. The southern end of the Straits is 35 nm wide and its northern end 134.5 nm wide. 22 In the 2000s the number of piracy attacks in the Straits jumped significantly, from 6.1 per year during 1991–1999 to 34.6 per year during 2000–2004. In 2004, there were over 37 incidents of piracies in the

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Straits, up by 9 from 2003 and by 11 from 2002. 23 In addition, the traffic in the Straits is somewhat disorderly, as cargo ships passing the Straits can be easily endangered by passenger boats that frequently cross the Straits and fishing boats that sail in the Straits at will. The danger from terrorist attacks on tankers in the Straits grows considerably after 9/11. Any joint attempt of terrorists and sea pirates can easily sink a large or even supertanker with a mine or bomb placed on the sea bed. This could paralyze the shipping route of the Straits. 24 Nevertheless, China regards the risks from the intervention of an external power far outweighing those posed by piracies. In particular, three developments involving the United States, Japan, and India have aroused China’s suspicion. One is the Regional Maritime Security Initiative (RMSI) that Adm. Thomas Fargo, the U.S. Pacific Command commander, formally put forward in his posture statement before the U.S. House of Representatives Armed Services Committee in March 2004. Reportedly, Fargo planned to deploy marines and special operations forces on high-speed vessels along the Straits of Malacca to clean up terrorists there. Among the littoral states along the Straits, Singapore reacted sympathetically to the initiative. However, Malaysia and Indonesia strongly opposed it. Both stated that control of the Straits was their sovereign prerogative, and that U.S. military involvement was not welcome. Malaysia, for example, suggested that while U.S. vessels “can use the waterway for their ships, including warships, but to launch operations they should have the concurrence of Malaysia and Indonesia.”25 China’s reaction to the RMSI was negative for several reasons. First, it saw the initiative as a blatant infringement on the sovereignty of the littoral states along the Straits and a violation of UN Convention on the Law of the Sea. 26 Second, it viewed this attempt as a pretext by the United States to gain control of the channel of strategic importance not only to the United States but also to China and other nations. The United States, according to Chinese analysts, views the Straits as sixteen major sea lanes around the world it wants to claim supremacy over. Even though the RMSI fails to rally the support from littoral states, China sees that the United States still has leverage over the Straits through establishing a naval base in

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Singapore and by stepping up military exchanges with littoral states, including joint military exercises. 27 In July 2004, in response to the RMSI and in order to preempt it the three littoral states of the Straits agreed to form a joint patrol fleet of the Straits. In September, these three countries, along with Thailand, launched joint air patrol over the Straits. The United States retreated from the RMSI. China then breathed a sigh of relief upon learning the outcome. 28 In June 2005, U.S. defense secretary Rumsfeld proposed at the Asian Security Forum in Singapore that the U.S. military form joint patrols with the littoral states along the Straits to deal with piracies and terror attacks. These states turned down his offer. The other development China is deeply concerned with is the involvement of other major powers, especially Japan and India, in provision of the safety of the Straits and their support for littoral states in this regard. Japan’s self-defense force has expanded their scope of operation to cover the Straits. In March 2005, three crew members of a Japanese tugboat were kidnapped by pirates off Penang. Japan’s coast guards requested to send in their war ships and planes to help deal with pirates. Their request was turned down by Malaysia. On the other hand, Japan has provided a considerable amount of logistics support for the littoral states in patrolling the Straits. In 2005, Indonesia started to deploy four patrol boats provided by Japan to deal with possible piracies. Japan also sent officers to Jakarta to provide antipiracy training for Indonesian officials as part of the Japan–Indonesia antipiracy program. In April 2005, Japan signed an agreement on regional cooperation against piracies with Singapore, Thailand, and Cambodia. The agreement provisioned for the setup of an information exchange center to monitor the security of the Straits of Malacca. Japan’s Foreign Ministry also allocated forty million Japanese yuan to support the Singaporebased information sharing center for the Straits. In addition, Japan decided to send officers in foreign and maritime affairs to work in the center. In addition, the Nippon Foundation has given more than US$125.5 million in assistance to the area of the Straits of Malacca and Singapore. According to a Chinese scholar, while the United States and Japan were keen over the Straits’ security due to its strategic importance,

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a hidden reason was to contain the rise of China by establishing military presence in the Straits. 29 In addition, China’s analysts also note that the littoral states have invited India to join the patrol of the Straits, one reason being that India has a naval base on an island just on the northern end of the Straits, and the other subtle reason being to prepare for international conflict that might implicate China. 30 In the following years the Chinese has apparently moderated but have not given up their suspicion. Partly in response to Japanese and Indian involvement in the security initiatives concerning the Straits, China is eager to claim a role in supporting littoral states in patrolling the Straits. According to a Chinese analyst, China tries to enhance its sea lane security in the Straits and Southeast Asia through two types of diplomatic forums. One is its dialogue mechanism with the Association of Southeast Asian Nations (ASEAN). The other is bilateral talks and ties with individual nations. 31 Back in October 2003, the China–ASEAN Maritime Consultation Mechanism was initiated when China’s minister of transport Zhang Chunxian attended the China–ASEAN Transport Ministerial Forum in Myanmar. In December 2005, China and eight ASEAN countries, that is, Brunei, Cambodia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, held the first meeting of China–ASEAN Maritime Consultation Mechanism in Guangzhou, China. They reached agreements on port state control, environmental protection, navigation and hydrographic surveys, seafarers training, and accident investigation. In particular, China and ASEAN pledged to further cooperation on search and rescue at sea by jointly holding drills and enhancing emergency responses, and to fight against sea terrorism and piracy. 32 On the bilateral side, in the recent years Indonesia and Malaysia have also welcomed technical assistance from China with security of the Straits partly in order to defray their own costs in this regard. China has scored breakthrough in winning the approval of littoral states in its contribution to the security of the Straits in the recent years. In July 2005, the Indonesian president visited China, bringing home energy projects with China worth of US$4 billion. Within a week after his visit, both Indonesian minister of foreign affairs

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and defense minister acknowledged China’s request for contributing to the security of the Straits of Malacca, a significant change from its refusal of similar requests in the past. The Indonesian defense minister, however, treated China on the par with Japan and South Korea and openly declared that only technical assistance from China would be accepted. 33 In September 2005, China sent its first delegation to the meeting on the maritime security of the Straits of Malacca and Singapore held in Jakarta. The delegation was headed by Ju Chengzhi, director of the Bureau for International Cooperation of the Ministry of Transport. Mr. Ju stated China’s support for the leading role of littoral states in safeguarding the sovereignty and safety of the Straits. He also expressed China’s willingness to help littoral states to further their capacity building and train their personnel and to conduct exchange on technical matters.34 Singapore, Malaysia, and Indonesia welcome China’s technical assistance with the security of straits. In April 2006, Malaysian minister of transport Datuk Seri Chan Kong Choy visited China. He briefed the Chinese counterpart Li Shenglin on measures that Malaysia had undertaken in strengthening safety and security of the Straits of Malacca, including installing ship identification devices and coordinating patrol with Singapore and Indonesia. He also extended Malaysia’s welcome to China to participate in information sharing and personnel training. Minister Li replied that China was happy to actively support and assist with littoral states over security and safety matters on the basis of respect for sovereignty of these states. Both ministers agreed tentatively on a memorandum of understanding (MOU) on maritime cooperation. In May, both countries discussed in the specific contents of the MOU. In July, Chinese minister of transport Li Shenglin visited Malaysia and signed the MOU. China’s Ministry of Transport, a leading ministry in representing China over the technical matters of maritime safety of the Straits of Malacca, also has regular exchanges with its counterpart in Japan and South Korea. In 2004, it set up a deputy-minister meeting mechanism with Japan’s Ministry of Land, Infrastructure and Transport. In its first three meetings in 2005, 2006, and 2007, the two nations had productive exchanges on maritime security, navigation safety in

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the Straits of Malacca, cooperation with ASEAN on transport, the Japanese legal system regarding maritime insurance, and logistics cooperation.35 China publicly stated that it wanted to assist with the littoral state over the security of the Straits mainly due to its increasing cargo shipment going through the Straits, the noticeable activities of piracies in the Straits, and limited resources of the littoral states. China wanted to fulfill its obligation as a user-country of the Straits and used its own resources to help littoral states over capacity building, as well as through exchanges over technical affairs and personnel training. In fact, China sponsored the replacement of five lighthouses and beacons damaged by the 2004 tsunami in an effort to ensure navigational safety of the Straits. 36 A Chinese analyst also stressed the need for China to dispel any arguments about the threat from China in the region and about China’s attempt to control the Straits. 37 Nevertheless, Chinese experts still regard the Straits as “highly vulnerable.”38 According to Chinese analysts, the United States is capable of projecting its naval power around the world, and as a result, should it decide to forcefully intervene in the Straits, it could not be stopped. China still regards the Straits as prone to U.S. intervention. Probably out of this concern, China has also stepped up its surveillance of the Straits. According to information from the U.S. Central Intelligence Agency reported by Washington Post in February 2006, China’s unmanned reconnaissance planes flew over the Straits with increasing frequencies in the recent months. The DS-I plane, the latest invention from China, has a maximum lift-off weight of eleven hundred kilograms, carries radars for surveying the sea, and can fly up to fifteen hundred kilometers. This report also suggests that the United States is closely monitoring China’s activities in the Straits.39 Both remain alert and suspicious of each other’s movements in the Straits.

Alternative Routes In order to enhance the security of its energy sea lanes, China has not only started to cooperate with littoral states with the provision of security of the Straits of Malacca, a strategic choke point, it has also started to look for alternate routes to the Straits in South and

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Southeast Asia. A natural option for China is to tap overseas energy markets whose exports to China need not pass the Straits of Malacca. Russia and Central Asia, which are part of the CIS (Confederation of Independent States), are ideal new sources of oil supply for China in this regard. In the region around the Caspian Sea Kazakhstan has the greatest potential for supplying oil to China. Oil from Russia and Kazakhstan can be transported by pipelines and rail. Back in 1997 China and Kazakhstan agreed on a US$2.5–3 billion project of building a 3,088-kilometer pipeline to connect Atyrau in western Kazakhstan with Dushanzhi in Xinjiang. China and Kazakhstan completed the construction of the section from Atasu to Qandyaghash in March 2003. Construction of the section of the pipeline from Atasu in Kazakhstan to Alashankou in China was launched in September 2004. It was completed in December 2005. The secondstage project of the pipeline would double Kazakhstan’s oil exporting capacity to twenty million tons a year.40 In November 2007, Russia announced that from 2008 onward it would export five million tons of oil a year to China via Kazakhstan.41 China has also won pledges from Russia to increase its transport of crude through rail to China. In addition, China has made progress in obtaining a trans-Siberian pipeline. The head of Russian monopoly Transneft announced that the first pipeline branch would run from Taishet in Siberia’s Irkutsk region for sixteen hundred kilometers to the town of Skovorodino. It has also started to design a branch to Daqing in China.42 These lines may transport fifty and thirty million tons of oil each year, respectively. China would have to pledge to take in thirty million tons a year.43 China National Petroleum Corp. (CNPC) has allegedly been offered a 20 percent stake in Yukos; reportedly it has also given a US$6 billion loan to Rosenet for purchasing Yugansk.44 Analysts suggested in late 2007 that the Chinese section of the East Siberia—the Pacific Ocean (ESPO) pipeline—would be built in 2008 and that oil deliveries through the pipe would begin in 2009. CNPC expressed its interests in participating in the construction of the oil pipeline.45 Furthermore, China is eying the development of gas fields in Russia’s Sakhalin Islands. Exports of Russian gas would be transported through the Northeast Asian portion of the Pacific and avoid the Straits of Malacca.46

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In addition to expanding into Russian and Central Asian oil markets, China is said to adopt the so-called string of pearls strategy— forging ties and gaining access to ports and routes from the Middle East to the South China Sea in order to protect China’s energy interests and sea lanes. These “pearls” include Pakistan, Bangladesh, Myanmar, Thailand, Cambodia, and the South China Sea.47 More importantly, China is considering oil transport routes in South and Southeast Asia as alternatives to the Straits of Malacca in case of emergencies. Four alternatives have emerged. The first and presumably the safest for China is the transport line from the Port of Gwadar in Pakistan situated near the Strait of Hormuz through pipeline and rail networks into Xinjiang. In 2001, China agreed to build a deep-sea port there and offered US$198 million of investment for the first stage of the project, which was launched in March 2002. With strong ties and support from Pakistan’s leaders, China originally hoped to exercise considerable influence over the port. China might hope to transport oil from the Middle East (such as Oman) to Xinjiang, avoiding the Persian Gulf, the Indian Ocean, the straits, and the South China Sea. The main obstacle is the severely cold weather in Xinjiang that may pose problems for the pipeline; furthermore, militant Baloch nationalists in Pakistan may sabotage the pipeline.48 Indeed, the project was obstructed by domestic opposition in Pakistan, attacks on rails and pipelines by Baloch nationalists in February 2006 that killed three Chinese engineers in Gwadar, and pressure from the United States and India. In December 2006, the GPIA, the administration of the Gwadar Port selected the Singaporean company PSAI, instead of a Chinese firm, to manage the port. One day before the news became public, the World Bank issued a report entitled Transport Competitiveness in Pakistan, urging the Gwadar port to be opened to the world and the Pakistani military not to interfere in the operation of the port. Even though the port has been in operation since January 2007 and even though the Chinese still play a role in it, this Chinese alternate route has not proceeded as smoothly as it expected.49 The second alternative is a seventeen hundred kilometer pipeline for oil and gas transport linking Kunming in China with the

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deep-water port of Sittwa in western Myanmar. The estimated cost was US$2 billion. Premier Wen and Myanmar prime minister Khin Nyunt discussed the plans when they met in July 2004 in Beijing. The route is twelve hundred kilometer shorter than the oil route through the Straits to Zhanjiang, Guangdong. 50 It was reported in September 2007 that the pipeline was approved by the Chinese government. 51 The third is the rail through the mainland Southeast Asian, connecting China’s southwest with Singapore or Burma, which is coined the Pan-Asia railway. Three routes of the railway have been proposed—eastern, central, and western. The eastern route seems the most likely at present as it involves minimum construction. It was reported in mid-2007 that a feasibility study of the rail was approved and that it would take eight years for it to be built. When it is completed around 2015 it will be five thousand kilometers in length. 52 The last alternative to the Straits of Malacca is a route across the Kra Isthmus. An original proposal involved a canal that would be 102 kilometers long, 40 meters wide, and 25 meters deep. It could cut the shipping distance of oil tankers by 1,200 km and shipping costs of crude by US$2 per barrel. 53 Thailand later proposed to build a 250 kilometer “land bridge” pipeline that may cost US$600 million. 54 In June 2004, Thailand state energy company PTT and Sinopec unveiled a joint project to explore a pipeline north to Phuket with a capacity of 1.5 million barrels a day, supported by tank storage and tank terminals on the coasts of the peninsula.55 Costs and escalating political violence in Thailand’s southern provinces are concerns for China. 56 No major breakthrough over this option has been reported.

South China Sea The South China Sea has the second important sea lanes in Asia. The voluminous cargo shipments passing through the Straits of Malacca usually continue to sail into the South China Sea and pass near the Spratly Islands. They thus account for about the half of the world’s tonnage in commercial shipping. The volume of shipping in the South China Sea is primarily raw materials destined to East Asian

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economies, firstly crude oil and liquefied natural gas (LNG), followed by coal and iron ore. Half of the tonnage passing through the Spratly Islands is crude oil from the Persian Gulf. 57 There have been a noticeable number of piracies in the area in the recent decades. It averaged 4.6 incidents a year from 2000 to 2004. In 2004, there were 8 incidents.58 China’s and Southeast Asian nations have overlapping claims over the Spratly and Paracel Islands in the South China Sea. The South China Sea has deposits of oil and gas. Importantly, uncontrolled tension between the claimant parties could destabilize sea lanes in the South China Sea. Conflict would also implicate the United States, which has a vital interest in maintaining accessible sea lanes in the region. As stated at the beginning of this chapter, there have been gloomy predictions about clashes between China and other claimant states. Surprisingly, into the 2000s China has made noticeable progress in cooperation over the South China Sea with Southeast Asian and South Asian nations. China and these nations have agreed to peaceful resolution. In November 2002, China and ten ASEAN members signed a Joint Declaration on the Conduct of the Parties, agreeing to “resolve their territorial and jurisdictional disputes by peaceful means.”59 In November 2004, China’s premier Wen declared that China was willing to “explore with the countries concerned ways and means for joint development in the disputed waters in the South China Sea under the principle of ‘shelving disputes while going in for joint development’ and on the basis of mutual respect, equality and mutual benefit.”60 In March 2005, three oil companies from China, Vietnam, and the Philippines signed a historical tripartite agreement in Manila on joint exploration of oil and gas resources in the disputed South China Sea without undermining the basic territorial positions of their own governments.61 So far, sea lanes in the area have been by and large safe, except for some piracy activities.

Contentions and Cooperation over the East China Sea Other than the Taiwan Strait, the other main flashpoint in China’s efforts for securing sea lanes has been China–Japan disputes over the East China Sea. China and Japan have conflicting claims over

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territorial water, islets (especially Diaoyutai or Senkaku Islands), and reefs in that area. The disputed territorial water totaled to three hundred thousand square kilometers. In the recent years China has found seven gas fields in the East China Sea. It is extracting gas in one of them, that is, the Chunxiao Gas Field. Nevertheless, China carefully avoided escalating the tension by locating its operation five kilometers west to the line dividing the territorial water proposed by Japan.62 However, Japan still protested the Chinese operation, fearing that it could draw gas from reserves underneath the sea bed that belongs to Japan’s territorial water. Obviously, their dispute does not stand all by itself. In the past years, especially under the then Japanese prime minister Koizumi the disputes were fueled by disputes over history, especially Koizuimi’s controversial visit to the Yasukuni Shrine. China-Japan relations have improved after Prime Minister Abe assumed power in September 2006. In October 2006, he visited China and South Korea as the first countries after he went into the office. Chinese prime minister Wen Jiabao also returned a visit in April 2007, successfully displaying a charm offensive in Japan.63 The top leadership exchange has thus been resumed and continues under Abe’s successor Yasuo Fukuda. In order to prevent their dispute in the East China Sea from escalating into a war, both nations agreed to set up a military hotline during Premier Wen’s visit to Japan in April 2007.64 Japan and China also eased military tension by arranging a friendly port call of a Chinese warship to Japan in November 2007. The visit had been planned for over five years but was delayed several times.65 Both nations agree to joint exploration in East China Sea in principle. Both realize that armed clashes in that area would be destructive. Several rounds of their talks on joint exploration, however, have not resulted in an agreement. In late December 2007, during Japanese prime minister Fukuda’s visit to Beijing, a joint communiqué declared that both nations wanted to turn the East China Sea into a sea of peace, cooperation, and friendliness, that the bilateral talks on the sea would be upgraded from the bureau chief level to the deputy minister level, and that both wanted to resolve their dispute as soon as possible.66 In June 2008, China and

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Japan publicized the gist of their agreement for jointly exploring gas reserves within a zone of twenty-six hundred square kilometers in the disputed waters of the East China Sea. Both nations agreed that Japanese companies would invest in the two Chinese oil firms operating in the areas and that these companies would share their profits. The reserves covered by the agreement were estimated to be at the equivalent of ninety-three million barrels of oil, roughly three weeks of Japan’s energy needs. Even though the reserves involved are small, they represent a historical step for both nations in putting aside their differences and embarking upon joint development in the disputed waters.67 Even though China contests fiercely with Japan over Russian oil in Siberia and over gas exploration in East China Sea, both countries have also engaged in cooperation over oil. Large oil companies of two countries have worked closely on energy issues to materialize trade deals. Reportedly, the Ministry of Economy, Trade and Industry has formed an energy group on China, dedicated to supplying China with technology for oil stockpiling. The Japanese government has also expressed its willingness to help Asian nations, supposedly including China, with utilizing non-oil energy such as wind and solar power suitable for their own conditions.68

Taiwan Strait For decades Taiwan has occupied a unique role for strategic planners, especially the worst-case-minded planners for China, Japan, and the United States. Chinese policy analysts hold that the United States and Japan have an interest in permanent separation of Taiwan from mainland China and turning it into an unsinkable aircraft carrier for them. Their objective, as the Chinese see it, is to make Taiwan a pawn in a possible containment of a potentially hostile China and secure Japanese and U.S. sea lanes for their cargo shipments and war fleets. A Japanese hawkish official has pronounced a similar view. In March 2004, Japan’s former ambassador to Thailand and commentator on foreign affairs proclaimed that if Taiwan was united with China, Japan’s national interests would be harmed and that the best scenario for Japan was permanent separation of the two. He argued that if China turned

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Taiwan into a submarine base, it could extend its range of submarine operation to Saipan and Guam and control the water southwest to Japan. 69 This line of thinking underscores the clashes of interests between China on the one hand and the United States and Japan on the other over military deployments and strategic planning. The primary motivation for China to deter Taiwan’s de jure independence is to preserve its sovereign integrity. Since the early 1990s, first under assertive president Lee Teng-hui and then under cunning president Chen Shui-bian, Taiwan has made provocative moves toward asserting Taiwan’s political identity and international identity and prerogatives. In 1996, China’s military fired missiles in the water near Taiwan in order to send a warning to Lee against his audacious promotion of Taiwan separation from the mainland.70 China also launches diplomatic efforts to scuttle Taiwan’s international political ambitions while making military preparation against Taiwan’s possible open declaration of independence. China’s military build-up on one side of the Taiwan Strait, however, is viewed by the United States and Japan as a potential challenge for the U.S. military supremacy on the western rim of the Pacific and an attempt to control sea lanes in that region. To the relief of China and the region, there have been major improvements in the cross-strait ties, especially at the nongovernmental level. China has warmly received visits from opposition leaders from Taiwan and has offered numerous conveniences for Taiwan’s business community, farmers–exporters, and business related to tourism. As a result, Taiwan’s public opinion favors deepening crossstrait economic ties and opposes reckless moves toward Taiwan’s independence. Taiwan’s Nationalist Party, a major party in support of closer economic ties and non-provocative policies toward mainland China, won the presidential race in March 2008. Ma Yin-jae, the Nationalist leader, assumed office in May 2008. Cross-strait relations are expected to turn from cold to warm under his tenure. The risks for Taiwan’s de jure independence will decrease drastically, though both mainland China and Taiwan will still contend over Taiwan’s international status (a renegade province of China or a Republic of China).

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Sea Shipping Capacity China’s other concern for its sea lane security is its heavy reliance on foreign shipping companies for cargo shipment. In 2002, the routes to the Middle East, West Africa, and Southeast Asia accounted for 50, 23, and 15 percent of China’s crude imports, respectively, and 88 percent altogether. The share of China’s shipping companies for shipments on these three routes, however, was respectively 3.8, 0, and 52 percent. As late as 2002, Chinese fleets were responsible for only the shipping of 10 percent of China’s total crude imports, leaving foreign companies to take care of the rest. In comparison, Japan and South Korea has large oil tankers with a total tonnage of 20 million and 6.6 million tons, respectively, which can ship 80 and 30 percent of the nation’s imported oil, respectively.71 Among China’s sea lanes the Middle Eastern and West African routes are the most risk-fraught. In case of wars, diplomatic fallouts, or other unexpected catastrophes, foreign shipping companies may not deliver the shipment and transport of China’s crude imports would be devastated.72 A key reason for China’s limited share in shipping its own crude imports is the limited capacity of China’s own fleet. China’s oil fleet amounts to only 6 million tons, equivalent to only 2.6 percent of the world’s total capacity. The Chinese policy analysts thus call for building of large professional Chinese fleets for sea shipping. However, even if China mobilizes about ten supertankers of very large crude carriers (VLCCs) at 200,000–300,000 tons each and of AFRAMAX at 8,000–12,000 tons each, it could only ship 30–40 million tons of crude each year, less than half of China’s crude imports. A more important reason for China’s weak energy shipping capability is that China’s own fleets are rarely at the services of China. They are mostly serving foreign customers. For example, the Hong Kong Merchant, a predominantly international shipping company, has merely 7 percent of its shipping capacity or 2 million tons devoted to China’s crude imports.73 In 2006, China starts to address this deficiency. In February, China’s oil giant Sinopec signed a long-term contract with China’s shipping giant COSCO Group. Under this contract, COSCO would transport 6 million tons of crude imports for Sinopec and would

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gradually expand the shipping to 30 million tons. This marks China’s first major step to enhance the security of the shipping of its oil imports.74 According to Chinese shipping industry experts, China’s goal is to allow the Chinese fleet to handle at least 50 percent of China’s total oil imports. Specifically, China’s oil tanker fleet should be able to handle 75 million tons of the oil imports by the year 2010 and 130 million tons by 2020.75

Conclusion: Toward Confidence Building and Cooperative Sea Lane Security This chapter sets out to review and assess China’s oil diplomacy in the recent years. Since the 1990s, China’s demand for imported oil has increased. In response, China has launched external initiatives to ensure the safety of routes of its oil transport. First, it has endeavored to secure safety of sea lanes through the Straits of Malacca, the South China Sea, and the East China Sea. Uneasy with involvement of the United States and Japan and to a lesser extent India in maritime security in the Straits of Malacca, China actively engages littoral states over the safety of the Straits. It has witnessed warm reception from these states. Furthermore, China puts aside territorial disputes over the South China Sea and embarks upon joint energy exploration with other claimant states in the area. China has entered an agreement with Japan over joint energy exploration in the East China Sea. By doing so, it helps to contain conflict and risks in these strategic areas and preempt unnecessary involvement of major powers. China also endeavors to prevent de jure independence of Taiwan. Finally, China is expanding its own commercial fleet in order to reduce its reliance on foreign fleet for importing oil. These measures help to enhance the security of Chinese sea lanes in these strategic areas. Second, China is making logistic arrangements to develop alternate oil land routes to bypass the Straits of Malacca in case of blockade. As stated earlier, China is expanding its energy ties with Russia and Kazakhstan and is considering laying pipelines for oil exports from these nations. It is exploring or developing alternative energy transport routes through Pakistan, Myanmar, and the Southeast Asian peninsular.

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So far predictions about a China aggrandizing on Asian neighbors’ interests and fighting against the latter have turned out to be false. The bottom line is that China’s naval capability mainly covers the Taiwan Strait and aims to cope with Taiwan’s possibly provocative declaration of independence. China has a considerable conventional and nuclear submarine fleet; it has also acquired the Sovremenny-class destroyers with the potent SS-N-22 “Sunburn” antiship missiles capable of challenging aircraft carriers76; China’s small naval fleet has made port calls as far as Africa. However, China still does not have a blue-water navy. In comparison, Indian and Japanese navies either have more powerful ships such as aircraft carriers, or have more numerous sophisticated weapons and ships. China’s abilities to safeguard and/or disrupt sea lanes from the Persian Gulf to the South China Sea have been rather limited. Any possible disruption of sea lanes by China would invite strong countermoves by the other parties and could be highly counterproductive. According to a Pentagon report, China is also developing its capacities to exercise naval power at checkpoints along its sea lanes. However, it is highly doubtful that at this point China has the full capacity to prevent the United States from disrupting its sea lanes. Therefore, most of its efforts at securing its oil routes have been confined to finding alternative land pipelines or railway. China apparently even falls back on U.S. protection to ensure safety of its sea lanes for oil.77 Nevertheless, Asian-Pacific nations, including China, Japan, and the United States, will be too narrow-minded and short-sighted if they only focus on the worst case scenario in thinking about their own sea lane security. To escape potential naval arms race and formation of polarized alliance, sea lane security should be viewed beyond conventional perspectives. Sea lane security is a public good. It perfectly meets the two core criteria for a public good.78 First, secure sea lanes are open to all nations for consumption and can further their welfare by facilitating their shipping and economic growth. Second, sea lane security also encounters the problem of free riders and even distribution of provisioning costs and entailed benefits. In general, littoral states, especially Indonesia and to a lesser extent Malaysia for sea lanes discussed in this chapter, have to bear the

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overwhelming costs of securing the sea lanes for East Asian powerhouses such as China and Japan. Nevertheless, China and Japan benefit tremendously from sea lanes yet need not shoulder the costs. Fortunately, this situation has been changing in the recent decade. Japan has offered material and training support for littoral states in the Straits of Malacca. In addition, in the recent years China, another major user of the Straits, has also shown its eagerness to help out littoral states. Nevertheless, there is a complication in the provision of sea lane security. China perceives risks in uneven leverage of other powers in the provision of sea lane security in the Straits of Malacca, especially the large roles of Japan in financing and training and of the U.S. and Indian navies in the region. On the other hand, Japan and the United States may also view China’s growing presence in the sea lane security in the Straits with discomfort. However, the bottom line is that Asian economies value sea lane security. Minimal conflict and contentions over sea lane security in non-territorial waters also serve the interests of all. China and other Asian countries can take measures to enhance cooperation and mutual trust over sea lane security. The following principles, if observed, may contribute to a reduction in mutual suspicion and enhancement of cooperation and trust among Asian countries. 1. Littoral states can endeavor to ensure maritime security near its territorial water. Outside powers can offer technical and logistical support for littoral states without infringing upon their sovereignty and with no prior political preconditions. Littoral states are also encouraged to accept assistance of this kind on an open and nondiscriminatory basis. This will help to prevent powers from engaging in malign competition for influence over the strategic checkpoints. 2. Littoral states and relevant parties with big stakes in sea lane security can continue to hold multilateral and open forums to discuss sea lane security and forge cooperative initiatives. They could discuss prominent issues endangering the security, such as piracies, catastrophic collisions in narrow and busy water channels, and terrorist attacks. More importantly, they could discuss joint actions to deal with these issues. 3. Littoral states and major parties can pledge their honoring of international maritime law and their commitment to ensuring passage of

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Notes 1. Erica Downs, China’s Quest for Energy Security (Santa Monica, CA: Rand, 2000); Amy Myers Jaffe and Steven Lewis, “Beijing’s Oil Diplomacy,” Survival 44, no. 1 (Spring 2002): 115–134; Philip AndrewsSpeed, Xuanli Liao, and Roland Dannreuther, The Strategic Implications of China’s Energy Needs (Oxford and New York: Oxford University Press for IISS, 2002); Mikkal E. Herberg, “Asia’s Energy Insecurity: Cooperation or Conflict?” 348–354. 2. Michael Klare, Resource Wars: The New Landscape of Global Conflict (New York: Henry Holt and Company, 2001), xi–xii, 109–137. 3. Chietigj Bajpaee, “China Fuels Energy Cold War,” Asian Times, March 2, 2005. 4. Mikkal Herberg, “Asia’s Energy Insecurity: Cooperation or Conflict?” in Strategic Asia 2004–05, eds. Ashley Tellis and Michael Wills (Washington, D.C.: The National Bureau of Asian Research, 2004), 353. 5. For an updated survey on China’s efforts to expand and secure overseas oil supplies, refer to chapter two by Hongyi Lai. 6. See Yearbook of China’s Economic Foreign Relations and Trade 1998, 2002, 2003. 7. “Sinochem Signs Deal to Buy Ailing Refiner Inchon,” The Standard, September 25, 2004. 8. Li Xiaohua, “Strategic Safeguards for Oil Security,” in Guojia nengyuan anquan baogao (Report on National Energy Security), ed. Ni Jianmin (Beijing: Renmin chubanshe, 2005), 401. 9. See Chen Shaofeng and Lim Tin Seng, “China’s Strategic Petroleum Reserves: An Update,” EAI Background Brief No. 371 (Singapore: East Asian Institute, February 26, 2008). 10. Ibid., 401–402; Feng Yuewei, Shiyou boyi (The Game of Petroleum) (Beijing: Qiye guanli chubanshe, 2003), 346–347. 11. Li, “Strategic Safeguards for Oil Security,” 401–402. 12. Ian Storey and You Ji, “China’s Aircraft Carrier Ambitions: Seeking Truth from Rumors,” Naval War College Review LVII, no. 1 (Winter 2004): 77–94. 13. See Zhang Shiping, Zhongguo haiquan (China’s Sea Power) (Beijing: Renmin ribao chubanshe, 1998). 14. Storey and You, “China’s Aircraft Carrier Ambitions.” For detailed history of China’s navy, refer to Editorial Committee of the Navy

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15.

16. 17. 18.

19.

20. 21.

22. 23.

24. 25. 26. 27. 28. 29.

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of Contemporary China. Dangdai Zhongguo haijun (The Navy of Contemporary China) (Beijing: Zhongguo shehui kexue chubanshe, 1987). Tai Wei Lim, “Analysis of China’s Strategic Power,” posted at http:// www.globalsecurity.org/wmd/library/news/china/2002/analysis_of_ china1.doc on December 2002 (accessed June 26, 2008). “South China Sea,” posted at http://www.eia.doe.gov/cabs/South_ China_Sea/Shipping.html (accessed April 25, 2006). Li, “Strategic Safeguards for Oil Security,” 401. “Implicit Risks in the Security of the Shipping of China’s Imported Oil,” posted at http://www.gdtzzs.gov.cn/front/special.jsp (accessed April 24, 2006). “Malacca Becomes a Key Point in Securing China’s Energy and the U.S. and Japan Have Long Had Eyes on the Straits,” Huaxia Shibao (Huaxia Times), posted http://cn.news.yahoo.com/050803/1338/2e5j0. html on August 4, 2005. This claim is also made in “Leap Out of the Game Track of the Straits of Malacca,” Zhongguo Guojia Dili (China’s National Geography), December 2004: 59, 58. Another Chinese scholar, however, claimed that the two-way traffic along the Straits each day totals 240–270 ship movements, and flows of oil total eleven million barrels. See Ji Guoxing, “U.S. RMSI Contravenes UN Convention on the Law of the Sea,” PacNet 29, July 8, 2004. “Leap Out of the Game Track of the Straits of Malacca,” 58. “Kra Canal: When Can the ‘Oriental Panama’ Dream Come True,” posted at http://www.sinopecnews.com.cn/shzz/2004-05/17/content_136074. htm (accessed June 26, 2008). Ji Guoxing, “U.S. RMSI Contravenes UN Convention on the Law of the Sea,” PacNet 29, July 8, 2004. J. N. Mak, “Unilateralism and Regionalism: Working Together and Alone in the Malacca Straits,” Piracy, Maritime Terrorism and Securing the Malacca Straits, ed. Graham Gerard Ong-Webb (Singapore: Institute of Southeast Asian Studies, 2006), 165; “Malacca Becomes a Key Point”; “Leap Out of the Game Track of the Straits of Malacca,” 58–59. “Leap Out of the Game Track of the Straits of Malacca,” 58–59. Ji, “U.S. RMSI Contravenes UN Convention.” Ibid. Li, “Strategic Safeguards for Oil Security,” 417. “Leap Out of the Game Track of the Straits of Malacca,” 62. “The U.S., Japan, and India Compete Explicitly and Clash Implicitly: Who Takes Charge of the Malacca Security,” Huanqu Shibao (Global Times), posted at http://jczs.sina.com.cn on August 24, 2005; “Japan Wants Live Surveillance of the Straits of Malacca through an Information Exchange Center,” Zhongguo Guofangbao (China Defense Post), November 22, 2005: 1, posted at http://cn.news.yahoo.com/051122/1044/2g6sh.html;

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30.

31.

32.

33. 34. 35.

36. 37.

38. 39.

40.

41.

Hongyi Lai “The U.S. and Japan Want to Join Naval Defense of the Straits in the Name of ‘Piracy Crackdown,’ ” Diyi caijing ribao (First Financial and Economic Paper), posted at http://www.XINHUANET.com on September 16, 2005. “Leap Out of the Game Track of the Straits of Malacca,” 62; Hao Jun, Shiyou xiaoying: Quanqiu shiyou weiji de beihou (The Effects of Petroleum: Behind Global Petroleum Crises) (Beijing: Qiye guanli chubanshe, 2005), 240. The author, when interviewed by the Chinese press around 2006, pointed out that the littoral states did not use these powers’ assistance with Straits’ patrol as a tool to restrain China’s influence and that they were open to other countries’ technical but not military assistance. This view has apparently been accepted by some policy analysts and makers who support aid to the littoral states. “Zhongguo Malaixiya tansuo gongtong baohu Maliujia moshi” (China and Malaysia Explore a Model for Jointly Protecting the Straits of Malacca), Guoji xianqu daobao (International Herald Guide Paper), May 15, 2006, posted at http://news.163.com/06/0515/11/ 2H5K9IRC00011233.html. “China and Neighbors to Improve Sea Safety,” posted at http://english. people.com.cn/200512/15/print20051215_228176.html on December 15, 2005. “Malacca Becomes a Key Point”; “Leap Out of the Game Track of the Straits of Malacca”: 58–9. “The U.S. and Japan Want to Join Naval Defense of the Straits in the Name of ‘Piracy Crackdown.’ ” “Wong Mengyong chuxi Zhongri jiaotong fubuji di sici huiyi” (Wong Mengyong attended the fourth meeting of Sino-Japanese Deputy Ministers of Transport), posted at http://www.chinahighway.com/ news/2007/220408.php on December 11, 2007. Khushwant Singh, “Malacca Strait Users to Help Keep Waterway Safe and Clean,” Straits Times, September 5, 2007. “China and Malaysia Explore a Model for Joint Protection of the Straits of Malacca,” Guoji xianqu daobao (International Herald Guardian), May 16, 2006, posted at http://news.xinhuanet.com/mil/2006-05/16/ content_4551008.htm. “Leap Out of the Game Track of the Straits of Malacca”: 62. “China’s Unmanned Plane Appears in the Sky over the Straits of Malacca,” posted at http://www.boxum.com on February 20, 2006, citing reports in Washington Post on February 19, 2006. “Construction of the China–Kazakh Oil Pipeline Started Today and Xinjiang Would Become China’s Oil Warehouse,” posted at http://www. XINHUANET.com on September 28, 2004. “Russia to Export 5 Mln Tons of Oil Annually to China via Kazakhstan from 2008,” Interfax, November 26, 2007.

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42. “Russian Oil Pipeline to Japan Will Branch Out to China,” Agence France Presse, January 28, 2005. 43. “At a Cost, Siberia Pipeline to Send Oil to Pacific,” International Herald Tribune, January 22–23, 2005: 1; “Russian Angarsk–Nakhodka Pipeline Plan Will Complete Next Year—A Subsidiary Line to Daqing Will Be Included,” posted at http://www.chinanews.com.cn and accessed on November 27, 2003. 44. Chietigj Bajpaee, “China Fuels Energy Cold War,” Asian Times, March 2, 2005. 45. “Russian–Chinese Oil Pipe Will Begin Working in 2009—Chinese Expert,” Interfax, December 5, 2007; “China CNPC to Talk With Russia On Oil Pipeline Construction,” Dow Jones Energy Service, December 13, 2007. 46. Hao Jun, Shiyou xiaoying, 238. For discussion on the Sakhalin project, refer to Jonathan Stern, “Russian and Central Asian Gas Supply for Asia,” in Natural Gas in Asia: The Challenges of Growth in China, India, Japan and Korea, eds. Ian Wybrew-Bond and Jonathan Stern (Oxford: Oxford University Press, 2002), 231–276. 47. Booz Allen Hamilton’s report entitled “Energy Futures in Asia” for the Pentagon, cited in Sudha Ramachandran, “China’s Pearl in Pakistan’s Waters,” Asia Times, March 4, 2005. 48. “Do Not Ask Where Oil Comes from, as Long as the Oil Route Is under Control,” Guoji xianqu daobao (International Herald Leader), December 31, 2004: 4. 49. “China Lost its Bid for Pakistani Gwadar Port and Pan-Asia Energy Strategy Is Dealt a Setback,” posted at http://www.singtaonet.com/euro_ asia/200612/t20061212_416751.html and accessed June 26, 2008. 50. “Searching for Tomorrow’s Petroleum,” Zhongguo guojia dili (China’s National Geography), December 2004: 66–67. 51. “China-Myanmar Oil Pipeline Project Approved—Source,” Xinhua News Agency, September 18, 2007. 52. Zhou Yanming, “Fanya tielu shi xin lichengbei” (The Pan-Asia Railway Is a New Milestone), Lianhe zaobao (United Morning Post), October 27, 2007. 53. Hao Jun, Shiyou xiaoying, 237. 54. “Searching for Tomorrow’s Petroleum,” 62–63. 55. “China Mulls Oil Pipelines in Myanmar, Thailand,” Asian Times, October 1, 2004. 56. Ian Storey, “China’s ‘Malacca Dilemma,’ ” Jamestown Foundation, China Brief, posted at http://www.uofaweb.ualberta.ca/chinainstitute/ nav03.cfm?nav03=45266&nav02=43617&nav01=43092 on April 12, 2006. 57. “South China Sea,” posted at http://www.eia.doe.gov/cabs/South_ China_Sea/Shipping.html and accessed on April 25, 2006.

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58. Mak, “Unilateralism and Regionalism,” 165. 59. “South China Sea Region,” accessed at http://www.eia.doe.gov/emeu on January 3, 2006. 60. “Major Points of Premier Wen’s Speech at 8th China-ASEAN Summit,” posted at http://www.chinaview.cn on November 30, 2004. 61. “China, Vietnam Agree to Promote South China Sea Joint Exploitation,” posted at http://english.people.com.cn/ (People’s Daily Online) on July 20, 2005. 62. Hao, Shiyou xiaoying, 240. 63. Howard W. French, “Letter from China: Wen Reveals Himself as a New Kind of Chinese Leader,” International Herald Tribune, April 24, 2007. 64. “Bimian youtian wenti yinfa chongtu, rizhong 10 yue kaitong junshi rexian” (To Prevent the Oilfield Issue from Triggering a Conflict, Japan and China Set up a Military Hotline in October), Lianhe zaobao (United Morning Post), April 18, 2007. 65. Joseph Kahn, “Japan Pledges to Help China Curb Pollution,” International Herald Tribune, December 28, 2007. 66. “Zhongri liangguo jiu Donghai wenti dacheng xin gongshi” (China and Japan Reached a New Consensus on the East Sea Issue), posted at http://news.cn.yahoo.com/07-12-/1037/2isud.html and accessed on December 28, 2007. 67. “China and Japan in Deal Over Contested Gas Fields,” New York Times, June 19, 2008; “Donghai youchu nanjie Zhong Ri zhi ‘ke’ ” (Oil Reserves under the East China Sea Can Hardly Quench the Thirst of China and Japan), http://www.dwnews.com accessed June 19, 2008. 68. “Japan Has a Good Solution to the Oil Issue,” Lianhe zaobao (United Morning Post), October 15, 2004. 69. Li, “Strategic Safeguards for Oil Security,” 418. 70. For a detailed case study, refer to Andrew Scobell, China’s Use of Military Force: Beyond the Great Wall and the Long March (New York: Cambridge University Press, 2003), 171–191. 71. “China Need Own Oil Tanker Fleet—Experts,” China Daily, April 22, 2005. 72. Li, “Strategic Safeguards for Oil Security,” 401, 418. 73. “Implicit Risks in the Security of the Shipping of China’s Imported Oil,” posted at http://www.gdtzzs.gov.cn/front/special.jsp and accessed on April 24, 2006. 74. “Sinopec to Use COSCO to Ship 30 Million Tons of Imported Oil,” posted at http://www.XINHUANET.com on February 8, 2006. 75. “China Need Own Oil Tanker Fleet—Experts,” China Daily, April 22, 2005. 76. Charles A. Mecoinis and Michael D. Wallace, East Asian Naval Weapons (Wesport, CT: Praeger, 2000), “The Role of the PLA Navy,” 133–150.

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77. Downs, China’s Quest for Energy Security, xii. 78. For a classical discussion on public goods, refer to Mancur Olson, The Logic of Collective Action (Cambridge: Harvard University Press, 1971). For discussion on global goods, refer to Inge Kaul, Pedro Conceicao, Katell Le Goulven, Ronald Mendoza, eds., Providing Global Public Goods (Oxford: Oxford University Press, 2003).

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4 China’s Mercantilist Oil Strategy and its Implications for U.S.–China Relations Yuanming Alvin Yao

Oil security is widely recognized as one of the policy priorities of national development. Furthermore, the oil industry is the least stable among all energy sectors.1 Because oil is limited and unevenly distributed across the world, oil supply and demand has become a function of political ideology, technology, and market forces, all of which influence the type and rate of oil consumption.2 Differences in political ideology, economic influence, and access to technology and markets often lead to confrontation among countries over the management of oil. Today “oil politics” has been exacerbated by geopolitical and market factors such as oil price hikes, geopolitical instability, surging demand among the developing countries, oil supply competition, OPEC production cuts, and natural disasters.3 According to International Energy Outlook 2007 (IEO 2007) issued by the Energy Information Administration (EIA) of the U.S. Department of Energy (DOE), world demand for crude oil is projected to increase by 57 percent from 2004 to 2030, and the energy demand of the emerging Asian economies in the non-OECD Asia region is projected to grow at an average rate of 3.2 percent per year, more than doubling over the 2004–2030 period and accounting for more than 65 percent of the increase in energy use for the non-OECD region as a whole.4 Non-OECD Asia accounts for 43 percent of the overall increase in world liquids consumption, with projected increases of

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6.5 million barrels per day from 2004 to 2015 and another 8.5 million barrels per day from 2015 to 2030. China, India, and the other nations of non-OECD Asia are expected to experience combined economic growth of 5.8 percent per year from 2004 to 2030, the highest rate among all the world regions.5 Among these emerging Asian countries, China is expected to satisfy its domestic demand in the global oil market on the basis of robust economy and limited oil resources. Following this rational line, China fears a sudden interruption in supply, which would undermine economic development, China’s foreign relations, and the legitimacy of the ruling Chinese Communist Party. As its manufacturing base has continued to expand rapidly, China has become a major importer of petroleum products and other strategic minerals. Oil has become China’s second largest primary energy source (accounts for coal is the largest; see figure 4.1) since 1990s. In order to fuel its rapidly growing economy, China’s huge demand for oil has caught worldwide attention in the world oil market. In 2003, China surpassed Japan to become the world’s second largest oil consumer (behind the United States), and the third largest oil importer (behind the United States and Japan).6 In 2004, China accounted for 36 percent of global oil consumption growth, although this growth has diminished in 2005 and 2006.7 China’s thirst for energy has prompted Beijing to reshuffle domestic energy institution and to secure its energy supplies through diplomatic, economic, and political measures. At the time of writing institutional reforms are still ongoing. Externally, since 2000 China has stridden in areas such as Central Asia, Latin America, Africa,

22% 6% 3%

Coal Oil Hydroelectricity

1%

Natural gas Nuclear

0% 68% Figure 4.1

Other renewables

China's total energy consumption by sector today.

Source: Energy Information Administration, the U.S. Department of Energy, “Country Energy Briefs: China,” http://www.eia.doe.gov/cabs/China/pdf.pdf, 15.

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Asia, and, above all, the Middle East. China has developed strong energy ties with Sudan, Saudi Arabia, Iran, Indonesia, and Venezuela, where it kept low profiles before. This kind of oil diplomacy has also triggered some international suspicion of China’s intentions to lock in resources. In addition, the United States and other Asia-Pacific countries (such as India and Japan) are increasingly concerned about their ability to secure oil supplies necessary to maintain economic growth. China tries to bid, compete, and cooperate with other countries for every barrel of oil in the international market. In August 2005, the China National Offshore Oil Corporation (CNOOC) withdrew its bid for the Union Oil Company of California (UNOCAL) after months of protests and China-bashing from U.S. politicians.8 In September 2005, the U.S. deputy secretary of state, Robert Zoellick, called on China not to adopt a mercantilist strategy for achieving energy security, not to deal with failed or weak states, and to become “a responsible stakeholder” in the international system.9 Geopolitical issues are also creating problems between China and other countries. For example, China wrangled with Japan over a proposed pipeline to carry Siberian oil to Asia since 2003. In September 2006, Russia decided to construct a pipeline from Taishet to Nakhodka, a compromise between the Angarsk–Daqing Line proposed by China and the Angarsk–Nakhodka Line proposed by Japan. This pipeline is not just a commercial matter but one that reflects the complex geopolitical interaction over resources. The conflict between China and Japan is even more explicit over China’s drilling for natural gas in the disputed waters of the East China Sea.10 Since China’s domestic reserves are limited, it has endeavored to meet its demand for oil by hunting overseas. One effect of this has been to force the energy and other related sectors to reach out into the international market, and to establish energy cooperation with producing countries through diplomatic or commercial means. This kind of oil diplomacy has also triggered some international suspicion of China’s intentions. Against this backdrop, this chapter will focus on the implications of China’s oil strategy for U.S.–China relations. It will argue that an understanding of China’s domestic energy structure is essential in order to interpret China’s behavior in its hunt for oil and that external forces (especially the United States) are playing either a conductive or

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an impellent role in cooperating or competing with China’s desire for oil security. The Chinese government’s adoption of a “mercantilist” strategy and oil diplomacy is the result of rational choice on the part of the energy sector and of institutional constraints. Currently, China and the United States are both willing to proceed with energy cooperation that helps integrate China into the world market, although both sides are also adopting a hedging strategy. First, this chapter will explain China’s oil consumption and its dependence on oil, and then it will turn to China’s current energy structure and the constraints it exerts on China’s behavior. Second, it will show how, based on structural constraints and state-centered calculation, the Chinese government has adopted a strategic approach in domestic and foreign measures. The U.S. factor will be introduced to show its significance in China’s hunt for foreign oil and oil security. The third section will deal with the U.S. response to China’s quest for oil, including the measures the United States has adopted to deepen U.S.–China oil cooperation.

China’s Oil Consumption and the Energy Sectors Surging Oil Demand and Dependency Before the launch of the “reform and opening-up” policy in 1978, China’s energy policy was part of its centrally planned economy and the “self-reliant” development strategy adopted in the early 1950s. China achieved self-sufficiency in oil in the period 1965–1973 and subsequently generated a surplus for export.11 However, China began to pay serious attention to oil security in 1993 when it became a net oil-importing country. As a booming economy with about 9 percent annual economic growth since the 1990s, China has become the secondlargest consumer of primary energy, accounting for 12.1 percent of the world’s energy consumption, up from 9 percent a decade ago.12 China currently needs 7.4 million barrels of oil per day (mb/d), of which it produces 3.8 mb/d and imports about 3.6 mb/d (48 percent) (see figure 4.2). The Energy Information Administration projects that by 2025, China’s demand for oil will reach 14.2 mb/d, with a net import share of 75–80 percent (10.9 mb/d) while domestic oil production will remain flat at 20–25 percent of demand or even decline gradually.13 Even worse,

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Thousand Barrels Per Day

8,000 Consumption

7,000 6,000

Net Imports

5,000 4,000

Production

3,000 2,000 1,000

0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 Year Figure 4.2

China's oil production and consumption, 1986–2006.

Note: The data for 2006 is for the period January– August only. Source: EIA International Petroleum Monthly.

experts have estimated the 35 million vehicles on China’s roads at the end of 2005 will increase to 130 million by 2020 and transportation will account for nearly half of Chinese oil consumption, compared with 35 percent today.14 Currently China accounts for 9.5 percent of global oil consumption; and it accounted for around 38 percent of the total world increase in demand during 2006.15 However, compared with Americans, who consume twenty-eight barrels per person per year, each Chinese consumes approximately two barrels per year.16 Since China is basically a coal-based economy with flat domestic oil and gas production, the rapid increase in demand for oil and gas will lead to a surge in imports; that is, China will have to rely on coal for the production of electricity and imported oil for transportation. This will pose challenges to its energy security.17 Decision makers in the government and the energy sectors will be compelled both to acquire oil assets overseas and to reorganize the energy sectors at home.

The Limping Energy Sector and its Institutional Constraints China’s domestic energy structure is essential for an understanding of China’s oil strategy and its hunt for oil overseas. Liberalization

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and decentralization since the 1970s has meant that state power and resources have been gradually distributed to state-owned energy companies. Energy management, dominated by state-owned oil enterprises (SOOEs), emphasizes supply-side policies despite continued efforts to moderate growth in demand. With problems of fuel emission and environment degradation, the current strategy is to increase domestic E&P (environment and planning) activities, reduce costs, enhance upstream liquefied natural gas (LNG), promote overseas oil and gas investment, and establish its own strategic or government petroleum storage.18 The “sustainable mode” of economic growth will be one of the main goals of the Eleventh Five-Year Plan,19 which emphasizes reducing demand through energy conservation. The plan also promotes energy efficiency, new types of energy (nuclear, hydroelectric, and others), the establishment of reliable imports, efficient exploitation of national resources, a vast oil and gas transport system, and opening up the energy sector to private investment, and so on.20 China’s legislative branch, the National People’s Congress (NPC), has passed several laws and regulations regarding energy resources, such as the Electricity Law, the Coal Law, the Water Law, and the Interim Methods on Regulating the Refined Oil Market. 21 On February 28, 2005, the fourteenth session of the Tenth NPC Standing Committee approved the Renewable Energy Law, which came into effect on June 1, 2006. 22 Meanwhile, the government is drafting a new energy law and energy white paper.23 In the past, the National Development and Reform Commission (NDRC) has sole authority for strategic planning and regulation (e.g., approving major investment projects and setting energy prices), which effectively makes it both the policymaker and the watchdog of the country’s energy industry. The NDRC’s Bureau of Energy monitors the energy sector and approves projects, while the Department of Price sets electricity and gasoline prices. The three largest oil and gas enterprises— China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec), and CNOOC—control most productive fields, petroleum products, and domestic and overseas investment. The functions of Chinese energy agencies and companies often overlap and they have equal bureaucratic rank. A local SOOE has to follow the instructions of three conflicting groups: local branches of the eleven ministries, the local branch of the NDRC, and the upper hierarchy of the SOOE.24 Currently, the National Energy Commission (NEC) would be formed at

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the vice-ministerial level, above what’s now the National Energy Bureau (NEB). Since March 2008, the NEB has replaced the NDRC to administer planning and regulate the overall development of energy. The Chinese leadership realizes how vulnerable it is to make the country’s energy supplies. In an effort to improve interagency coordination and provide an overall strategy for a fragmented energy sector, the government announced in May 2005 the formation of a National Energy Leading Group (NELG). 25 The NELG is engaged in high-level research and coordination rather than having a regulatory and supervisory role like the ministry-level NDRC. In March 2008, the NELG was soon replaced by the new NEC, which would integrate all energyrelated institutions and functions controlled by the NDRC, the entire NELG, and the nuclear power management office of the Commission of Science, Technology and Industry for National Defense.26 The NEC would be formed at the vice-ministerial level, above what’s now the NEB originally attached to the NDRC. The NEC would assume responsibility for uniform enactment of energy policies and programs and the NEB would be established as a standing body to handle the commission’s day-to-day work.27 However, several structural constraints still exist in the Chinese energy structure. First, China’s current energy shortages and skyrocketing demand indicate that there is a fragmented regulatory structure.28 Furthermore, the energy sector has expanded and gradually developed a sprawling structure because of China’s consensus-oriented and fragmented policymaking mechanism. In addition, big SOOEs are deep-rooted in local self-interest and work to influence the central government’s energy policies. This sprawling structure and these vested interests also prevent the development and implementation of a coherent national energy strategy. 29 A new energy ministry in charge of state ministries and big SOOEs also faced resistance in the eleventh National People’s Congress held in March 2008. 30 Second, the capacities of the governmental energy agencies are limited. For example, the previous NDRC’s Bureau of Energy, which was charged with handling the overall approval of energy projects throughout China, consisted of only thirty people.31 Third, with a state monopoly and administrative subsidies for the energy sector, oil prices in China cannot fluctuate according to the market. Government interference discourages more commercial

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investment in the energy sector and thus causes oil shortages. 32 Although the Chinese authorities know it is essential to liberalize oil prices and cut subsidies, they fear that rapid price fluctuation would cause economic slowdown and social unrest. When international prices are high, there is a lack of incentive for refineries to sell their products domestically. Without government subsidies, private companies are also reluctant to pay high prices for crude and sell their refined products at low domestic prices. 33 On the demand side, a failure to implement pricing reform (to reflect actual energy costs) and the limited power of the environmental protection agencies also impede the effectiveness of energy efficiency measures. 34 For example, Zhang Guobao, the NEB’s new chief, said that the NEB should also consult with the NDRC’s price bureau if it wished to adjust energy prices. 35 In sum, the earlier mentioned structural constraints prevent the state from achieving a highly coordinated policy response across the bureaucratic apparatus. That’s why an energy ministry that would oversee all aspects of energy pricing and policy was highly expected during the eleventh National People’s Congress in March 2008. Although institutional reforms have started to proceed since the 1980s, the long-existing energy structure could not move on to concentrate power on a government agency. Details on how power among the NEC, NDRC, and NEB will be shared by the agencies are still under discussion.

China’s Oil Strategy and its Global Hunt for Oil In May 2005, Ma Kai, then chairman of the NDRC, defined four elements in the achievement of energy security: energy diversification (kaifa), conservation (jieliu), renewal (zaisheng), and cooperation (hezuo).36 Zhang Guobao elaborated three strategies for energy security: (1) the abandonment of all-out economic growth and readjustment of the industrial structure; (2) the development of alternatives to oil and reduced dependence on oil imports; and (3) dual emphasis on development and conservation, with priority on conservation. 37 From this we can see that China’s energy security has three main facets. The first involves limiting vulnerability to disruption through energy conservation and diversification, given the country’s rising

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dependence on imported oil. The second is meeting rising demand at reasonable prices. The third facet is the energy-related environmental challenge.38 Based on this, the achievement of oil security involves five essential goals. The first is to ensure adequate oil supplies to meet the rising demand associated with China’s surging economic growth. The second is to make sure these supplies are reliable. The third is the development of diversified energy sources. The fourth is to ensure reasonable energy costs. The final goal is to provide sufficient energy supplies at a sustainable long-term environmental cost. 39 While Chinese policymakers and experts propose a variety of strategies and plans, the Chinese government is in fact adopting a mercantilist approach to achieving oil security. Briefly speaking, possible approaches to energy security can be categorized as either mercantilist or liberal. The mercantilist approach primarily involves state-sponsored economic measures and political initiatives, whereas the liberal approach mainly relies on national and international energy markets and seek to reduce the risk of disruption by improving the efficiency of these markets.40 The mercantilist tradition stands in contrast to the liberal (market-based) one, and rather assumes that the world economy is an arena of competition among states. Therefore, the aim of every state must be to maximize its wealth and independence. States will seek to ensure their self-sufficiency in key strategic industries and commodities, and by using trade protectionism (tariffs and other limits on exports and imports), subsidies, and selective investments in the domestic economy, while the liberal tradition emphasizes free trade and free movement of capital that will ensure that investment flows to where it is profitable to invest.41 This analysis does not advocate a specific clear-cut energy strategy, nor is it trying to assess which approach is better.42 In a delicate sense, the policy outcomes of the Chinese government’s oil diplomacy have particular preferences, which argues that actors’ interests and preferences are known or fixed and that actors can make strategic choices as to how best to promote their interests.43 Although China’s oil strategy looks aggressive externally while looks inefficient domestically, it may well be rational in the current institutional context.44 The next paragraph analyzes how the Chinese government pursues its mercantilist approach in meeting oil security.

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China’s Mercantilist Approach to Oil Security Since the mid-1990s, China’s energy security policy has generally been more mercantilist than “liberal” in that it emphasizes self-sufficiency, exploration, transportation security, trade protectionism, and state directives and assistance.45 For example, the Chinese government encourages and aids SOOEs to aggressively implement a “go out” strategy. China’s SOOEs also invest in foreign countries or in foreign companies to carry out oil exploration and drilling, and sign contracts with foreign firms for work to enhance oil recovery and drilling technology.46 Chinese SOOEs have invested in numerous countries including Russia and South Africa and elsewhere in the Middle East, North Africa, and Central Asia.47 Meanwhile, China’s dependence on oil imports and limited domestic production has prompted the Chinese government to seriously consider the establishment of a strategic petroleum reserve (SPR).48 Supply-side management, such as reducing demand for energy and improving energy efficiency, should be rather easy for the Chinese government to implement.49 However, slogans such as “sustainable development,” “energy efficiency,” and “clean energy” that are often attached to major national development projects or energy development plans are rarely implemented seriously by central and local governments.50 Because of the institutional constraints mentioned earlier, China’s oil strategy and policy outcomes have reflected the interests of the energy sector, and the evolution of that sector shows how it has benefited.51 As a result, the Chinese government is actually constrained by several institutional factors from choosing a more marketoriented approach rather than a mercantilist one. First, these constraints make energy commercialization difficult and thus the policymaking structure favors a strategic rather than a market approach to energy security. 52 The public ownership characteristic of SOOEs is proceeding slowly with administrative subsidization and market monopoly. Second, the government is still expected to play a dominant role in directing the flow of investment in the international energy market. 53 Being relatively inexperienced in the world market, SOOEs and government departments have an interest in maintaining the status quo, protecting their monopoly in oil markets, and adopting a mercantilist approach.54

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Third, domestic political and foreign policy concerns can still take precedence over economic and efficiency concerns. Political and strategic concerns about China’s vulnerability to disruption of its oil supplies or a blockade of the sea lines of communication are relieved by administrative measures such as diplomacy and military involvement.55 In addition, the “fourth-generation” Chinese leaders have differentiated themselves from their predecessors by proposing new conceptions of energy security such as the “conservation-minded society.”56 Although China has adopted a mercantilist approach, it has also begun to seriously open its domestic oil market, both to fulfill its WTO obligations and to gradually increase the number of competing players in the market. While the Chinese government often assists SOOEs in their overseas investments by directing strategy and offering loans, the government is now encouraging all SOOEs to become integrated companies, similar to the major international oil companies. Noting the importance of foreign investment, the government has progressively relaxed restrictions on private oil companies’ import quotas for oil and oil products since 2002. The government has also opened the retail market for petroleum products, as well as some oil E&P and mining, to foreign oil companies and private oil firms.57 Domestically, China’s oil security has not improved much by the adoption of a mercantilist approach. The government still protects SOOEs, and emphasizes supply-side policies, though the approach has neither improved energy efficiency nor resolved oil shortages. 58 The widespread shortage of electricity and oil resulting from a lack of effective taxation and regulation measures, lack of coherence in the energy sector, and limited commercialization has caused several serious blackouts in recent years. 59 The oil shortage can hardly be resolved unless market forces and the private sector are allowed to play a greater role in oil allocation, production, and investment. Furthermore, the mercantilist approach, supported by a sprawling and fragmented energy sector, strengthens the legitimacy of statedominated thinking and protects vested interests.60 Externally, China’s oil diplomacy aims at acquiring foreign oil supplies and managing oil issues with supplier and competitor countries. The Chinese leadership’s pursuit of oil supplies through overseas

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investment, multilateral cooperation, and military involvement (such as preventing a blockade of the sea lines of communication) has touched geopolitical nerves in the international arena. Currently, the energy sector favors a mercantilist approach coupled with increasing market coordination and administrative deregulation.61 With limited liberalization and vested interests, China’s oil security cannot help but rely more on functions of state instrument, which is also essential for promoting both demand-side policies (energy conservation and efficiency) and a market approach, and is vital for securing foreign oil in the current Chinese institutional context.

China’s Oil Diplomacy and its Global Hunt for Oil The Chinese government has made oil a factor in its foreign policy decision-making process. There are five dimensions to China’s oil diplomacy: (1) strengthening political relations with the oil-exporting states by means of bilateral or multilateral diplomacy; (2) providing practical diplomatic assistance to ensure the safe transportation of overseas oil to China; (3) obviating diplomatic efforts by any third state to disrupt bilateral energy cooperation; (4) countering the diplomatic efforts of hostile states to implement an oil embargo against China; and (5) developing oil-based diplomacy through presidential diplomacy, regional diplomacy, great power diplomacy, and multilateral diplomacy.62 The Chinese government uses diplomatic means to seek and secure oil supplies, while at the same time strengthening bilateral or multilateral relations by means of oil deals or investment. Meanwhile, diplomatic efforts help develop more diverse import sources63 and enhance interagency coordination between the different government sectors. China’s geographical position facilitates its energy diplomacy with Russia and Central Asia. The South China Sea is the main route for oil and gas shipments to Japan and Korea, and China also has energy cooperation programs with African countries.64 The three largest SOOEs—CNPC, Sinopec, and CNOOC—have taken the lead in securing Chinese access to oil assets abroad through a range of joint ventures and long-term contracts. Beijing continues to encourage its companies to acquire foreign energy firms in strategic industries that Beijing wishes to influence and control.

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Nowadays, China is strengthening its ties with Saudi Arabia, Iran, and other countries in the Middle East. 65 Furthermore, in July 2004, China and the Gulf Cooperation Council (comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) announced that they would start talks to establish a free trade agreement. 66 In the Middle East, the murkiest issue in China’s oil diplomacy is Sino-Iranian relations. In March 2004, China signed a US$100 million deal with Iran to import ten million tons of LNG over a twenty-five-year period in exchange for Chinese investment in Iran’s oil and gas exploration and petrochemical and pipeline infrastructure. Growing Sino-Iranian relations are undermining U.S. sanctions against Iran. In the ongoing controversy over Iran’s uranium enrichment program, China has also opposed bringing a resolution against Iran before the UN Security Council.67 China’s growing engagement with Central Asia is motivated by a number of strategic interests. China was the leading force in the creation of the Shanghai Cooperation Organization (SCO) in 1996. In October 2004, construction was started on a 988-kilometer pipeline from Atasu in northwestern Kazakhstan to the Alataw Pass in Xinjiang, China, which will carry ten million tons of oil a year. This pipeline, when connected to the Kazakhstan–Iran pipeline now being planned, will probably become the mainstay of a “pan-Asia continental oil pipeline network”—a gas and oil conduit network serving Asia’s major energy consumers, including China, Japan, and South Korea. If the pipeline network materializes, China’s energy ties with the Eurasian countries and America’s traditional allies will dramatically change the Asian energy chain and geopolitics in the region.68 In December 2005, one hundred delegates from eleven regional countries, including the Central Asian republics, China, and Russia, attended a meeting in Uzbekistan. The participants agreed to pool their vast energy resources and enhance regional cooperation, while asking the United States not to follow destructive policies in various regions of the world for the sake of its own energy security.69 The Chinese are also helping to develop oil fields in Uzbekistan and hydroelectric power projects in Kyrgyzstan and Tajikistan.70 Moreover, China is competing with Japan to construct a pipeline from Angarsk (in Russia) to Daqing (in China).71

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In Africa, Beijing has demonstrated its willingness to protect its energy interests against international pressure especially from the United States. China is also a major supplier of arms to the Sudanese government and it has invested a reported US$15 billion in Sudanese oil projects and imported oil from Sudan. Beijing threatened to veto a UN resolution to impose sanctions on Sudan in October 2005 as punishment for sponsoring genocide in Darfur.72 Recently, China and Sudan have also promised to strengthen bilateral military exchanges.73 China is also searching for energy resources in Angola, Zambia, Congo, Zimbabwe, and other energy-rich African states by offering arms or aid.74 What makes the United States uncomfortable is that China supports a number of ruthless regimes, or keeps silent on their wrongdoings, while at the same time being an important member of the “club of international powers.”75 While he was president of the World Bank, Paul Wolfowitz sharply criticized China for ignoring human rights and environmental standards when lending to developing countries in Africa.76 In East Asia, CNPC and CNOOC have acquired stakes in Indonesia’s oil and LNG fields, and signed oil and gas deals with Indonesia and Australia.77 China has also looked into bypassing the Straits of Malacca by constructing a pipeline through Myanmar, which is seen as a failed state by the United States. The project consists of a 1,250-kilometer pipeline from the deepwater port of Sittwe on the Bay of Bengal to Kunming in Yunnan Province.78 China has also strengthened its relations with Brunei. By 2004, the PRC was purchasing twenty thousand barrels of oil per day from Brunei, accounting for 10 percent of that country’s daily oil-producing capacity.79 In the United States’ backyard, China has announced energy deals or invested in energy infrastructure in Brazil, Ecuador, Argentina, Chile, and Cuba.80 China also committed to developing Venezuela’s gas production during warm high-level exchanges. China and Canada signed a joint statement on energy cooperation that could give the former access to Canada’s tar sands and uranium resources.81 The Chinese top leadership has also been involved in energy diplomacy. Since Hu Jintao assumed office in March 2003, he has toured Latin America, Africa, Australia, Canada, and Central Asia, where he has signed many energy contracts with local companies or governments (see table 4.1).

China’s Mercantilist Oil Strategy Table 4.1 2003

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Chinese president Hu Jintao’s foreign visits since assuming office in March

Nation

Date

Nation

Date

Russia France

May-03 June-03

November-05 November-05

Kazakhstan Mongolia Australia New Zealand Thailand Algeria Eygpt France Gabon Hungary Poland Romania Uzbekistan Argentina Brazil Chile Cuba Brunei Indonesia Phillippines Russia Great Britain (Scotland) Kazakhstan Russia Canada Mexico United States (UN) North Korea Vietnam

June-03 June-03 October-03 October-03 October-03 January-04 January-04 January-04 January-04 June-04 June-04 June-04 June-04 November-04 November-04 November-04 November-04 April-05 April-05 April-05 May-05 July-05

Germany Great Britain (England) South Korea Spain Morocco Nigeria Kenya Saudi Arabia United States Russia (St. Peterburg) Vietnam Laos Pakistan India Cameroun Liberia Sudan Zambia Namibia South Africa Mozambique Seychelles Russia Germany (Heiligendamm) Sweden Kyrgyzstan Russia Kazakhstan Australia Japan Japan (Hokkaido)

July-05 July-05 September-05 September-05 September-05 October-05 October-05

November-05 November-05 April-06 April-06 April-06 April-06 April-06 July-06 November-06 November-06 November-06 November-06 February-07 February-07 February-07 February-07 February-07 February-07 February-07 February-07 March-07 June-07 June-07 August-07 August-07 August-07 September-07 May-08 July-08

Another instrument used by China to cement oil ties is arms sales, which irritates the United States. Many states selling oil or oil concessions to China—Iraq, Iran, Sudan, Angola, Nigeria, and Saudi Arabia—have reportedly been buyers of Chinese weapons.82 China’s intensified diplomacy in world oil markets has already created friction with other rapidly developing countries (such as India) and major powers (such as the United States.).83

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However, China has encountered many obstacles in its promotion of oil diplomacy. Beijing is relatively late in taking steps to secure stable energy supplies. Most oil resources are dominated by Western countries that are still very defensive against China.84 Although China appears to be striving for oil, so far it has fallen far short of its goal of oil security. Currently, production from China’s overseas investments supplies less than 10 percent of imports, and the rest is purchased on the open market.85 The oil fields that Chinese companies have so far bought into are already mature, and many experts feel they have overpaid in an international oil market dominated by several big foreign companies.86 Acknowledging China’s limited international experience in oil hunting and the geopolitical impact of its behavior, President Hu Jintao and Premier Wen Jiabao have repeatedly stressed that a sound international political environment is essential for energy security and stability, and geopolitical disputes should not be allowed to block global energy supplies nor should energy issues be politicized.87 Since the United States is the sole superpower in the world and has a deep influence on the world energy market, China’s thinking of oil strategy will have implications for U.S.–China relations.

The U.S. Factor and U.S. Concerns about China’s Oil Strategy The United States and China are facing similar serious energy challenges: increasing dependence on foreign sources of energy, high energy prices, and increased environmental degradation caused by the rise in energy use.88 For these reasons, international cooperation in energy security has become part of China’s oil policy. The aim of energy cooperation is not only to remove concerns about China’s global hunt for oil, but also to prevent possible oil crises and minimize their impact on China’s politics and economy if they should occur. However, China’s efforts to achieve oil security are still constrained by strategic concerns, institutional vested interests and inefficiencies, as well as limited liberalization.89 Therefore, China relies more on a mercantilist approach to ensure its oil supplies, manifested in its oil diplomacy and competition for oil. That is why the Chinese government regards its oil diplomacy as a sharing of international experience,

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rather than as aggressive behavior or a threat to the world.90 This section demonstrates the U.S. factor in China’s thinking on oil security and concerns on both sides.

The U.S. Factor in China’s Oil Security China’s distrust of American strategic intentions and concern about global oil supplies prompt Chinese analysts to reach more alarming conclusions than their counterparts in the West.91 Since China’s crude oil imports from the Middle East account for 50 percent of its total imports, from a Chinese perspective, it is the United States that is most likely to take advantage of its political and military influence in the oil-producing regions.92 That the sea lines of communication are mainly policed by the U.S. Navy may also facilitate the containment of China or a blockade of its sea lanes if disputes should arise.93 Since 9/11, U.S. dominance in the Middle East has raised Chinese suspicions that the United States intends to further control oil supplies.94 These developments in the Middle East have also reshaped China’s basic conception of the geopolitics of oil and added urgency to its mission to reduce its dependence on Middle East supplies.95 Xu Xiaojie, a Chinese scholar, fears that Americans exaggerate Chinese energy threat in order to serve American national interests in issues such as global energy strategy and Taiwan Strait.96 According to Xu, a possible deterioration in Sino-American relations would seriously affect China’s oil security, and China would need to adopt some counterbalancing measures that would allow it to threaten the oil security of the United States and Japan.97 The U.S.–Japan alliance and the American “hub and spoke” alliance with other Asia-Pacific countries also raise China’s sense of vulnerability where its oil supplies are concerned. To move in a vicious circle, China’s mercantilist thinking based on its own historical experience of applying or suffering oil coercion or manipulation magnifies its fear of future U.S. oil pressure.98 The Chinese government is quietly speeding up its military build-up to protect its oil transport, especially in the strategic bottlenecks in the Indian Ocean, Southeast Asia, and East Asia.99 With 80 percent of Chinese oil imports delivered through the Straits of Malacca, which is now dominated by the U.S. Navy, no wonder that President Hu Jintao has referred to the issue of securing oil transport as the “Malacca

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dilemma.”100 The Chinese government hopes that the major powers will maintain a sound international political environment for energy security and stability and that its overseas activities in pursuit of oil supplies will be treated as normal behavior.101 However, China is simultaneously preparing for a counterattack.102 In the Chinese eyes, oil could become another hidden factor causing instability in future Sino-American relations,103 and in a sense China’s oil security is built on the premise of minimizing its vulnerability to American power.104 In this regard, the oil factor will become a more integral part of China’s foreign and security policy.

Why the United States is Concerned In September 2005, then U.S. deputy secretary of state Robert Zoellick accused China of adopting a mercantilist strategy for achieving energy security and dealing with some failed or weak states.105 Simultaneously, in the Pentagon’s 2005 report on Chinese military power, it was argued that “Beijing’s belief in special relationships to assure its energy access could shape its defense strategy and force planning in the future such as a blue-water capable fleet and a more activist military presence abroad.”106 That is why Zoellick warned that China’s uncertainty in the use of its power will lead the United States—and others—to hedge their relations with China. He thus called on China to become “a responsible stakeholder” in the international system.107 Mikkal E. Herberg, an energy expert, has warned that China’s mercantilist policy regarding oil may decrease the energy security of the United States and its allies, and that China’s rising consumption of coal and its nuclear energy building program has caused environmental, nuclear safety and proliferation issues. He said that China should procure oil and gas according to international practices and should cease providing assistance, arms, and proliferation-related technologies to problematic states.108 Take the UNOCAL case, for example. UNOCAL is particularly attractive to CNOOC and to the Chinese government because its Asian reserves are mainly located in Indonesia, Myanmar, and Thailand.109 Chevron successfully mobilized anti-Chinese sentiment, exerting pressure in the U.S. Congress to ban the CNOOC takeover outright or to delay it long enough for Chevron to persuade UNOCAL

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shareholders to accept its own offer.110 In August, CNOOC withdrew its bid for the U.S. oil company after months of protests and Chinabashing sentiment from U.S. politicians.111 China protested to the Americans over protectionist measures including the updated Energy Bill issued on July 17, 2005.112 Although protectionist voices in Washington irritate both China and liberals in the United States, the bid dispute did indeed provoke some American concerns over China’s emerging influence. These concerns included: (1) unfair competition and the mercantilist energy strategy adopted by SOOEs113; (2) that oil and gas procurement could be used as diplomatic leverage114; and (3) security implications such as access to certain materials (rare earth minerals), technologies, and equipment (including cavitations, deep sea exploration, and drilling).115 However, not only China but also India and Japan take more or less the same mercantilist approach due to their dependence on overseas oil supplies. As for China’s dealings with problematic states, India also invests in hydrocarbon exploration fields in places such as Iran and Sudan.116 In answer to concerns about important strategic materials and technologies, the UNOCAL subsidiary dealing in rare earth materials could have been hived off and excluded from the takeover. Many other countries, including the European Union and Japan, similarly subsidize what they see as important strategic national industries.117 Furthermore, nobody objected when Saudi Arabia’s Aramco and Venezuela’s PDVSA bought American refineries and petrol stations.118 What really annoys Washington is that China does not follow or respect international norms (mainly set and maintained by the United States) and that China’s emerging geopolitical influence (energy diplomacy and control of sea lines of communication) may conflict with Washington’s national interests, challenge the international order, and threaten U.S. oil supplies.119 The United States understands that China’s emergence is unstoppable and that it will become the predominant military power in East Asia within the next several decades. Therefore, the United States is attempting to influence China rather than simply defend against it. The priority for the United States is to create an atmosphere in which China has shared interests in cooperating with the United States.120

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The U.S. Policy Response One year after the UNOCAL case, Zoellick’s “road map” for China’s global role seems to have been implemented by the U.S. government. Deputy Assistant Secretary of State Thomas Christensen has publicly pointed out that China’s growing influence on the world stage is “a natural consequence of its economic growth and development, and need not be seen as a threat to the United States.”121 The United States knows that its national security and the stability of the Asia-Pacific region are best served by policies designed to enhance China’s interest in international cooperation via tying China into the international system.122 However, the United States is also preparing for an uncertain future by means of an Asia-Pacific military realignment and redeployment intended to sharpen its capacity vis-à-vis China’s military buildup.123 The U.S. government has also adopted some energy cooperation and military measures to adjust to China’s oil diplomacy.

U.S.–China Energy Dialogues and Cooperation The establishment of high-profile and working-level energy dialogues between the United States and China has also helped to strengthen mutual trust and assist China in meeting its energy needs, improving efficiency, promoting energy technology, and dealing with environmental challenges. The most high-level bilateral engagement is the U.S.–China Strategic Economic Dialogue (SED) established in September 2006. The second level is the U.S.–China Energy Policy Dialogue established in May 2004. Collaboration also extends to some extent to high energy nuclear physics, fossil energy, energy efficiency and renewable energy, energy information exchanges, the Green Olympic Protocol for Beijing’s 2008 Olympic Games,124 and interchanges between China’s National Development and Reform Commission and the U.S. Department of Energy on the peaceful uses of nuclear technologies.125 Another medium for bilateral discussion is the Sino-U.S. Oil and Gas Industry Forum, through which U.S. officials promote respect for market principles in the global energy market. The forum gives Chinese officials exposure to Western business practices, and helps to open Chinese markets to U.S. investment.126 In a Global Forum held by the United States and China in August 2006, the two sides discussed ways to deal with the soaring price of oil and

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its negative impact on the global economy, including international cooperation on the development of clean energy sources, initiatives relating to the more efficient use of existing fuels, research on new energy technology, and collaboration to improve access to cleaner energy in poorer regions of the world.127 Besides, the bilateral official dialogues extend to other fields such as economics, technology, and diplomacy.128 The United States has recently scaled down its previous antagonism toward China’s hunt for energy and has begun to engage actively with China. The U.S. Department of Energy established four goals in August 2006 for its relations with China: (1) to accelerate the development and deployment of new technologies while reducing costs; (2) to promote clean and advanced technologies to help China meet its energy and environmental challenges; (3) to have a positive influence on China’s nuclear nonproliferation policy, export controls, nuclear material security, and nuclear safety; and (4) to facilitate U.S. industry’s investment in and trade with China.129 The U.S. Department of Energy actively engages with China through multilateral forums such as the Energy Working Group of the Asia-Pacific Economic Cooperation (APEC) and the International Energy Agency (IEA). Although China is not a member of the IEA, key Chinese officials have been invited to IEA ministerial meetings in recent years. The U.S. Department of Energy is a key participant in workshops on natural gas and strategic petroleum stocks held by the IEA to assist the Chinese government.130 The United States also encourages its Asian allies to promote Asian energy dialogues and de-escalate zero-sum rhetoric between China and other East Asian countries.131 In addition to some essential political dialogues and energy cooperation, the United States has also suggested that while China is developing energy resources in Sudan, it should at the same time help the United States deal with the genocide in Darfur.132 With regard to Iran and North Korea, the United States is gradually acknowledging China’s interest there and pushing for a compromise through a cooperative approach.

Military Preparedness In addition to channeling China’s increasing strength in benign directions, the United States is hedging against the possibility of an

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aggressive turn in Chinese intentions. The 2005 annual report issued by the U.S.–China Economic and Security Review Commission (USCC) of the U.S. Congress suggested that the United States should increase its intelligence gathering “with respect to Chinese activities in Africa, Central Asia, and, especially, the Western Hemisphere, in order to advise both appropriate executive and legislative branch officials of energy-related actions and trends that warrant careful attention and response.”133 In other words, the report suggests that the U.S. government should adopt a hedging strategy toward China through pragmatic collaboration and bilateral dialogues on the one hand, and through intelligence and military preparedness on the other. Nowadays the United States is quite confident that as the sole superpower it can influence China in the current international setting and would have the ability to frustrate China’s international ambitions in the foreseeable future, and this is also recognized by China. China understands the international environment and is thus adopting a “peaceful development” strategy while maintaining its extensive and mutually beneficial economic ties with the United States with the aim, as it sees it, of toning down the long-term threat posed by the United States.134

What China Can Do A senior Chinese pundit Wang Jisi said that the priority in SinoAmerican energy cooperation is to “make sure that the other side understands its intentions and to explore ways to cooperate on energy issues through joint projects.”135 Currently, the Chinese government understands that it is in China’s best interests to act in multilateral cooperation with the United States and other powers, for China has effectively integrated itself in, and benefited from, the interdependent international system. In term of oil security, China also needs to show that it is determined to temper its mercantilist approach to oil security and work on constructive domestic supply-side and demand-side measures. On the supply side, China can extend its hunt for oil overseas through a market approach and establish governmental mechanisms to control price volatility such as futures markets and hedging. On the demand side, efficiency programs, integrated transport planning, and clean-coal

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technology need to be promoted through taxation and regulation. Market-based prices would be greatly helpful for oil companies to adjust their production slate and resource allocation. Most importantly, an energy ministry that would oversee all aspects of energy pricing and policy is still highly expected to push for institutional reforms in its energy sector. Externally, China needs to acknowledge that more cooperation and deeper involvement by the United States will be helpful for its oil security. The United States can exert its influence by establishing an East Asian energy cooperation mechanism or by assisting China’s participation in the IEA. Meanwhile, only the United States is capable of facilitating knotty problems as China’s disputes with Japan and its relations with Taiwan. China can show its willingness to take practical steps to cooperate with the United States and devise a multilateral mechanism to deal with oil supply disruptions, security of the sea lines of communication, and environmental challenges.

Conclusion China’s huge demand for oil and its dependence on oil imports have forced the government to adopt domestic and external administrative measures to secure the country’s oil supply. On the whole, China has relied on a mercantilist approach rather than on a market approach to ensure its oil security due to institutional fragmentation, strategic thinking, and vested interest concerns. Currently, the energy sector favors a mercantilist approach coupled with increasing market coordination and administrative deregulation. Due to the constraints of the energy sector, China’s oil security cannot help but rely more on the utility of state instruments, which are simultaneously essential for promoting demand-side policies (energy conservation and efficiency) and securing foreign supplies. For the sake of future oil security, China needs to undertake serious domestic institutional reforms. Meanwhile, the U.S. response to China’s behavior would affect China’s desire for oil security especially in the international arena. The United States feels that China’s oil hunting is challenging U.S. geopolitical interests and ignoring international norms. Furthermore,

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the United States knows that its national security is best served by policies designed to enhance China’s interest in international cooperation via tying China into the international system. The U.S. government is attempting to engage with China while the United States adopts a hedging strategy toward China through both cooperation and military preparedness. Nowadays, U.S.–China energy cooperation tends to benefit both sides in term of energy and diplomatic relations. The two sides can cooperate in areas such as environmental protection, natural resource conservation, sustainable development, development of advanced technology, and clean energy.136 Based on these global common interests, the United States and China both acknowledge the importance of dialogue, though the two sides are also keeping to their hedging relationship. China’s current strategy also reflects its attempt to play a soft hand. Optimistically speaking, dependence on oil imports and a global energy market faced by both countries may help create an environment conductive to geopolitical stability for the world.137 While the Chinese leadership is unanimous in asserting that China will rise peacefully in the international arena and develop a prosperous and harmonious society by 2020, China’s future depends not only on its ability to carry out domestic institutional reforms, but also on its willingness to take responsibilities and cooperate in a globalized world. At the very least, oil and energy issues between the United States and China have opened a window of opportunity for cooperation.

Notes Originally published in a slightly different form as “China’s Oil Strategy and its Implications for U.S.–China Relations,” Issues & Studies 42, no. 3 (September 2006): 165–201, © Institute of International Relations, National Chengchi University, Taipei, Taiwan (ROC). Reprinted by permission. This chapter is an updated version of the aforementioned article. 1. Paul Roberts, The End of Oil (Boston and New York: Houghton Mifflin, 2005), 6; and Francisco Parra, Oil Politics: A Modern History of Petroleum (London and New York: I.B. Tauris, 2004), 1. 2. Susan L. Cutter, “Exploiting, Conserving, and Preserving Natural Resources,” in Reordering the World: Geopolitical Perspectives on the 21st Century, eds. George J. Demko and William B. Wood (Boulder, Colo.: Westview, 1994), 123–124.

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3. The oil price soared near US$80 per barrel after Hurricane Katrina hit production and refining operations in the Gulf of Mexico in September 2005. Factors such as the collapse of oil-producing countries, political instability, natural disasters, terrorism or accidents, and increased competition, all cause oil prices to soar. For an analysis of the current oil demand and market structure, see Parra, Oil Politics, 315–320; “Not So Shocking,” The Economist, April 28, 2005; Energy Information Administration (EIA), “International Energy Outlook 2005” (July 2005), 25–26; and Pak K. Lee, “China’s Quest for Oil Security: Oil (Wars) in the Pipeline?” The Pacific Review 18, no. 2 (June 2005): 267–268. 4. EIA, “International Energy Outlook 2007,” 1–6. 5. Ibid., 30. 6. Mikkal E. Herberg, “The Emergence of China throughout Asia: Security and Economic Consequences for the United States” (Testimony before the U.S. Senate Committee on Foreign Relations hearing, June 7, 2005), 4. 7. British Petroleum (BP), “Putting Energy in the Spotlight: BP Statistical Review of World Energy” (June 2005), http://www.bp.com/sectiongenericarticle. do?categoryId=9010933&contentId=7021561. 8. The US$18.5 billion bid for UNOCAL put forward by CNOOC in 2005 was nearly US$2 billion higher than a previous offer by Chevron, a larger U.S.-based firm. 9. Robert B. Zoellick, “Whither China: From Membership to Responsibility?” (Speech at the National Committee on U.S.–China Relations, New York, September 21, 2005). Chinese scholars are dissatisfied with the concept of “stakeholder,” which implies a subordinate position. Rather, the Chinese prefer “co-manager,” which puts them on an equal footing with the United States. This point is reflected in an interview with Richard Bush at the Brookings Institution, October 2005. 10. Daniel Yergin, “Over a Barrel,” Fortune no. 10 (2005): 114. 11. Lee, “China’s Quest for Oil Strategy,” 267. 12. Brian Bremner et al., “Asia’s Great Oil Hunt,” BusinessWeek Online, November 15, 2004. 13. EIA, “Country Analysis Brief: China” (August 2006), http://www.eia. doe.gov/emeu/cabs/China/Oil.html. Kang Wu cited the EIA’s pessimistic prediction of China’s oil production in the future. See Kang Wu, “Current Energy Situation and Government Policies in China” (Paper delivered at the Roundtable on Chinese Energy Security, Berlin, May 19–20, 2003), 9. The prediction of oil production and consumption depends on different assumptions on a wide variety of factors such as projected economic growth and financial/technical feasibility of mineral exploration. Many organizations have different predictions. See Amy Myers Jaffe and Steven Lewis, “Beijing’s Oil Diplomacy,” Survival 44, no. 1 (Spring 2002): 117–118 (tables 1 and 2).

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14. “China Should Rely Less on Middle East Oil,” Shenzhen ribao (Shenzhen Daily), November 14, 2005; and James Dorian, “Energy Demand: Dramatic Global Implications” (Paper delivered at the conference on Implications on China’s Energy Search, Center for Strategic and International Studies, Washington, D.C., March 23, 2005), 8. 15. EIA, “Country Analysis Brief: China”; and BP, “Quantifying Energy: BP Statistical Review of World Energy” (June 2006), http://www. bp.com/sectiongenericarticle.do?categoryId=9010936&contentId= 7021562. 16. Anthony Wayne, “Energy Trends in China and India and Their Implications for the United States” (Testimony delivered before the Committee of Foreign Relations, U.S. Senate, November 18, 2005), http://72.14.235.104/search?q=cache:F0dgU5FDnw4J:www.state.gov/e/ eb/rls/rm/2005/66574.htm+United+States+consumes+40+barrels+per+ day+per+person&hl=zh-TW&gl=tw&ct=clnk&cd=17. 17. Christian Constantin, “China’s Conception of Energy Security: Sources and International Impacts,” Working Paper #43 (Center of International Relations, University of British Columbia, Vancouver, March 2005), 39. 18. Wu, “Current Energy Situation,” 6–7. 19. “Ruhe lijie woguo shiyiwu shiqi ruogan zhongda zhanlue renwu: fang Guojia fazhan han gaige weiyuanhui zhuren Ma Kai” (How to Understand Some Important Strategic Tasks during the Eleventh Five-Year Plan Period: Interview with NDRC Chairman Ma Kai), November 11, 2005, http://www.ndrc.gov.cn/zjgx/t20051111_49727.htm. 20. Pablo Bustelo, China and the Geopolitics of Oil in the Asian Pacific Region (Madrid: Real Instituto Elcano de Estudio Internacionales y Estrategicos, 2005), 19. 21. Wu, “Current Energy Situation,” 6. 22. Ibid. 23. Liu Shixin, “Woguo zhengzhunbei zhiding nengyuanfa” (Our Country is Preparing to Draft an Energy Bill), Zhongguo qingnian bao (China Youth Daily), October 21, 2005. The NDRC is compiling a white paper to inform overseas countries about China’s energy development. See “China Compiling White Paper on Energy Policies,” Xinhua, September 25, 2006. 24. Kong Bo, “Institutional Insecurity,” China Security (Summer 2006): 69–70. 25. This new interagency task force included leaders from thirteen top government agencies such as the NDRC, the Ministry of Commerce, Ministry of Foreign Affairs, and so on. This NELG was headed by Premier Wen Jiabao and his two deputies, namely, vice premiers Huang Ju who died in June 2007 and Zeng Peiyan. See Julie Walton, “Power Politics,” China Business Review 32, no. 5 (September/October 2005): 10.

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26. Zhao Jianfei, “Energy Office Upgraded, But Power Limited,” Caijing Magazine, March 12, 2008, http://www.caijing.com.cn/English/energy& environment/2008-03-12/52084.shtml. 27. Ibid. 28. See Walton, “Power Politics,” 9–11. 29. The interchange of personnel among energy sectors hampers any policy reform that is not in the interest of the ministries or national energy companies. See Kong, “Institutional Insecurity,” 73–74; and Jonathan Sinton et al., Evaluation of China’s Energy Strategy Options (Berkeley: Lawrence Berkeley National Laboratory, May 2005), 4. 30. “Energy Ministry Plans May Be Delayed,” February 26, 2008, China Economic Review, http://www.chinaeconomicreview.com/dailybriefing/ 2008_02_26/Energy_ministry_plans_may_be_delayed.html. 31. Kong, “Institutional Insecurity,” 73. 32. See Richard McGregor, “Beijing under Pressure to Tackle Oil Shortages,” Financial Times, August 19, 2005. The incoherence of energy sector development and limited commercialization resulted in widespread electricity shortages and uneven geographic distribution of electricity in 2003. 33. Kong, “Institutional Insecurity,” 75–76. 34. The State Environment Protection Administration was upgraded to Ministry of Environment Protection in March 2008. 35. “NDRC Will Continue to Set Energy Prices,” China Economic Review, March 25, 2008, http://www.chinaeconomicreview.com/dailybriefing/ 2008_03_25/NDRC_will_continue_to_set_energy_prices.html. 36. “Woguo nengyuang zhengce zouxiang cheng sida zhuxian” (China’s Energy Policy Consists of Four Primary Outlines), Zhongguo shihuabao (Sinopec News), May 25, 2005, http://www.china5e.com/news/ zonghe/200505/200505250088.html. 37. Cu Qingzhen, “Sanda zhanlue: woguo nengyuan anquan de fanghuoqiang” (Three Major Strategies: The Firewalls of National Energy Security), Energy News Online, November 1, 2005, http://www. china5e.com/news/zonghe/200511/200511010155.html. 38. William F. Martin, Ryukichi Imai, and Helga Steeg, “Maintaining Energy Security in a Global Context,” Task Force Report # 48 (The Trilateral Commission, 1998), 4. 39. Mikkal E. Herberg, “China’s Global Energy Security Campaign and Implication” (Speech delivered at the Brookings Institution, Washington, D.C., November 18, 2005), 1–2; and Zha Daojiong, “Energy Interdependence,” China Security (Summer 2006): 3. 40. Frank Umbach, “Global Energy Supply and Geopolitical Challenges,” in Asia and Europe: Cooperating for Energy Security, eds. Francois Godement, Francoise Nicolas, and Taizo Yakushiji (Tokyo: Japan Center for International Exchange, 2004), 7.

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41. John Baylis and Steve Smith, eds., The Globalization of World Politics: An Introduction to International Relations (Oxford: Oxford University Press, 2001), 285. 42. The United States, as the biggest consumer and importer of oil, is also vulnerable to security of supply in the international oil market. In 2001, the National Energy Policy Development Group headed by Vice President Dick Cheney issued a National Energy Policy and suggested that energy security should be a priority of trade and foreign policy. See National Energy Policy (Washington, D.C.: U.S. Government Printing Office, May 2001), chapter 8. In addition, Japan is also believed to take a strategic approach and is firmly linked with the Western-dominated energy system. See Roland Dannreuther, “Asian Security and China’s Energy Needs,” International Relations of the Asia-Pacific 3, no. 2 (2003): 200, 205. 43. Baylis and Smith, The Globalization of World Politics, 287. 44. In this sense, “rational” means appropriate to the specific incentives and institutional constraints and opportunities that existed at the time. See ibid. 45. Dannreuther, “Asian Security and China’s Energy Needs,” 199–201; Constantin, “China’s Conception of Energy Security,” 4–6; and Erica Strecker Downs and Project Air Force, China’s Quest for Energy Security (Santa Monica, Calif.: Rand, 2000). For maritime exploration, see Bernard Cole, “Oil for the Lamps of China”: Beijing’s 21st-Century Search for Energy (Washington, D.C.: National Defense University, 2003), 70–71. 46. See note 37 earlier. 47. “Zhongguo shiyou anquan xuyao xinsilu” (China’s Oil Security Needs New Perspectives), Guoji jinrong bao (International Financial News), August 22, 2005. 48. In 2001, the NDRC chose four venues for petroleum storage facilities: Zhenhai and Zhoushan (both in Zhejiang Province), Huangdao (in Shandong Province), and Dalian (in Liaoning Province). See Cai Rongsheng, “Jianli zhanlue shiyou chubei, weihu guojia anquan” (Establishing a Strategic Petroleum Reserve to Protect National Energy Security), Jingji ribao (Economic Daily), May 25, 2005. China only has 21.6 days worth of crude oil reserves for internal usage and its per capita exploitable energy reserves are far below the world average. See “China’s Energy Diplomacy Harvests Rather Little,” China Economic Net, November 15, 2005, http://en-1.ce.cn/main/Insight/200411/15/ t20041115_2295397.html; and “China to Raise Economy’s Energy Efficiency,” Associate Press, December 12, 2005, http://biz.yahoo.com/ ap/051212/china_fuel_efficiency.html?v=1&printer=1. 49. Bei An, “China’s Oil Import Growth Continues to Fall in 2006,” Xinhua, November 18, 2005, http://www.nautilus.org/aesnet/2005/NOV3005/ XNA_PRCoil.pdf.

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Dannreuther, “Asian Security and China’s Energy Needs,” 204. Wu, “Current Energy Situation,” 2–7. Dannreuther, “Asian Security and China’s Energy Needs,” 99. Ibid., 201. Philip Andrews-Speed, Xuanli Liao, and Roland Dannreuther, The Strategic Implications of China’s Energy Needs (London: Routledge, 2005), 43. Ibid., 99–101. Constantin, “China’s Conception of Energy Security,” 16–19. Kong, “Institutional Insecurity,” 78–80. Dannreuther, “Asian Security and China’s Energy Needs,” 202. See note 32 earlier. Sinton et al., Evaluation of China’s Energy Strategy Options, 4. For more discussion about reform, restructuring, and rationalization of Chinese industries, see Thomas G. Moore, China in the World Market (Cambridge: Cambridge University Press, 2002). Chen Dong, “Shiyou anquan cushi Zhongguo junshi waijiao biange” (Oil Security Contributes to Changes in Chinese Military and Foreign Affairs), Phoenix Net, September 21, 2004, http://www.china5e.com/ news/oil/200409/200409210280html; and Jaffe and Lewis, “Beijing’s Oil Diplomacy,” 118. In 2003, China’s leading crude import sources included Saudi Arabia (16.8 percent of total imports), Iran (13.8 percent), Angola (11.2 percent), Oman (10.3 percent), Yemen (7.7 percent), and Sudan (4.7 percent). See Katharine A. Fredriksen, “China’s Role in the World: Is China a Responsible Stakeholder?” (Statement before the U.S.–China Economic and Security Review Commission, August 4, 2006), 7. “India Contesting Oil with China in World Market,” China Economic Net, March 16, 2005, http://en.ce.cn/Insight/200503/16/ t20050316_3340109.shtml. The Middle East countries provide 30 percent or so of global oil and 60 percent of the proven oil reserve is located in the Middle East. Any major instability in the Middle East would certainly interrupt Chinese oil supplies and cause a severe oil price hike. See BP, “Putting Energy in the Spotlight,” 4. Lee, “China’s Quest for Oil Security,” 282–823. Chietigj Bajpaee, “Setting the Stage for a New Cold War: China’s Quest for Energy Security,” World Security Network, February 25, 2005, http:// www.worldsecuritynetwork.com/showArticle3.cfm?article_id=11020. Tak-ho Fong, “Rice Tour Raises China’s Energy Hackles,” Asia Times Online, October 25, 2005, http://www.atimes.com/atimes/China_ Business/GJ25Cb01.html. “Energy: Asian Countries Agree to Pool Resources,” AdnKronos International December 8, 2005, http://www/adnki.com/index_2Level. php?cat=Business&loid=8.0.237757838&par=0#.

108 70. 71. 72. 73.

74.

75. 76. 77. 78. 79. 80.

81.

82. 83. 84.

85. 86. 87.

88. 89.

Yuanming Alvin Yao See note 67 earlier. Lee, “China’s Quest for Oil Security,” 282–283. Matthew Forney, “Quest for Oil,” Time, November 22, 2005. “China, Sudan to Further Armed Forces Exchanges,” Xinhuanet, November 28, 2005, http://news.xinhuanet.com/english/2005-11/28/ content_3847856.htm. Princeton N. Lyman, “China’s Rising Role in Africa” (Report at a hearing of the U.S.–China Economic and Security Review Commission, Washington, D.C., July 21, 2005). Ibid. Françoise Crouigneau and Richard Hiault, “World Bank Hits at China over Lending,” Financial Times, October 23, 2006. Bajpaee, “Setting the Stage for a New Cold War.” Chietigj Bajpaee, “China Fuels Energy Cold War,” Asia Times Online, March 2, 2005, http://www.atimes.com/atimes/China/GC02Ad07.html. Ian Storey, “China Thirst for Energy Fuels Improved Relations with Brunei,” China Brief 5, no. 24 (November 22, 2005). While attending the annual Asia-Pacific Economic Cooperation (APEC) summit in Chile in November 2004, Chinese president Hu Jintao announced an energy deal between Sinopec and Petrobras of Brazil for a two-thousand-kilometer natural gas pipeline. China is also acquiring oil assets in Ecuador as well as investing in offshore petroleum projects in Argentina. See Roger F. Noriega, “China’s Influence in the Western Hemisphere” (Hearing of the House Subcommittee on the Western Hemisphere Affairs, Washington, D.C., April 6, 2005). Venezuela and Canada account for 8 and 11 percent, respectively, of crude oil imports to the United States. See Lyric Wallwork Winik, “How High Can it Go?” Parade (Washington, D.C.), October 2, 2005, 5. See note 79 earlier. See note 72 earlier. Liu Da-Nien, “Challenges to China’s Economic Development and Transformation” (Paper presented at the Peace Forum, December 31, 2005), http://www.peaceforum.org.tw/onweb.jsp?webno=3333333217& webitem_no=1579. See note 72 earlier; and EIA, “Country Analysis Brief: China.” See note 79 earlier. Le Tian, “World Energy Security Vital for Economy,” China Daily, July 18, 2006, http://www.chinadaily.com.cn/china/2006-07/18/content_ 642923.htm; and see Luan Shanglin, “Wen Makes 8-Point Proposal on New Asia-Europe Ties at ASEM Summit,” Xinhua, September 11, 2006, http://www/gov.cn/misc/2006-09/11/content_383968.htm. Fredriksen, “China’s Role in the World,” 8. Evidence of national security concerns can be found in the restrictions China imposes on foreign involvement in the energy sector. As for institutional inefficiencies, Chinese institutions have actively sought to

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90.

91.

92.

93. 94. 95. 96.

97. 98. 99.

100. 101.

102. 103. 104.

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acquire advanced technologies from abroad in many sectors but lacked the appropriate legal, financial, and accounting systems and expertise to carry out the contracts. Meanwhile, Chinese institutions are reluctant to pay for foreign personnel and experts, and SOOEs often refuse to yield management control over assets and personnel, while foreign enterprises cannot hold majority stakes. See Todd M. Johnson, “Foreign Involvement in China’s Energy Sector,” in China Joins the World: Progress and Prospects, eds. Elizabeth Economy and Michel Oksenberg (New York: Council on Foreign Relations, 1999), 19. Harry Harding, “China Risks and Implications for the Global Community” (Speech delivered at the Research Institute of Economy, Trade, and Industry [RIETI], Tokyo, June 22, 2006), http://www.rieti. go.jp/en/events/bbl/06062201.html. Frank Umbach, “Future Impact of Chinese and Asian Dependency upon Energy from the Middle East and Central Asia,” in The Impact of Asian Powers on Global Developments, eds. Erich Reiter and Peter Hazdra (Heidelberg: Physica-Verlag, 2004), 155. Li Weijian, “Zhongdong nengyuan yu Zhongguo de heping jueqi” (Middle East energy and China’s peaceful rise), Dangdai Zhongquo shihua (Petroleum & Petrochemical Today) 12, no. 9 (September 2004): 26–28 & 38. See note 72 earlier; and Lee, “China’s Quest for Oil Security,” 289. Li Wu, “China’s Oil Security Challenges and its Countermeasures,” Geopolitics of Energy 26, no. 11 (2004): 4. Peter S. Goodman, “Big Shift in China’s Oil Policy,” Washington Post, July 13, 2005. Xu Xiaojie, Xinshiji de youqi diyuan zhengzhi: Zhongguo mianlin de jiyu yu tiaozhan (Geopolitics of Oil and Gas in the New Century: A Closer Look at Challenges Facing China) (Beijing: Shehui kexue wenxian chubanshe, 1998), 177–180. Ibid., 179. Bruce Blair, Chen Yali, and Eric Hagt, “The Oil Weapon: Myth of China’s Vulnerability,” China Security (Summer 2006): 35, 38–41. Shen Dingli, “China’s Energy Problem and Alternative Solutions,” Journal of Contemporary China 10, no. 29 (2001): 718–719; and Chen, “Shiyou anquan cushi Zhongguo junshi waijiao biange.” U.S. Department of Defense, “The Military Power of the People’s Republic of China” (July 19, 2006). “China Not a Threat to World Energy Security,” People’s Daily Online, June 1, 2006, http://english.people.com.cn/200606/01/eng20060601_ 270323.html. Blair, Chen, and Hagt, “The Oil Weapon,” 43. Wu, “China’s Oil Security Challenges and its Countermeasures,” 5. Lee, “China’s Quest for Oil Security,” 279.

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105. Zoellick, “Whither China,” 5. 106. U.S. Department of Defense, “The Military Power of the People’s Republic of China” (2005), 10; and Dannreuther, “Asian Security and China’s Energy Needs,” 198–201. 107. Zoellick, “Whither China,” 3–4. 108. Herberg, “The Emergence of China throughout Asia,” 9–12; and U.S.– China Economic and Security Review Commission (USCC), USCC 2005 Annual Report (Washington, D.C.: USCC, November 2005), 176. 109. UNOCAL accounts for only 0.23 percent of world oil production and 0.3 percent of U.S. consumption; the company has 1.75 billion barrels of reserves, 980 million of which are in Asia and 447 million of which are in America. See Michael A. Weinstein, “UNOCAL Bid Highlights Gloabalist–Nationalist Conflict,” Asia Times Online, July 20, 2005, http://www.atimes.com/atimes/China_GG20Ad01.html. 110. The U.S. House of Representatives then passed a resolution with powerful support that asked President George W. Bush to review the deal. Rep. Joe Barton of Texas, a cosponsor of that resolution and chairman of the House Energy and Commerce Committee, called CNOOC a “front company for the Chinese communist government.” See Thomas Donnelly and Melissa Wisner, “Chinese Power Play,” The Weekly Standard, July 29, 2005, http://www.aei.org/include/pub_print. asp?pubID=22923. 111. “China Failed CNOOC–UNOCAL Deal Leaves China Scrambling for Energy Supplies,” AsiaNews, August 4, 2005, http://www.asianews.it/ view_p.php?1=en&art=3855. 112. Zhang Ran, “Fu Chengyu xiangxi fangqi shougou UNOCAL neiqing, shougou mei zhengfu zijin” (Fu Chengyu Analyzes the Reasons Why the Bid for UNOCAL was Abandoned and Says that No Government Loan was Involved), Meiri jingji xinwen (Daily Economic News), December 8, 2005, http://www.china5e.com/news/oil/200512/200512080048.html. The energy bill was passed on July 28, 2005. One provision of the bill imposes a 120-day cooling-off period before a Chinese company may proceed on a merger with an American company. 113. Carolyn Bartholomew, “Statement of Carolyn Bartholomew” (Presented at the conference on Dark Clouds on the Horizon: The CNOOC–UNOCAL Controversy and Rising U.S.–China Frictions, Carnegie Endowment for International Peace, Washington, D.C., July 14, 2005). 114. UNOCAL holds reserves from the Gulf of Mexico to the Caspian, in Southeast Asia, Africa, Europe, and South America. Another concern is UNOCAL’s Indonesian product, which mostly goes to South Korea, Japan, and Taiwan, and may become diplomatic leverage for China and be used to establish a Chinese presence and influence throughout Southeast Asia. See Donnelly and Wisner, “Chinese Power Play.” 115. See note 113 earlier.

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116. India’s ONGC Videsh Limited (OVL) has a 20 percent stake in the development and exploration of the Yadavaran field in Iran, while China holds a 50 percent stake. The China National Petroleum Corporation (CNPC) holds a 40 percent stake in Sudan’s Greater Nile Oil Project, while India has a 25 percent share. See Jyoti Malhotra, “India, China: Comrades in Oil,” Asia Times Online, August 19, 2005, http://www. atimes.com/atimes/South_Asia/GH19Df04.html. 117. Carnegie Endowment for International Peace, “Seven Questions: China and UNOCAL” Foreign Policy (July 2005), http://www.foreignpolicy.com. 118. “The Dragon Tucks In,” The Economist, June 30–July 6, 2005. 119. There are five major risks to U.S. oil supplies: the collapse of Saudi Arabia, political instability in major oil-producing nations (especially Venezuela), natural disasters, terrorist attacks, and increased competition from China and India. See Winik, “How High Can it Go?” 4. 120. Adam Segal, “Encouraging China to Choose a Peaceful Path,” Wall Street Journal (August 3, 2005): 3. 121. Jane Morse, “China’s Growing Global Influence not a Threat, U.S. Official Says,” The Washington File, August 3, 2006, http://usinfo. state.gov/xarchives/display.html?p=washfile-english&y=2006&m= August&x=20060803162329ajesrom0.4082758. 122. Mamdouh G. Salameh, “The Geopolitics of Oil in the Asia-Pacific Region and its Strategic Implications,” OPEC Review: Energy Economics and Related Issues 21, no. 2 (1997): 132–143. 123. Sushil Seth, “China Causes ‘Cauldron of Anxiety,’ ” Taipei Times, October 18, 2005, 8; Evan S. Medeiros, “Strategic Hedging and the Future of Asia-Pacific Stability,” The Washington Quarterly 29, no. 1 (Winter 2005/06): 148–150. The United States is also strengthening its military ties with and arms sales to China’s neighbors such as Japan, India, Pakistan, and Taiwan. China’s growing craving for oil is involved in oil struggles and U.S.–China geopolitics in the Asia-Pacific. U.S. secretary of state Condoleezza Rice visited Central Asia in October 2005 in an effort to strengthen U.S. influence there as part of competition with China for energy in the Middle East and Central Asia. See note 68 earlier. 124. U.S. Department of Energy, “Energy Secretary Abraham, Beijing Energy Minister Sign Green Olympic Protocol” (January 12, 2004), http://www.energy.gov/engine/content.do?PUBLIC_ID=14760&BT_ CODE=PR_PRESSRELEASES&TT_CODE=PRESSRELEASE. 125. U.S. Department of Energy, “Energy Secretary Abraham Signs Agreement with China’s National Development and Reform Commission” (May 23, 2004), http://www.energy.gov/engine/content. do?PUBLIC _ID=15941&BT_CODE=PR_PRESSRELEASES&TT_ CODE=PRESSRELEASE. 126. Susan Krause, “Washington Official Urges Increased U.S.–China Energy Security Cooperation,” The Washington File, August 6, 2006,

112

127.

128.

129. 130. 131.

132. 133. 134. 135.

Yuanming Alvin Yao http://usinfo.state.gov/xarchives/display.html?p=washfile- english& y=2006&m=August&x=20060806115016ASesuarK0.2069513; and Fredriksen, “China’s Role in the World,” 9. Jane Morse, “U.S., China Explore Joint Efforts for Tackling Global Concerns,” The Washington File, August 18, 2006, http://usinfo.state. gov/xarchives/display.html?p=washfile-english&y=2006&m=August& x=20060818171848esromaj2.586001e-02. The related dialogues of energy include Joint Commission on Science and Technology (between the U.S. director of the Office of Science and Technology Policy and the Chinese Ministry of Science and Technology), the Economic Development and Reform Dialogue (between the U.S. Department of State and China’s National Development and Reform Commission), the Global Issues Forum (between the U.S. Department of State and China’s Ministry of Foreign Affairs), and the Asia-Pacific Partnership on Clean Development and Climate (it brings together China, the United States, Australia, India, Japan, and Korea), and so on. Please see “Fact Sheet Creation of the U.S.–China Strategic Economic Dialogue,” the U.S. Department of Treasury, September 20, 2006, http://www.ustreas.gov/press/releases/hp107.htm. Fredriksen, “China’s Role in the World,” 9–10. Ibid. The United States promotes initiatives such as Sustainable and Flexible Energy (SAFE) or the Asia Oil and Gas Conference (AOGC). The SAFE system involves leading consumers such as India, China, Japan, and South Korea, and the Central Asian producers including Azerbaijan, Uzbekistan, and Kazakhstan. See Pallab Bhattacharya, “Asian Nations Agree on Integrated Gas Grid,” The Daily Star, November 27, 2005, http://www.bangladesh-web.com/news/view.php?hidDate= 200511-28&hidType=TOP&hidRecord=0000000000000000074078. AOGC, launched in 1996, has evolved into an annual meeting held in Kuala Lumpur, which offers a venue for industry leaders, specialists, and decision makers to discuss issues and challenges confronting the oil and gas industry. See “Asian Countries Urged to Cooperate in Energy Diplomacy,” China Economic Net, June 14, 2005, http://en.ce,cn/ World/Asia-Pacific/200506/14/t20050614_4005795.shtml. Paul Kelly, “U.S. Seeks New Path to China,” Australian, December 10 2005. USCC, USCC 2005 Annual Report, 176. Medeiros, “Strategic Hedging and the Future of Asia-Pacific Stability,” 153–154. Zheng Bijian, “China’s ‘Peaceful Rise’ to Great-Power Status,” Foreign Affairs 84, no. 5 (September/October 2005): 22–24; Avery Goldstein, “China’s Grand Strategy and U.S. Foreign Policy” (Foreign Policy Research Institute, September 27, 2005), http://www.fpri.org/ enotes/20050927.asia.goldstein.chinagrandstrategy.html; and Wang Jisi,

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“China’s Search for Stability with America,” Foreign Affairs 84, no. 5 (September/October 2005): 47–48. 136. “China, U.S. Agree to Enhance Cooperation on Global Issues,” People’s Daily Online, August 10, 2006, http://english.people.com. cn/200608/10/eng20060810_291873.html. 137. Steve A. Yetiv, Crude Awakenings: Global Oil Security and American Foreign Policy (Ithaca, N.Y.: Cornell University Press, 2004), 138.

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5 Japan’s Energy Diplomacy and Maritime Security in East Asia Peng Er Lam

Japan’s acute dependence on imported oil and gas has perpetually loomed large in its strategic considerations because the resourcepoor island nation relies on foreign sources for over 80 percent of its primary energy supply.1 This ensures that the maritime security of its oil tankers is a “matter of life and death” for Japan. 2 Indeed, Japan’s emergence as the second largest economic superpower in the world is contingent on a stable supply of imported oil and gas. In the wake of rising oil prices (surpassing US$130 per barrel in 2008) and China’s insatiable demand for energy to drive its burgeoning economy, Japan has to ensure an unimpeded flow of energy resources through a multifaceted approach that includes: relying on its U.S. ally to maintain a command of the sea, forging friendly relations with energy-producing countries and littoral states along Japanese shipping lines, and engaging in maritime cooperation with East Asian states. 3 However, a powerful navy that can project its reach far beyond the shores of Japan and operate autonomously to protect its energy lifeline is presently not a realistic option for the island nation. After its military defeat in World War II, Japan’s new constitution with its famous Article 9 rejects the use of force to settle international disputes. Moreover, pacifism is still strong among the Japanese people after the catastrophe of World War II.

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An analyst notes: “Asian powers are responding more often with ‘energy nationalism’ than with energy cooperation as they reach out to secure future supplies.”4 This chapter asks: Given the reality of nations often competing fiercely for scarce energy resources, how is Tokyo conducting its energy diplomacy and protecting its maritime interests? How does it balance the imperative of securing energy resources for itself with the desirability of forging a regime of regional cooperation to obtain oil and gas for mutual benefit? This chapter argues that nations jockey for advantage to secure necessary energy supplies, and Japan is no exception. However, gunboat diplomacy to ensure Japanese interests is no longer an option for postwar Japan. In this regard, Tokyo has to adopt a strategy of cooperation with energy suppliers and littoral states. While Tokyo is also driven by economic nationalism in its quest for energy and the safety of its sea lanes, it is not a contradiction for it to pursue policies that can be interpreted as “global public goods” for the maritime community. 5 Indeed, proposals to combat piracy and to ensure the safety of navigation in the Straits of Malacca are beneficial not only to Japanese but international shipping too. Arguably, China and South Korea are free riders in the regional regime to provide the safety of navigation in Southeast Asian waters. But Tokyo is eager to provide global public goods in maritime security because there is little regional resistance to measures that benefit the international community, and also to play a leading diplomatic role in the post–Cold War era. Rather than naval brute force, Japan has adopted a multilateral approach with littoral states in East Asia to create cooperative norms to support a maritime regime of global public good. This chapter also argues that Japan and other East Asian countries can and should forge an energy partnership, despite obstacles to cooperation for mutual benefit and provision of global public good.6 While not underestimating the “energy nationalism” that drives nations, this chapter explores areas for energy cooperation, especially the maritime dimension. It also makes the claim that if East Asian countries can cultivate a habit of cooperation amidst unavoidable competition, it will surely enhance a nascent East Asian regionalism. This chapter also posits that while Japan’s survival is dependent on imported energy and food, it is also taking

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advantage of maritime safety issues to play a more active political role in Southeast Asia. This chapter will first examine Japan’s strategic considerations for imported energy throughout its recent history. Next is an analysis of Japan’s multifaceted approach for ensuring energy security, including the safety of its sea lanes. Following that is a consideration of various schemes in which Japan seeks to play a leading role in promoting a regional partnership to ensure energy supplies and security for mutual benefits. The chapter closes by examining the prospects for an energy partnership in East Asia.

Japan’s Historical Quest for Oil The U.S. oil embargo against Imperial Japan’s attempts to subjugate China was a catalyst in Tokyo’s fateful decision to launch a preemptive attack against the American naval base at Pearl Harbor and invade colonial Southeast Asia in 1941. The occupation of Southeast Asia would provide natural resources such as oil, rubber, and tin for the Japanese war machine and home islands. However, the Imperial navy suffered an irrecoverable defeat by the United States in the Battle of Midway in 1942. The U.S. Navy gradually established command of the sea in the Pacific and interdicted the sea lanes of Japan. Indeed, Tokyo was already tottering on the brink of defeat through the heavy and unsustainable losses of its merchant fleet to U.S. interdiction even before the atomic bombings of Hiroshima and Nagasaki in 1945.7 Apparently, postwar Japan has retained an acute sense of vulnerability toward the safety of its sea lanes stemming from its traumatic experience of losing much of its merchant fleet in war. Although postwar Japan emerged as an economic superpower by the early 1970s, its Achilles’ heel was its dependence on imported oil. Threatened by the steep hike in oil prices and an Arab oil embargo in 1973, Tokyo pragmatically adopted a more sympathetic posture toward the Arab world even though Washington, its ally, was proIsrael. Confronted by its vulnerability, Tokyo forged the concept of “comprehensive security,” that is, the idea that security for the nation not only hinges on military means to defend the Japanese home islands but also entails the securing of vital energy resources

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for the nation.8 Obviously, without imported energy, the great industrial machine of Japan and its export-led growth will grind to a halt. Against the backdrop of superpower rivalry between the United States and the Soviet Union during the Cold War, Washington expected Tokyo to do more in terms of burden sharing by 1982. This included the projection of naval power up to one thousand nautical miles from Japan, just north of the territorial waters of the Philippines. Henceforth, Tokyo would be directly responsible for the safety of its sea lanes up to one thousand nautical miles while the U.S. navy would be expected to protect Japanese oil tankers all the way from the Gulf of Hormuz, the Indian Ocean, the Straits of Malacca, and the South China Sea in the event of a regional conflict on land, air, and sea.9

Limits to Mitigating Reliance on Imported Energy The collapse of the Soviet Union does not mean that Tokyo no longer fears for the safety of its sea lanes. Indeed, its concern for energy security in the maritime dimension remains immutable. Japanese shipping is potentially faced with choke points in the Gulf of Hormuz and the Straits of Malacca, piracy in Southeast Asian waters, and potential flashpoints over the disputed Spratly Islands in the South China Sea and the Taiwan Strait. Since the 9/11 terrorist attacks on the Twin Towers at the World Trade Center and the Pentagon, there is also the specter of terrorism on the high seas and the worst-case scenario of hijacked ships carrying concealed weapons of mass destruction. Japan has adopted the following strategies to mitigate its reliance on imported oil and gas: Strive for greater energy conservation and efficiency: However, Japan is already one of the most energy-efficient countries in the world. According to an analyst: “The Japanese are rightly proud of their proven ability to weather oil-price increases by increasing fuel efficiency. Static calculations suggest that Japan is far better equipped than the United States and European Union to deal with another round of price hikes. In its September 12 edition (2005), Morgan Stanley’s online newsletter reviewed recent calculations by the Cabinet Office’s Maeda Akira. The calculations indicate that oil would have to go to

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US$129 per barrel before Japan suffered a shock comparable to the 1979 second oil price shock.10 Rely more on nuclear energy: According to a statistical yearbook, The number of nuclear power generation facilities in operation as of the end of July 2003 was 52, with a total output of 45.74 gigawatts. Nuclear power generation in fiscal 2002 accounted for 20% of the total power generating capacity of 233.47 gigawatts and 31% of the total 944.7 terawatt-hours of electric power generated that fiscal year.11

While the Japanese government hopes increasingly to tap the power of the atom, it faces political challenges from local communities. Despite the offer of substantial financial subsidies and public works to entice local governments and communities to accept the construction of new nuclear facilities, the phenomenon of NIMBY (not in my backyard) has become quite pronounced in Japanese local politics.12 In August 1996, the town of Maki, Niigata, conducted a local referendum that overwhelmingly rejected a new nuclear power plant.13 Subsequently, electric companies planning to build power plants often have to face hostile local communities that threaten to launch referenda against proposed nuclear power stations. In March 2006, Kansai Electric Power Company, the second largest electric company in the country, effectively decided to give up plans to build a nuclear power plant in Kyotango, Kyoto prefecture, amidst strong opposition from the local community.14 Rely more on alternative energy sources: Conceivably, nations including Japan should seek cleaner sources of energy such as solar, wind, hydro, and tidal power, but these sources cannot generate enough power for a modern industrial society to significantly supplement imported gas and oil. Notwithstanding these measures adopted to boost its energy security, Japan remains fundamentally dependent on imported oil and gas. Tokyo has to remain close to the United States as a loyal ally, maintain friendly ties with energy-producing countries and states along international shipping lanes to ensure access to oil and gas.

Japan’s Energy Diplomacy and Maritime Security The cornerstone of Tokyo’s maritime security is reliance on the United States for the protection of its oil tankers from the Gulf of Hormuz,

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through the Indian Ocean, the Straits of Malacca, and South China Sea—areas beyond one-thousand-nautical-mile radius from Japan. In exchange, Tokyo provides bases to U.S. military forces (including the Yokosuka base in Kanagawa prefecture that berths U.S. aircraft carriers), and supports the U.S. military in Afghanistan and Iraq by sending its naval forces (including Aegis destroyers and refueling ships) to the Indian Ocean and the Self Defense Force (SDF) to Samawah, Iraq, for postwar “humanitarian” assistance. Since the First Gulf War of 1991, Tokyo has also dispatched its minesweepers to the Gulf region. In these ways, Japan avoids being condemned as a free rider who benefits from the protection of its oil tankers through the U.S. command of the sea while contributes little to the allied cause. Besides affirming the U.S.–Japan alliance, Tokyo has also made tentative steps to make friends in the Arab world.15 This includes providing assistance to the Palestinian authorities as an incentive to their maintaining a commitment to the peace process with Israel. Between 1993 and 2003, Tokyo contributed US$767 million for humanitarian relief, Palestinian authority reforms, confidence building, and Palestinian economic development.16 Maintaining friendly relations with other energy-producing countries means that Tokyo is compelled to adopt a different position from the United States toward Iran because of Japanese interest in the Iranian Azadegan field, which may yield 260,000 barrels a day by March 2012.17 Even though the United States is placing strong pressure on Tehran to end its uranium enrichment program, Japan has adopted a softer diplomatic line such as inviting the Iranian foreign minister Manuchehr Mottaki to Tokyo for talks in February 2006 even though Tehran is adamant about not yielding to international pressure regarding its nuclear ambition.18 In March 2006, then foreign minister Aso Taro announced that Japan will aim for a quick signing of a Free Trade Agreement (FTA) with six oil producers in the Middle East, namely, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, and the United Arab Emirates.19 These six producers, also members of the Gulf Cooperation Council (GCC), account for about 70 percent of Japan’s imports of crude oil. Concerning Tokyo’s motivations for an FTA with the GCC members, the Japanese media noted: “By strengthening ties with the group,

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the Japanese government aims to secure a stable supply of natural resources. Moreover, Tokyo has faced the need to play catch-up with Beijing, which started FTA talks with the GCC last April.”20 This episode of two great East Asian powers competing for oil in the Middle East poignantly reveals that Asian countries are driven more by “energy nationalism” than energy cooperation. Besides making friends with the Middle East countries and other energy-producing countries, Tokyo has sought good relations with littoral states in Southeast Asia adjacent to the Straits of Malacca, a critical sea lane for Japanese shipping. However, a caveat has to be made concerning Tokyo’s relations with the littoral states of Indonesia, Malaysia, and Singapore: the importance of Japan’s bilateral relations with these countries goes beyond the security of sea lanes. Their overarching ties include politics, and substantial trade and investments. Cognizant of the overall importance of Southeast Asia to Japan, then prime minister Fukuda Takeo articulated the so-called Fukuda Doctrine in 1977, which offered a set of principles to underpin Tokyo’s relations with these littoral states and other Southeast Asian countries: that Japan will never become a great military power, will seek a “heart to heart” relationship with Southeast Asia, and will play an active political role in the region by acting as a bridge to reconcile the noncommunist ASEAN (Association of Southeast Asian Nations) with the communist Indochinese countries for the sake of regional order and stability. Simply put, the Fukuda Doctrine frames the friendship paradigm of Tokyo toward Southeast Asia. To translate the rhetoric into action, Japan has offered substantial Official Developmental Assistance (ODA) to Southeast Asia. Indeed, Tokyo has extended more ODA to Southeast Asia than any other region. In the case of aid to Indonesia (a critical littoral state for Japanese shipping and also an important energy supplier), Tokyo’s cumulative ODA (financial years 1966–2000) to Jakarta was US$13.7 billion worth of loans, US$1.2 billion in grants, and technical cooperation worth US$23 billion. 21 Malaysia (another littoral state) received from Japan the following cumulative aid by 1999: loans valued at US$666 million, grants at US$77 million, and technical cooperation at US$10.2 billion. 22 Moreover, to cement Tokyo’s friendship with the region, it has also gone beyond the mere

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disbursement of ODA. This includes: ●

●

●

● ●

supporting the diplomatic initiatives of ASEAN to be in the “driver’s seat” in multilateral processes such as the ASEAN Regional Forum (ARF), ASEAN Plus Three (APT), and the East Asian Summit; dispatching the SDF to Cambodia and East Timor for UN peacekeeping operations; engaging in peacemaking in Cambodia and Aceh when these regions were faced with internal conflict 23; supporting peace building in Cambodia, Aceh, and Mindanao24; deploying the largest contingent of SDF abroad since the end of World War II to Aceh for humanitarian relief after its destruction by the December 2004 tsunami. Tokyo contributed US$500 million for tsunami assistance, the most generous contribution among all donors (table 5.1). Tokyo was concerned that the civil war between the GAM Table 5.1 How much governments gave toward 2004 tsunami relief (US$ millions: Top 20 donors as of June 29, 2005) Pledged Asia Japan China Europe European Union U.K. Norway France Netherlands Denmark Sweden Russia Greece Germany Finland Italy North America U.S. Canada Middle East Saudi Arabia United Arab Emirates Kuwait Oceania Australia World Total

Committed

500.2 64.2

502.6 63.3

185.4 95.8 66.0 64.5 39.6 36.5 34.0 32.2 27.8 26.4 26.4 21.1

87.9 135.6 77.3 60.1 42.9 43.7 34.6 10.2 29.7 104.9 29.3 66.6

350.0 217.2

132.9 68.0

163.5 41.4 30.0

20.3 41.7 10

46.2

31.9

$2.26 billion

$1.9 billion

Source: Statistics compiled by National Geographic, December 2005: 22.

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(Gerakan Aceh Mederka) separatists and the Jakarta might destabilize the region and threaten international shipping because Aceh, located at the tip of Sumatra, is the northern gateway to the Straits of Malacca.

China’s phenomenal rise poses a challenge to Japan’s maritime and energy security. The Japanese response has been threefold: to strengthen its alliance with the United States25; to seek cooperation with China including the countering of piracy in Southeast Asia 26; and adopt a basic ocean policy program based on the Basic Law of the Sea that went into effect in July 2007. According to the Japanese media, parliamentarians from different parties agreed to enact the law to “properly develop marine resources and protect Japan’s maritime interests. The program (basic ocean policy) will document an important national strategy for Japan, which relies on sea transportation for food, energy and natural resources.”27

Japan’s Maritime Initiatives and Energy Security in East Asia Besides seeking good relations with the littoral states, Tokyo has taken various initiatives to ensure the security of its sea lanes and energy supplies. These include: funding navigation buoys in the Straits of Malacca, hosting a series of conferences in Tokyo to address the problem of piracy, initiating a regional information center for maritime safety, providing training and equipment for regional coast guards, offering a constabulary role for its coast guard in the Straits of Malacca, and participating in Proliferation Security Initiative (PSI) to deter conceivable acts of terrorism. These Japanese initiatives can be interpreted as measures not only designed to ensure its energy security but also to satisfy Tokyo’s desire to play an active political and maritime role in the region.28 At the ASEAN–Japan summit meeting that took place in Manila in November 1999, the then prime minister Obuchi Keizo proposed holding a conference comprising representatives from coast guard agencies to deal with the scourge of piracy. Subsequently, the “Regional Conference on Combating Piracy and Armed Robbery against Ships” was held in Tokyo in April 2000.29 According to the Ministry, out of 469 worldwide cases of piracy in 2000, 31 cases involved Japan-related ships.30

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Japan’s 2003 Diplomatic Bluebook noted that there was a total of 370 incidents of piracy in the world in 2001 and that 178 incidents, almost half the total number, were concentrated in Southeast Asian seas. This has become a major threat to Japan’s maritime transport of its oil and other energy supplies via Southeast Asian seas which it is largely dependent and also an adverse factor on the region’s stability and economic development as a whole.31

Lloyds, which offers maritime insurance, has classified the Straits of Malacca as a “war risk area” and raised insurance costs for the shipping community. If piracy cases were to be significantly reduced, then the cost of insurance would also decline for the shipping community. An analyst notes: The Joint War Committee of the Lloyd’s Market Association has continued to list the Malacca Straits and its associated ports as a war risk area after its last meeting in January (2006). This is despite the fact that the shipping community in the region has made representations to reconsider its assessment and despite a report commissioned by the Singapore Maritime Foundation stressing that the Straits of Malacca was not a dangerous place. 32

Fortunately, Lloyd’s removed the Malacca Straits from its backlist of war-risk areas in August 2006, and eased insurance costs for companies that send sixty thousand ships through that strategic waterway each year. Apparently, the development of coordinated patrols by the littoral states since July 2004 has convinced Lloyd’s that the situation has improved in the Strait. 33 However, it is conceivable that Lloyd’s will reclassify the Straits as a “war risk area” if incidents of piracy were to increase significantly. Following up on the earlier mentioned Tokyo conference on combating piracy against ships held in April 2000, the Japanese government has participated in talks with the Philippines, Malaysia, Singapore, and Indonesia regarding procedures for regional cooperation on future antipiracy measures, held mutual visits for patrol vessels and joint training, accepted students from five Southeast Asian countries to the Japan Coast Guard Academy, and exchanged opinions regarding joint patrol.34

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However, Tokyo’s controversial proposal for joint patrol of the sea lanes by the regional coast guards drew mixed reaction from China and the maritime Southeast Asian states. Japan’s very capable coast guard would be considered a navy by many smaller powers. According to an authoritative Japanese source: In a speech delivered at the Asia Security Conference held in Singapore on May 30–31, 2003, Minister of State for Defense Ishiba touched on the basic ideas underlying UNCLOS (United Nations Convention on the Law of the Sea) and commented on OPK (ocean-peace keeping) as an activity conducive to the stability to the region . . . He then expressed hope that the countries in the region will positively discuss the possibility of joint maritime operations which, by making use of naval vessels for policing purposes, aim to maintain an orderly use of the sea, prevent armed conflicts and ensure the stability and sustainability of the oceans.35

Littoral states, especially Malaysia and Indonesia, are very sensitive to the deployment of naval forces, whether United States or Japanese, to combat piracy or potential terrorism in the Straits of Malacca. An analyst noted Tokyo’s recent activism in regional maritime affairs: Given (Japan’s) dependence on Middle Eastern oil and Indonesian natural gas flowing through the Straits of Malacca, where piracy and terrorism could come together, Japan is becoming increasingly active in Southeast Asian maritime security. In early 2003, Japan began to assist Indonesia in building a coast guard, and in December conducted anti-piracy drills with Singapore. Earlier, Japan’s coast guard had participated in similar exercises with India, Australia, and the United States. Since 2000 Japan has dispatched ten patrol vessels to Southeast Asia.36

The fact that the Japanese navy, including Aegis destroyers and refueling ships, has been deployed to the Indian Ocean to assist U.S. operations in Afghanistan means that Tokyo’s naval forces, and not merely its coast guards have been traversing and flying its flag in the Straits of Malacca and other Southeast Asian waters between the Indian Ocean and home bases in Japan. At the 2001 APT summit, Prime Minister Koizumi proposed a Regional Cooperation Agreement on Anti-Piracy (ReCAAP). Japan

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then hosted meetings for negotiations in Tokyo in July and September 2002 to bring this proposal to fruition. In November 2004, in Tokyo, Japan launched a ReCAAP whose members comprised the APT countries, Bangladesh, India, and Sri Lanka. The ReCAAP’s centerpiece is the Information Sharing Centre (ISC) to be set up in Singapore in the collective fight against maritime piracy by the sixteen Asian countries. 37 The ISC will become operational once a minimum of ten nations have acceded to it. 38 Simply put, Japan is indeed playing a leading role in East Asia to deal with the menace of piracy. While Tokyo’s proposal for joint patrols to ensure the safety of sea lanes is perceived as controversial by Kuala Lumpur and Jakarta, a consensus has emerged between the ruling Liberal Democratic Party (LDP) and the main opposition party, the Democratic Party of Japan (DPJ), on the desirability of Japan participating in joint patrols with other countries. The DPJ’s foreign policy manifesto on regional cooperation declared: “Japan can also promote a joint sea lane patrol program against terrorists and pirates in collaboration with ASEAN, China, India, and the United States, naturally paying due respect to the sovereignty of the coastal states.”39 Barely, a decade ago, Japanese proposals to deploy its coast guard to Southeast Asia would have been unthinkable given the residual pacifism of the Japanese public, concerns about the no-war Article 9 of the Constitution, and the presence of the dovish Japan Socialist Party (JSP) as part of the then ruling coalition with the LDP. However, Japanese domestic politics (with the demise of the leftist and pacifist JSP) has become less of an obstacle to the foreign policy establishment’s desire for Tokyo to play a more active role in international affairs, including maritime and energy security in East Asia. Japan’s involvement in maritime affairs in East Asia after 9/11 can also be seen by its support for the Proliferation Security Initiative (PSI), a global strategy designed to interdict the transport of weapons of mass destruction. Analysts noted: “In a further sign of an increasing activism in international security issues in recent times, Japan has featured prominently in both operational aspects and outreach activities associated with the PSI.”40 The Japanese coast guard played a leading role in the interdiction exercises held in the Coral Sea with

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its Australian counterparts in September 2003. In October 2004, Japan hosted the twelfth multinational PSI exercise, “Team Samurai 2004,” in Sagami Bay, south of Tokyo. The Japanese coast guard and Maritime SDF along with their counterparts from the United States, Australia, and France practiced interdictions of suspected vessels carrying cargoes of poisonous sarin (gas) while eighteen countries acted as observers.41 Japan has also actively participated in a PSI exercise in Southeast Asia. According to Pioneer, the magazine of the Singapore Armed Forces (SAF): Taking centre stage during Exercise Deep Sabre was a scenario-driven exercise at sea, where air and maritime assets from participating countries were deployed to detect, localize and track a merchant ship transporting an illegal shipment of chemicals that could be used in the manufacture of weapons of mass destruction (WMD). The first PSI exercise to be held in Southeast Asia saw Singapore hosting more than 2,000 personnel from the military, coast guard, customs and other agencies of 13 PSI countries. It was one of the largest PSI exercises to date. A total of 10 surface vessels and six maritime patrol aircraft from Singapore, Australia, Japan, New Zealand, the United Kingdom, and the United States took part in the sea phase of the exercise . . . The merchant ship was boarded by a team from the Republic of Singapore Navy’s Diving Unit, followed by personnel from the SAF Chemical, Biological, Radiological and Explosive Defence Group, the Australian Custom Service, and the Japan Coast Guard.42

One can interpret Japan’s active involvement in maritime security as an attempt not only to ensure the safety of its merchant ships but also to find a role to play, which is acceptable domestically and internationally. Cumulatively, Japanese naval deployment in the Indian Ocean and involvement in PSI help to erode the postwar taboo of anything with a hint of military power, and to remake Japan as a “normal” country in international affairs. Less controversial to the littoral states of the Straits of Malacca is a Japanese proposal to deal with the issue of global public good and “free riders.” The Nippon Foundation has provided financial assistance of US$125.5 million for lighthouses and other navigational aids to ensure safety in the Straits of Malacca. Sasakawa Yohei, chairman of the Sasakawa Foundation, proposed that countries

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and companies that use the Straits of Malacca must help bear the estimated US$300 million to be spent on navigational safety measures for the next decade in increasingly busy waters.43 Sasakawa suggested that if users pay just 1 US cent per DWT (deadweight tonnage), some US$40 million a year would be raised and would ease the financial burden of maintaining navigational safety by Malaysia, Indonesia, and Singapore. Not surprisingly, other freeriding countries and shipping companies are not keen to incur costs in international waterways where ships pass for free and are unimpeded by convention.

Wither an East Asian Energy Security Partnership? How can Japan and other East Asian countries forge a regional energy security partnership in general and maritime cooperation more specifically? Notwithstanding the tendency for “energy nationalism,” which dominates the behavior of nation-states in East Asia, there is conceivably room for greater cooperation such as in establishing an East Asian oil stockpile to help reduce the effects of a sudden and unexpected regional energy crisis, and even creating an East Asian energy consortium to explore and extract oil and gas in Asia and other regions. Ideally, a consortium funded by APT countries and local entrepreneurs to secure concessions in regions beyond East Asia will not only hold the promise of a shared bonanza but also provide the opportunity to build trust, an ingredient that is often missing, despite talks of a nascent East Asian regionalism. Even Indonesia has become a net oil-importer. Perhaps the East Asian countries can also consider forming an East Asian oil consumer group to hold regular discussions with oil cartels such as OPEC. While oil prices are undoubtedly volatile and market-driven, there are no insurmountable obstacles preventing East Asian consumers from becoming organized to deal with oil producers in the Middle East, Africa, and Russian Far East. The Straits of Malacca is critical not only to the energy security of Japan but increasingly to China too, given the phenomenal rise of the Chinese economy and its insatiable demand for imported oil and gas. In this regard, any disruption to or piracy in the vicinity of the Straits

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is potentially threatening to the interests of regional states and the shipping community. Japan, China, and South Korea can participate actively in the ReCAAP or be involved in regional scenario planning to address a potential environmental disaster in the Straits: an oil tanker running aground or colliding with another vessel leading to a massive spill of crude oil. Conceivably, the coast guards of the APT countries could also hold bilateral and multilateral exercises in the South China Sea or the Straits of Malacca for search and rescue missions, environmental protection, and disaster relief. Hypothetically, if the APT countries are faced with an upsurge in piracy or the specter of terrorism on the high seas, they should even consider a convoy system where oil tankers and other ships of Japan, China, and Korea are protected by the littoral states, with technical assistance from these Northeast Asian countries. It is hard to be sanguine about energy and maritime security between political rivals. Hopes about joint development of energy resources in the disputed South China Sea and the East China Sea flounder in the face of “energy nationalism.” Beijing and Tokyo have conducted many rounds of official talks concerning energy and territorial disputes in the East China Sea but to no avail. Although both sides agree to the principle of “joint development,” an accord appears to be elusive when energy cooperation in the East China Sea is intertwined with emotional historical issues over Japan’s past imperialism. Rather than stumble over one issue or impasse, Japan, China, and other East Asian countries should seek cooperation in other areas, whenever feasible, such as the ReCAAP, a regional energy stockpile and coast guard exercises in search and rescue operations, and environmental protection. Energy and maritime security are not only a “matter of life and death” for the island nation but also provide Tokyo with an opportunity to play a larger political role and allow it to forge closer ties in maritime affairs with other APT countries. Whether Japan can play such an activist role will also depend on the consent of the littoral states and its willingness to settle the “historical issue” with China. If Tokyo can secure the trust of its East Asian neighbors and facilitate an energy security partnership, it will help to underpin a nascent East Asian community, which would be good for the peace, stability,

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and prosperity of the region. However, it remains to be seen whether free riders are willing to join Japan in providing global public good in maritime and energy security given the persistence of “economic nationalism.”

Notes 1. The Ministry of Foreign Affairs (MOFA) of Japan, “Strategy and Approaches of Japan’s Energy Diplomacy,” April 2004, http:// www. mofa.go.jp/policy/energy/diplomacy.html (accessed February 15, 2006). 2. Euan Graham, Japan’s Sea Lane Security, 1940–2004: A Matter of Life and Death? (London and New York: Routledge, 2006). 3. A MOFA symposium noted the “necessity of strengthening the Japan–U.S. alliance as a maritime alliance in order to prepare for situations in areas surrounding Japan, while also developing multilateral diplomacy so as to make the ‘Mediterranean Seas’ of East Asia—the Sea of Japan, the East China Sea, and the South China Sea—seas of harmony rather than seas of conflict.” See Ministry of Foreign Affairs of Japan, “Symposium: Foreign Policy of Japan as a Maritime State in the 21st Century,” February 16, 2001, http://www.mofa.go.jp/policy/maritime/symposium/outline0102. html (accessed March 27, 2008). 4. Mikkal E. Herberg, “Asia’s Energy Insecurity: Cooperation or Conflict?” in Confronting Terrorism in the Pursuit of Power, eds. Ashley J. Tellis and Michael Wills (Seattle: National Bureau of Asian Research, 2004), 339. 5. I use the term “global public good” with the following characteristics: it is “non-rivalrous” (consumption of this good by anyone does not reduce its availability to others, i.e., non-zero sum game); “non-excludable” (impossible to prevent others from consuming that good); and “worldwide availability.” In this regard, Tokyo’s funding of navigation buoys in the Straits of Malacca and proposals to rid piracy in Southeast Asian waters can come under the rubric of global public good: They also benefit the free riders of China and South Korea and even an “enemy” state such as North Korea. 6. For a strong advocacy on an East Asian energy partnership, see Tanabe Yasuo, ed., Ajiia enerugi patonashipu (Asian Energy Partnership) (Tokyo: Enerugi foramu, 2004). 7. Graham writes: “For most Japanese, the (naval) blockade ranks behind the atomic and incendiary bombing of its cities as the greatest hardship visited on Japan during the Second World War . . . Official testimony before the Diet was more clear-cut, acknowledging that ‘the greatest cause of our defeat was the loss of shipping.’ ” Graham also notes: “In the final 15 months of the war, just 9 percent of oil shipments from Southeast Asia made it through to Japan.” Graham, Japan’s Sea Lane Security, 81, 89.

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8. See J. W. M.Chapman, “Energy and Food Security,” in Japan’s Quest for Comprehensive Security: Defence, Diplomacy, Dependence, eds. J. W. M. Chapman, R. Drfte, and I. T. M. Gow (London: Frances Pinter, 1983), 182–202. 9. On the role of Tokyo’s Maritime Self Defense Force (MSDF), see the chapter “Japanese Maritime Strategy and Perspectives on Co-operative Maritime Security,” in Naval Strategy in Northeast Asia, ed. Duk-Ki Kim (London: Frank Cass, 2000), 168–192. 10. Andrew DeWit, “Peak Oil and Japan’s Food Dependence,” Japan Focus, September 22, 2005. 11. Asahi Shimbun, Japan Almanac 2004, 153. 12. Shimizu Shuji, NIMBY shindoromu ko: meiwaku shisetsu no seiji to keizai (Treatise on NIMBY Syndrome: the Political Economy of Troubling Facilities) (Tokyo: Tokyo shinbunsha, 1999). 13. Niigata Nippo hodobu, Genpatsu o kobanda machi: makimachi no mini o sou (The town that opposed nuclear development: Tracing the people’s will of Makimachi) (Tokyo: Iwanami shoten, 1997). 14. “Kepco to Scrap Plans for Reactor in Kyoto,” Japan Times, March 6, 2006. 15. “Japan imported 87% of the 4.28 million barrels a day of oil it consumed in 2003 from the Middle East, more than half of that from the UAE and Saudi Arabia”. See “Japanese Energy Profile: The Search for Security,” Oil and Gas Journal, February 1, 2005. Reproduced in Japan Focus, February 17, 2005. For a good account of Tokyo’s early efforts to forge good relations with its primary energy suppliers, see Fred R. Con Der Mehden, Japan’s Relations with Primary Energy Suppliers (Houston: Rice University, James A. Baker III Institute for Public Policy, 2000). 16. The Ministry of Foreign Affairs of Japan, “Summary of Japan’s Assistance to the Palestinians,” March 31, 2005, http://www.mofa.go.jp/ region/middle_e/palestine/summary.html (accessed March 7, 2006). 17. “Japanese Energy Profile,” in Oil and Gas Journal, February 1, 2005. Reproduced in Japan Focus. 18. Taro Karasaki, “Iranian Foreign Minister to Visit Japan,” Asahi Shimbun, Asahi.com, February 14, 2006. 19. “Aso Eyes Quick Signing of FTA with Middle East Oil Producers,” Kyodo News, March 8, 2006, http://home.kyodo.co.jp/modules/fstStory/index. php?storyid=234240 (accessed March 8, 2006). 20. “Free Trade Agreement Talks Expand to More Countries: Negotiations with India, Persian Gulf Nations to Begin in Summer,” Nikkei Weekly, March 6, 2006. 21. The Ministry of Foreign Affairs of Japan, “Japan–Indonesia Relations,” http://www.mofa.go.jp/region/asia-paci/indonesia/index.html (accessed March 9, 2006). 22. The Ministry of Foreign Affairs of Japan, “Japan–Malaysia Relations,” http://www.mofa.go.jp/region/asia-paci/malaysia/index.html (accessed March 9, 2006).

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23. In July 1997, when Cambodia was on the brink of a civil war caused by a conflict between the two co-prime ministers Hun Sen and Prince Ranariddh, Tokyo came up with a compromise and peace proposal that paved the way to elections and political normalcy in that country. The Koizumi administration hosted a conference in 2002 and held talks in 2003 in Tokyo in a bid to prevent a renewal of conflict between Jakarta, the central government, and GAM, the rebels of Aceh. 24. The Koizumi administration has offered an aid package of US$400 million to Mindanao for post-conflict reconstruction in that region torn by conflict between the forces of the central government in Manila and the MILF (Moro Islamic Liberation Front). 25. See the report on the three-day symposium cosponsored by the Ocean Policy Research Foundation (Japan) and the Center for a New American Security (United States), which brought together experts from Japan and the United States. The Japanese media noted: “The biggest issue concerning Japan and the United States is China’s efforts to expand its maritime power . . . Concerning strategies around the Indian Ocean and the South China Sea, China has been building military bases in Pakistan and Myanmar, while trying to strengthen its diplomatic relationships with Bangladesh, Thailand and Cambodia. This is dubbed the String of Pearls Strategy, under which China apparently aims at ensuring a stable supply of energy resources from the Middles East and Africa to China’s inland and coastal areas by securing a line of bases, or ‘pearls’, for refueling and transport use.” See “Japan–U.S. Sea Power Dialogue Special: Safety at sea requires global cooperation,” Daily Yomiuri Online, March 25, 2008, http:www.yomiuri.co.jp/dy/world/ 20080325TDY19001.htm (accessed March 26, 2008). 26. Kitaoka Shinichi noted: “Japan and China can cooperate in guarding a sea lane that links the Gulf area to Asia and in measures to counter pirates in Southeast Asia. It’s important for Japan to make China realize Japan is an indispensable partner.” See “Yomiuri International Forum: what will come of a multipolar world?” Daily Yomiuri Online, December 22, 2007, http:www.yomiuri.co.jp/dy/world/ 20071222TDY18001.htm (accessed January 9, 2008). 27. “Japan’s New Ocean Policy,” Japan Times, March 26, 2008. 28. Besides Tokyo’s desire to play an active political role commensurate with its economic status as the world’s second largest economic power and the earlier mentioned Fukuda Doctrine, the Japanese quest to play a larger regional role also stemmed from its debacle in the 1991 Gulf War when the country was severely criticized for engaging only in checkbook diplomacy (a hefty US$13 billion) but not offering any manpower assistance. 29. The Ministry of Foreign Affairs of Japan, “The Issue of Piracy in Asia”, September 2001, (accessed March 8, 2006).

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30. The Ministry of Foreign Affairs of Japan, “Present State of the Piracy Problem and Japan’s Efforts,” December 2001, http://www.mofa.go.jp/ policy/piracy/problem0112.html (accessed March 8, 2006). 31. Japan Ministry of Foreign Affairs, “Piracy in Efforts in Global Issues,” in 2003 Diplomatic Bluebook, 176. 32. Joshua Ho, “Marine War Risk Insurance,” Institute of Defense and Strategic Studies Commentaries, March 10, 2006. 33. “Lloyd’s Removal of War-Risk Rating on Malacca Straits Hailed,” Associated Press, August 9, 2006, http://business.inq7.net/money/breaking news/view_article.php?article_id=14271 (accessed August 24, 2006). 34. The Ministry of Foreign Affairs of Japan, “The Issue of Piracy in Asia,” September 2001, http://www.mofa.go.jp/policy/piracy/asia2000html (accessed March 8, 2006). According to Mark Valencia and Greg Chaikin, the Japanese Coast Guard has conducted bilateral exercises with the Brunei Marine Police, the Indian Coast Guard, and the Philippine Coast Guard in antipiracy exercises, and has held joint patrols with India and Malaysia. See Greg Chaikin, “Piracy in Asia: International Co-operation and Japan’s Role,” in Piracy in Southeast Asia: Status, Issues, and Responses, eds. Derek Johnson and Mark Valencia (Singapore: Institute of Southeast Asian Studies, 2005), 136. See also Mark Valencia, “Piracy and Terrorism in Southeast Asia” in ibid., 93–94. 35. National Institute for Defense Studies, East Asian Strategic Review: 2003–2004 (Tokyo: National Institute for Defense Studies, 2004), 33. 36. Sheldon W. Simon, “Southeast Asia: Back to the Future?” in Strategic Asia 2004–05, eds. Tellis and Wills, 285–286. 37. “Government Seeks Improved International Security in Straits,” Daily Yomiuri Online, March 16, 2005, http://www.yomiuri.co.jp/ newse/20050316wo01.htm (accessed March 16, 2005). 38. Ministry of Foreign Affairs, Singapore, “Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia,” April 28, 2005, http://app.sprinter.gov.sg/data/pr/2005042801. htm (accessed March 8, 2006); the Ministry of Foreign Affairs of Japan, “Signing and Deposit of Instrument of Notification of the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia,” April 28, 2005, http://www.mofa. go.jp/announce/anounce/2005/4/0428.html (accessed March 8, 2006). 39. Democratic Party of Japan, “Toward Realization of Enlightened National Interest: Developing a Peaceful and Prosperous Asia”, May 18, 2005, http://www.dpj.or.jp/vision/vision-e/02.html (accessed October 7, 2005). 40. Andrew Newman and Brad Williams, “The Proliferation Security Initiative: The Asia-Pacific Context,” Nonproliferation Review 12, no.2 (July 2005): 307. 41. Ibid., 308. 42. “Defence Diplomacy: Exercise Deep Sabre in motion,” Pioneer (October 2005): 16.

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43. “Security Costs in Malacca, Singapore Straits Estimated at US$300 Million,” International Herald Tribune, March 13, 2007. See also Sasakawa Yohei, “Malaka kaikyo no anzen ni kokusai kyoryoku o” (Toward International Cooperation on the Safety of the Straits of Malacca), Sankei Shimbun, July 28, 2006.

6 The Maritime Dimension of Energy Security in East Asia: Legal Implications Keyuan Zou

Introduction Energy security is a critical issue in East Asia. It is to be noted that many countries in East Asia, such as China and Vietnam, are developing countries with rapid economic growth, which will be accompanied by an increasing demand for energy. It is estimated that oil demand for Asian nations will increase from about 14.5 million barrels per day in 2000 to nearly 29.8 million barrels per day by 2025.1 Experts predicted that China would import more than five hundred million tons of oil and over one hundred billion cubic meters of natural gas in 2020 due to its rapid economic growth and demand for energy resources.2 In order to meet the growing demand for energy and increased energy consumption East Asian countries will definitely be more actively involved in oil and gas exploration and exploitation in their adjacent sea areas and will seek to secure the oil supply routes at sea. According to the United Nations Development Program, “energy security” means “the availability of energy at all times, in various forms, in sufficient quantities and at affordable prices.”3 It can be investigated globally, to ensure adequacy of resources; regionally, to ensure that networking and trade can take place; nationally, to ensure national security of supply; and at the consumer level, to ensure that

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consumer demand can be satisfied.4 The purpose of this chapter is to examine the energy security issue largely at the regional level in East Asia and to link it to maritime security. One of the characteristics of energy security in East Asia is the fact that energy security and maritime security are interdependent. Therefore, without maritime security, energy security cannot be maintained in reality. While it is recognized that maritime security also denotes a broad range of meaning and covers almost everything that is related to the sea or ocean, this chapter limits itself to the two most relevant areas: (1) security of sea lanes in East Asia, which are used for energy transportation, and (2) offshore oil and gas development, in particular in the disputed maritime areas where territorial and/or maritime boundaries are not yet delimited.

General Legal Framework The current marine legal order in East Asia is based on the UN Convention on the Law of the Sea (LOS Convention), 5 to which most of the East Asian countries have acceded. Under this general legal framework, countries in the region cooperate and interact among themselves regarding the ocean as well as ocean uses. The East Asian seas including the Sea of Japan, the Yellow Sea, the East China Sea, and the South China Sea can be categorized as semi-enclosed under the definition provided in the LOS Convention,6 and bordered by countries including Brunei, Cambodia, China, Indonesia, Japan, two Koreas, Malaysia, the Philippines, Russia, Singapore, Thailand, and Vietnam.

Establishment and Expansion of Maritime Zones Pursuant to the provisions of the LOS Convention, a coastal state has the right to establish maritime zones under its jurisdiction: internal waters inside the baselines which are used to measure the extent of the territorial sea and other jurisdictional waters, the territorial sea of 12 nautical miles (nm), the exclusive economic zone (EEZ) of 200 nm, and the continental shelf of 200 nm (or up to 350 nm in some cases), outward from the baselines. Since all these zones are within national jurisdiction, a coastal state is entitled to enjoy either sovereignty or sovereign rights and to exercise its

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jurisdiction and enforce its laws and regulations in accordance with international law. A piece of land at sea, no matter how small, can generate some maritime zones for the state to which it belongs. As calculated, an island that cannot sustain human life can have its territorial sea of 1,550 square kilometers, while a big island which can maintain economic life or human habitation can obtain its EEZ of about 420,000 square kilometers.7 This is one of the reasons why there is an increase of conflicting claims to small islets, even rocks in East Asian seas among countries. What the countries concerned mind most is not small islands/islets/rocks themselves per se, but the resources within the maritime zones generated from these natural features.

Legal Status of Straits Used for International Navigation The LOS Convention has created a legal regime for straits used for international navigation. Straits used for international navigation means “straits which are used for international navigation between one part of the high seas or an exclusive economic zone and another part of the high seas or an exclusive economic zone.”8 There are two criteria: one geographical and one functional. The geographical criterion is that the strait connects one part of the high seas or an EEZ with another part of the high seas or an EEZ; and the functional one is that the strait is used for international navigation.9 Foreign ships and aircraft can enjoy the right of transit passage through these straits. Transit passage means the exercise of the freedom of navigation and overflight solely for the purpose of continuous and expeditious transit of the strait between one part of the high seas or an EEZ and another part of the high seas and an EEZ.10 However, if a strait used for international navigation is a strait between a part of the high seas or an EEZ and the territorial sea of a coastal state, the regime of innocent passage provided in the LOS Convention should apply.11 This legal regime is typically designed for the Straits of Malacca and Singapore. When foreign ships and aircraft are exercising the right of transit passage, they should “refrain from any threat or use of force against the sovereignty, territorial integrity or political independence of states bordering the strait, or in any other manner in violation of

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the principles of international law embodied in the Charter of the United Nations.”12 States bordering such straits may designate sea lanes and prescribe traffic separation schemes that conform to generally accepted international regulations for navigation so as to promote the safe passage of ships.13 They can also pass relevant laws and regulations that should be complied with by foreign ships and aircrafts exercising the right of transit passage.

Suppression of Piracy and Maritime Terrorism A key element related to the safety of navigation is the prevention and suppression of maritime crimes endangering maritime safety and security. The most typical and salient crimes in East Asia naturally include piracy and maritime terrorism. The term “piracy” is usually referred to a broad range of violent acts at sea. The LOS Convention defines it as: Piracy consists of any of the following acts: (a) any illegal acts of violence or detention, or any act of depredation, committed for private ends by the crew or the passengers of a private ship or a private aircraft, and directed to: (i) on the high seas, against another ship or aircraft, or against persons or property on board such ship or aircraft; (ii) against a ship, aircraft, persons or property in a place outside the jurisdiction of any State; (b) any act of voluntary participation in the operation of a ship or of an aircraft with knowledge of facts making it a pirate ship or aircraft; (c) any act of inciting or of intentionally facilitating an act described in subparagraph (a) or (b).14

However, this definition has limitations. First, it defines piracy as only for “private ends” and terrorist acts at sea for political ends are generally excluded. That is why after the Achille Lauro Incident in 1985,15 the world community needed the Convention on the Suppression of Unlawful Acts against the Safety of Maritime Navigation (the SUA Convention). Second, according to this definition, piracy juris gentium presupposes that a criminal act be exercised by passengers or the crew of a ship against another ship or persons or property on its board. The two-vessel requirement is an ingredient of the crime of piracy, unless a criminal act occurs in terra nullius.16 Thus “internal seizure” within the ship is hardly regarded as “act of piracy” under the definition of the LOS Convention. Finally, piracy

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must occur on the high seas and piratical acts within territorial waters are not subject to the definition given earlier. To remedy these limitations, the International Maritime Organization (IMO) has attempted to divide acts of piracy into two categories by geographical and legal division of maritime zones: piracy on the high seas is defined as piracy under the LOS Convention definition, while acts of piracy in ports or national waters (internal waters and territorial sea) are defined as “armed robbery against ships.”17 However, such a division also contains shortcomings since piracy is not equivalent to armed robbery and it may also include other violent acts such as murder, assault, and rape. International law has established an obligation for states to cooperate in the suppression of piracy and grants states certain rights to seize pirate ships and criminals. Article 100 of the LOS Convention provides that “All States shall cooperate to the fullest possible extent in the repression of piracy on the high seas or in any other place outside the jurisdiction of any State.” Article 105 further provides that on the high seas, or in any other place outside the jurisdiction of any state, every state may seize a pirate ship or aircraft, or a ship or aircraft taken by piracy and under the control of pirates, and arrest the persons and seize the property on board. The courts of the state which carried out the seizure may decide upon penalties to be imposed, and may also determine the action to be taken with regard to the ships, aircraft or property, subject to the rights of third parties acting in good faith.

However, only warships or military aircraft or similar governmentally authorized ships or aircraft have the power to seize a pirate ship or aircraft in the high seas. It should be noted that the above piracy provisions are also applicable to the EEZ though it is within the national jurisdiction.18 The SUA Convention is another important international treaty that applies to all maritime terrorist acts, whether private or political. The significance lies in that if terrorist acts would not be punished and suppressed under the LOS Convention, they are still under the suppression of the SUA Convention. This means that any maritime terrorist and piratical act cannot escape justice. The other twin instrument is the 1988 Protocol for the Suppression of Unlawful Acts

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against the Safety of Fixed Platforms Located on the Continental Shelf (the SUA Protocol),19 which was adopted at the same time as the SUA Convention and contains similar provisions. It is relevant to the East Asian seas in the context that the seas are rich in oil and gas and that the coastal states have already launched exploitation projects either by themselves or jointly with foreign oil companies. It is said that offshore oil and gas installations are potential targets of piracy. 20 In case that any terrorist or piratical attack should be aimed against oil platform(s) or artificial islands located in the East Asian seas, it could be suppressed under this protocol.

Legal Issues Overlapping Territorial and Maritime Claims There are a number of overlapping territorial and maritime claims in East Asia. Some have been lingering on for centuries and some are resulting from the extension of jurisdictional maritime zones of coastal states, particularly under the circumstance that the neighboring countries share a common sea. In terms of territorial disputes, the typical examples include the Kuril Islands (between Russia and Japan), the Dokdo (between Japan and Korea), the Diaoyu Islands (between China and Japan), and the South China Sea islands (various claimants). The islands in the South China Sea, particularly the Spratlys are disputed among six claimants, that is, Brunei, China, Malaysia, the Philippines, Chinese Taipei, and Vietnam. There were two armed skirmishes that happened in the South China Sea in 1973 and 1988 between China and Vietnam over the disputes of the South China Sea islands. The 1995 tension between China and the Philippines over the Mischief Reef also invited a high profile exposure in the mass media. Arrests of fishing boats and fishermen are frequent. The claimed states blame one another for incursions in the disputed areas. 21 In June 2002, Vietnam lodged a protest against China’s live ammunition exercises in the South China Sea, but China dismissed Vietnam’s protest and stated that the drill fully complied with international law.22 Oil is an essential factor in the Spratlys’ dispute. In the Spratly area, there are eight sedimentary basins with an area of 410,000 square kilometers, and 260,000 square kilometers are within China’s

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unilaterally claimed U-shaped line. 23 An incomplete figure from China shows that these eight sedimentary basins contain 34.97 billion tons of petroleum reserves, including the discovered 1.182 billion tons of oil and 8,000 billion cubic meters of gas. In addition, there is a large quantity of gas hydrate (also known as flammable ice) in the South China Sea.24 Thus, the South China Sea is sometimes called a second “Persian Gulf.” The potential scramble for offshore oil and gas has spread to other seas from the South China Sea. The incidents that happened in the past years in the East China Sea and the Sea of Japan around the disputed Diaoyu and Tokdo Islands showed the intensified measures taken and to be taken by the respective governments with the aim of securing the access to marine natural resources. Another incident that broke out in 2005 involved Malaysia and Indonesia concerning the Ambalat oil exploration block in the Sulawesi Sea. According to Indonesia, it owns the Ambalat offshore area near the maritime border with Malaysia. 25 Energy security is also negatively affected by unclear and/or overlapping maritime boundaries. China has maritime boundary problems with its neighboring countries including Japan, the two Koreas, Vietnam, the Philippines, and other Southeast Asian countries bordering the South China Sea. The boundary delimitation of the EEZ and the continental shelf between China and Japan is complicated. Japan has advocated the application of the median line as a delimitation line for the EEZ and the continental shelf in the absence of an agreed line with the opposite country. This is reflected in its 1996 EEZ Law.26 However, China’s position is different and it does not think that the equidistance method is the only criterion for delimitation. Instead, it has advocated the application of the natural prolongation principle for the delimitation of the continental shelf with Japan.27 Natural prolongation is quite meaningful for China because, at least in the East China Sea, the continental shelf from mainland China is very broad and China has used the concept of natural prolongation to support its claim to the continental shelf in the East China Sea. Since the general trend in state practice concerning boundary delimitation of the EEZ/ continental shelf is toward a single line to delimit the two different but closely associated sea areas, it is reasonable to wonder whether

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natural prolongation could still play a significant role in such delimitation. Recently China has realized the difficulties of applying the natural prolongation principle to maritime boundary delimitation, and has begun to consider the principle of proportionality that is also favorable for China. The overlapping maritime claims in the East China Sea triggered the recent Chunxiao Gas Field Incident. China has conducted gas extraction activities in that gas field, but invited protests from Japan because the gas field is located only five kilometers to the boundary line claimed by Japan. Though two sides held talks, 28 the issue remains unresolved at the time of writing. On the other hand, it is recalled that China strongly protested against the Agreement concerning Joint Development of the Southern Part of the Continental Shelf Adjacent to the Two Countries between Japan and South Korea signed in January 1974 regarding oil and gas exploration in the East China Sea.29 Maritime boundary delimitation is much more difficult by the disputes between China and other interested countries regarding the sovereignty and ownership of certain islands, such as the Diaoyu (Senkaku) Islands in the East China Sea, which will affect the boundary delimitation of the EEZ and continental shelf with Japan, and the Spratly Islands in the South China Sea, which involve six countries. The situation of these islands simply makes impossible maritime delimitation in the South China Sea, at least at present and in the near future. That is why the seas around China are perceived as “one of the most difficult areas for maritime boundary delimitation.”30

Safety of Navigation While navigational rights of foreign ships are guaranteed in East Asia, such as freedom of navigation in the South China Sea and transit passage in the Straits of Malacca and Singapore, much concern is focused on the safety of navigation, in particular after the 9/11 terrorist attacks. It is widely known that piracy has been found in the Straits of Malacca, Indonesian waters, and the South China Sea. More than two-thirds of the worldwide piratical attacks are in Asian waters. According to the figures for 2000, piracy in the region accounted for 65 percent of the total worldwide number. In 2002, Indonesia remained the world’s most pirate-infested, with 22 of 87 attacks

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reported worldwide (32 in the Southeast Asian seas) from January till March.31 The incidents in the South China Sea increased from 120 in 2001 to 140 in 2002. 32 The complicated topography and the vast size of the South China Sea may allow pirates to commit their crimes more frequently than in other regions of the world. For most of the countries in East Asia, piracy may be subject to punishment in the name of robbery, murder, larceny, or kidnapping according to their criminal laws. In this context, the international definition does not carry a significant meaning when piratical activities are found in the waters within national jurisdiction and subject to the punishment under the domestic criminal law of a coastal state. However, at the regional level, particularly with a view to regional cooperation, the definition under international law is meaningful and consists of the legal consensus of the region on the crackdown on piracy. It should be pointed out that with the legal developments in the international arena the definition provided by the IMO has been gradually accepted worldwide as manifested in numerous international documents including those UN documents relating to the LOS Convention. 33 Closely related to the suppression of piracy and maritime terrorism is the Regional Maritime Security Initiative (RMSI). It was formally put forward in March 2004 by Admiral Thomas B. Fargo, Navy commander of the U.S. Pacific Command in his testimony regarding U.S. Pacific Command posture before the House of Armed Services Committee of the U.S. House of Representatives.34 According to Fargo, the RMSI is designed to implement the “President’s Proliferation Security Initiative (PSI)35 and State Department’s Malacca Strait Initiative” with the approach that detailed plans are provided “to build and synchronize interagency and international capacity to fight threats that use the maritime space to facilitate their illicit activity.” From Fargo’s remarks, it is obvious that this initiative is designed for the East Asian region, particularly focusing on the safe navigation in the Strait of Malacca. On the other hand, Fargo emphasized that in order to conduct effective interdiction in the sea it is necessary to use high-speed vessels equipped with Special Operations Forces or Marines. To implement the PSI, the United States signed nonproliferation shipboarding agreements with Liberia (February 11, 2004), Panama (May 12, 2004), and Marshall

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Islands (August 13, 2004). According to such agreements, if a ship with either party’s flag is suspected of carrying proliferation-related cargo, either party can request the other to confirm the nationality of the ship and if needed, to authorize the boarding, search, and possible detention of the ship and its cargo. These agreements, together with PSI partners, cover more than 50 percent of commercial shipping fleet dead weight tonnage, which is subject to rapid action consent procedures for boarding, search, and seizure by the United States. 36 It seems that the United States attempted to create a rule of international law through such kind of agreements by shifting its foreign policy “toward a more flexible approach to collective action that eschews both ad hoc unilateralism and institutionalized multilateralism.”37 Responses from Asian countries to this Initiative are varied. Some countries such as Japan, Singapore, and South Korea immediately rendered their support. For example, Japan hosted the PSI Maritime Interdiction Exercise off the coast of Sagami Bay and off the Port of Yokosuka from October 25 to 27, 2004. 38 Yet, some other countries, such as Malaysia and Indonesia, doubted that the RMSI could really play a positive role in curbing piracy and maritime terrorism. They are also concerned that the United States would infringe upon their national sovereignty and territorial integrity. In order to prevent the potential American military intervention in the Strait affairs, Malaysia and Indonesia decided to formulate a joint patrol to protect this international waterway. Singapore joined later. The tripartite patrol consists of fifteen–twenty military vessels and patrol in the Straits all the year round.39

Possible Solutions While it is admitted that there are various solutions as long as they can be used to tackle the issues mentioned earlier with regard to energy security in the maritime domain, the following two areas are essentially important.

Joint Development For maritime zones with overlapping claims, joint development is no doubt a most feasible means for countries concerned to carry out

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cooperation. “Joint development” refers to an agreement between two States to develop so as to share jointly in agreed proportions by inter-State cooperation and national measures the offshore oil and gas in a designated zone of the seabed and subsoil of the continental shelf to which both or either of the participating States are entitled in international law.40

It contains several characteristics: (a) it is an arrangement between two countries; (b) it concerns an overlapping boundary maritime area; (c) it is a provisional arrangement pending the settlement of the boundary delimitation disputes between the countries concerned; (d) it is designed to jointly develop the mineral resources in the disputed area. In East Asia, joint development agreements include, inter alia, the Japan–South Korean arrangement in the Sea of Japan and the East China Sea in the 1970s, the Malaysia–Thailand joint development area in the Gulf of Thailand, and the Australian–Indonesia joint development zone for the Timor Gap. A good example is the joint arrangement among three countries— Malaysia, Thailand, and Vietnam—in the Gulf of Thailand for their overlapping claimed sea areas, consisting of two separate but associated bilateral agreements either between Malaysia and Thailand or between Malaysia and Vietnam. In 1979, Malaysia and Thailand signed a memorandum of understanding (MOU) to establish, on an interim basis of fifty years, a Malaysia–Thailand Joint Authority “for the purpose of the exploration and exploitation of the nonliving natural resources of the seabed and subsoil in the overlapping area.”41 More than ten years later, the two countries worked out the Constitution and other matters relating to the establishment of such an authority, which provides details of the operation in the joint zone.42 There are two striking characteristics in this joint development scheme: a powerful joint authority that decides on the plan of operation and the work program, to permit operations and conclude transactions or contracts, to approve and extend the period of exploration and exploitation, to approve the work program and budgets of the contractor, and inspect and audit the operator’s books and accounts43; and the introduction of a production sharing system that includes such terms and conditions as the duration of the contract not exceeding thirty-five years, the payment of 10 percent of gross

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production of petroleum by the contractor to the Joint Authority as royalty, 50 percent of gross production to be applied by the contractor for the recovery of costs, the remainder of gross production to be profit and divided equally between the Joint Authority and the contractor, all costs of operations to be borne by the contractor, and any dispute arising out of the contract to be referred to arbitration unless settled amicably.44 In the same vein, Malaysia and Vietnam also signed an MOU in 1992 for joint development in the Gulf of Thailand. Accordingly Petronas and Petrovietnam are assigned to undertake respectively petroleum exploration and exploitation in the “defined area.” The arrangement between the two state-owned oil companies made in August 1993 established an eight-member Coordination Committee to issue policy guidelines for the management of petroleum operations. This is different from the Thai–Malaysia model in which the Joint Authority is appointed directly by the governments. After the conclusion of the commercial arrangement in July 1997, oil has been extracted from the Bunga Kekwa field.45 Encouraged or triggered by all these developments in East Asia, China also put forward the idea of joint development in the disputed sea areas. When Wu Bangguo, chairman of the National People’s Congress, visited the Philippines in August 2003, he proposed to his Philippine counterpart to jointly develop petroleum in the South China Sea.46 On November 11, 2003, the China National Offshore Oil Corporation (CNOOC) and the Philippine National Oil Company agreed to jointly explore oil and gas in the South China Sea through the signing of a letter of intent between the two sides. A joint committee will be set up to help select exploring areas in the South China Sea. They also agreed to establish a program to “review, assess and evaluate relevant geographical, geophysical and other technical data available to determine the oil and gas potential in the area.”47 Further developments took place when state-owned oil companies in China, the Philippines, and Vietnam signed an unprecedented tripartite agreement on joint seismic surveying activities in the South China Sea on March 14, 2005. The size for cooperation is 143,000 square kilometers.48 It is perceived that other ASEAN countries may join in this agreement as well.49 In the East China Sea, China and Japan also discussed the possibility of joint development of petroleum resources in the disputed areas.

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Regional Security Cooperation Regional cooperation is a necessity to effectively combat piracy in the region. In November 2002, the Joint Declaration of ASEAN and China on Cooperation in the Field of Non-Traditional Security Issues (the Joint Declaration) was adopted, which initiated full cooperation between ASEAN and China in the field of nontraditional security issues and listed the priority and form of cooperation. The priorities at the current stage of cooperation include “combating trafficking in illegal drugs, people-smuggling including trafficking in women and children, sea piracy, terrorism, arms-smuggling, money-laundering, international economic crime and cyber crime.” As to the multilateral and bilateral cooperation, it aims to “(a) strengthen information exchange, (b) strengthen personnel exchange and training and enhance capacity building, (c) strengthen practical cooperation on non-traditional security issues, (d) strengthen joint research on nontraditional security issues, and (e) explore other areas and modalities of cooperation.”50 In addition, the 2002 Declaration on the Conduct of the Parties in the South China Sea also mentioned the suppression of piracy and armed robbery at sea. 51 Multilateral interactions among the countries in East Asia have produced some positive results in regional cooperation. For example, heads of coast guard agencies from sixteen countries and one region (ten ASEAN countries, India, Sri Lanka, Bangladesh, South Korea, China, Hong Kong, and Japan) attended the first regional conference held in April 2000, where three documents were adopted. In a statement “Asia Anti-Piracy Challenge 2000,” the coast guard authorities expressed their intention to reinforce mutual cooperation in combating piracy and armed robbery against ships. The “Tokyo Appeal” called for the establishment of contact points for information exchange among relevant authorities as well as for the drafting of a national antipiracy action plan. The Model Action Plan stated specific countermeasures based on the Tokyo Appeal.52 The ASEAN Regional Forum (ARF) for the first time adopted the Statement on Cooperation against Piracy and Other Threats to Maritime Security in June 2003, acknowledging that piracy and armed robbery against ships had been a significant problem in the Asia-Pacific region and that effective responses required “regional maritime security strategies and multilateral cooperation in their implementation.”53

148 Table 6.1

Keyuan Zou Ratification of antipiracy treaties in East Asia

States Brunei Darussalam Cambodia China Indonesia Japan Korea (North) Korea (South) Laos Malaysia Mongolia Myanmar Philippines Singapore Thailand Vietnam

The 1982 LOS Convention (d/m/y)

The 1988 SUA Convention (d/m/y)

05/11/1996

04/12/2003 18/08/2006 01/03/1992

07/06/1996 03/02/1986 20/06/1996

23/07/1998

29/01/1996 05/06/1998 14/10/1996 13/08/1996 21/05/1996 08/05/1984 17/11/1994

14/05/2003

19/09/2003 06/01/2004 03/02/2004

25/07/1994

10/10/2002

Source: Compiled by the author.

It is noted that the ARF countries expressed their commitment to become parties of the SUA Convention if they have not yet done so (see table 6.1). In addition to undertaking necessary actions such as exchange of information, consideration and discussion of new IMB proposals on prescribed traffic lanes for large supertankers with coast guard or naval escort, as well as provision of technical assistance and capacity-building infrastructure for countries that need help, they pledged to “endorse the ongoing efforts to establish a legal framework for regional cooperation to combat piracy and armed-robberies against ships.”54 The most significant development is the regional treaty on antipiracy (ReCAAP) that was adopted in November 2004 by sixteen Asian countries including Bangladesh, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, the Philippines, Sri Lanka, Singapore, South Korea, Thailand, and Vietnam. It entered into force on September 4, 2006. The agreement obliges contracting states (a) to prevent and suppress piracy and armed robbery against ships; (b) to arrest pirates or persons who have committed armed robbery against ships; (c) to seize ships or aircraft used for committing piracy or armed robbery against ships; and (d) to rescue

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victim ships and victims of piracy or armed robbery against ships.55 For cooperation purposes, the contracting parties should endeavor to render mutual legal assistance as well as extradition for piracy suppression and punishment. In addition, the Agreement establishes an Information Sharing Center that is located in Singapore and was officially launched in November 2007.

Concluding Remarks The LOS Convention is described as a “constitution for the oceans.”56 Compliance with international law is one of the requirements when states interact and cooperate in international relations. There is a special provision in the LOS Convention requesting contracting states bordering enclosed or semi-enclosed seas to cooperate among themselves, in particular (a) to coordinate the management, conservation, exploration, and exploitation of the living resources of the sea; (b) to coordinate the implementation of their rights and duties with respect to the protection and preservation of the marine environment; (c) to coordinate their scientific research policies and undertake where appropriate joint programs of scientific research in the area. 57 The requirement for cooperation is of course not limited only to these areas and should apply to the area of energy security as well. It is to be noted that while most of the East Asian countries acceded to the LOS Convention, not so many such countries have acceded to the other important international convention on the prevention and suppression of piracy and maritime terrorism, that is, the SUA Convention (table 6.1). It is regrettable that two key Straits states, Indonesia and Malaysia, are still left outside the SUA legal framework despite the fact that these two countries participated in the Correspondence Group under the leadership of the United States regarding the revision of the SUA Convention within the framework of the IMO.58 The discussion on the Protocol to SUA is mainly focused on the possible incorporation of the shipboarding regime proposed by the United States (as reflected in the bilateral agreements signed between the United States and relevant flag-state countries) into the SUA Convention, to which a new protocol was adopted by the diplomatic conference on the SUA Convention held in October 2005.

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The LOS Convention has established a rule-of-law regime for the oceans and the rule of law principle at the international level requires states to use international law rather than power, will of individuals, or even force to govern state-to-state relations. Peaceful means of disputes settlement should be invoked in East Asia. While some countries such as China are still reluctant to accept the jurisdiction of the international judiciary, some East Asian states have committed to judicial settlement of territorial disputes between themselves. This is well illustrated by two recent cases before the International Court of Justice (ICJ): the case of Sovereignty over Pulau Litigan and Pulau Sipadan (Malaysia/Indonesia) (1998–2002) and the case concerning Sovereignty over Pedra Branca/Pulau Batu Puteh, Middle Rocks and South Ledge (Malaysia/Singapore) (2003–). In the judgment on the former, the ICJ granted the disputed islands to Malaysia. Both Indonesia and Malaysia accepted the ICJ’s decision. In July 2003, Malaysia and Singapore submitted their territorial dispute over tiny islets including the Pedra Blanca, Middle Rocks, and South Ledge to the ICJ for settlement based on the special agreement they signed in February and entered into force in May 2003. 59 In May 2008 the ICJ awarded the Pedra Blanca to Singapore and Middle Rocks to Malaysia. It ruled that South Ledge belongs to the state in the territorial waters of which it is located.60 These pioneering undertakings can be followed by other East Asian countries that are involved in territorial and maritime disputes among themselves.

Notes 1. See “South China Sea Region,” Country Analysis Briefs, September 2003, available at http://www.eia.doe.gov/emeu/cabs/schina.html (accessed October 4, 2004). 2. CCH Asia China E-News Alert, No.43, February 2004. 3. See World Energy Assessment: Energy and the Challenge of Sustainability (New York: UNDP, 2000), 11. 4. Hisham Khatib, “Energy Security,” in ibid., 113–114. 5. 21 ILM (1982) 1261. The Convention was open for signature on December 10, 1982, and came into effect on November 16, 1994. As of March 2008, there were 155 contracting parties to it, including 1 international organization.

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6. According to Article 122 of the LOS Convention, “enclosed or semienclosed sea” means a gulf, basin, or sea surrounded by two or more states and connected to another sea or the ocean by a narrow outlet or consisting entirely or primarily of the territorial seas and exclusive economic zones of two or more coastal states. 7. See Li Haiqing, “Reflections on Our Strategy for Ocean Development in East Asian Seas,” Ocean Development and Management (in Chinese), no. 1 (2005): 10. 8. Article 37 of the LOS Convention. 9. See Satya N. Nandan and Shabtai Rosenne, eds., United Nations Convention on the Law of the Sea 1982: A Commentary, Vol. 2 (Dordrecht: Martinus Nijhoff, 1993), 317. 10. Article 38 (2) of the LOS Convention. The main difference between innocent passage and transit passage in that the former does not apply to foreign overflight. 11. See Article 45 of the LOS Convention. 12. Article 39 of the LOS Convention. 13. Article 41 of the LOS Convention. 14. Article 101 of the LOS Convention. 15. On October 3, 1985, a group of Palestinian guerrillas hijacked the Italian cruise ship Achille Lauro while it was in Egyptian territorial waters. The hijackers demanded the release of fifty Palestinians held in Israel in return for the release of the passengers. They ordered the ship to sail to Syria, which refused them port entry. On October 8, the hijackers killed an American passenger. Several days later the four hijackers gave themselves up to the Egyptian authorities. On October 11, an Egyptian civilian aircraft was intercepted by U.S. military aircraft over the Mediterranean Sea and instructed to land at an air base in Sicily. Four Palestinians on board were detained by the Italian authorities and subsequently indicted and convicted in Genoa for offences related to the hijacking of the ship and the death of the American passenger. 16. Natalino Ronzitti, “The Law of the Sea and the Use of Force against Terrorist Activities,” in Maritime Terrorism and International Law, ed. N. Ronzitti (Dordrecht: Martinus Nijhoff, 1990), 1. 17. See Birgit S. Olsen, “Piracy and the Law,” paper presented to the IMO Seminar and Workshop on Piracy and Armed Robbery against Ships, Singapore, February 3–5, 1999: 2 (on file with the author). 18. Provisions on the high seas of the LOS Convention are applicable to the EEZ as long as there is no contradiction. 19. 27 ILM (1988) 685. 20. See Sam Bateman and Doug MacKinnon, “The Role of Port States to Suppress Acts of Piracy in Their Waters,” paper presented to the third ICC-IMB International Meeting on Piracy and Phantom Ships, Kuala Lumpur, June 1–2, 1998: 5 (on file with the author).

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21. For example, the Philippines expressed its alarm over increasing Vietnamese military and fishing vessel incursions into the waters off the disputed Spratly Islands in the South China Sea and there were 205 Vietnamese vessels in areas claimed by the Philippines in the first ten months in 2001. See “Philippine Alarmed over Increasing Vietnamese Incursions in Spratlys,” Agence France-Presse, November 16, 2001. 22. See “Vietnam Protests China’s Exercises in ‘Off-limits Zone,’ ” Voice of Vietnam, Hanoi, June 11, 2002; and “China Dismisses Vietnam’s Protest over Naval Exercise,” Xinhua News Agency, Beijing, June 11, 2002. 23. For details of this line and its legal implications, see Zou Keyuan, “The Chinese Traditional Maritime Boundary Line in the South China Sea and Its Legal Consequences for the Resolution of the Dispute over the Spratly Islands,” International Journal of Marine and Coastal Law 14, no. 1 (1999): 27–55. 24. See Wu Shicun and Hong Nong, “Energy Security of China and the Oil and Gas Exploitation in the South China Sea,” in Recent Developments in the Law of the Sea and China, eds. Myron H. Nordquist, John Norton Moore, and Kuen-chen Fu (Leiden/Boston: Martinus Nijhoff, 2006), 148. 25. “Indonesia Defends Claim on Disputed Ambalat,” March 23, 2005, available at http://news.xinhuanet.com/english/2005-03/23/content_ 2734588.htm (accessed March 26, 2005). 26. See Article 1 (2) and Article 2 (2) of the Law on the Exclusive Economic Zone and the Continental Shelf (Law No.74 of 1996), Law of the Sea Bulletin, no. 33 (1997): 94–95. 27. As is stated, China adheres to the following principles for the delimitation of the continental shelf: (1) application of the concept of natural prolongation; (2) delimitation through negotiation or consultation; and (3) consultation regarding equitable principles taking into account all relevant circumstances. Wang Tieya, “China and the Law of the Sea,” in The Law of the Sea and Ocean Industry: New Opportunities and Restraints, eds. Douglas M. Johnston and Norman G. Letalik (Honolulu: Law of the Sea Institute, University of Hawaii, 1984), 587. 28. The talk was held on October 25, 2004, without result. See “FM: Talks with Japan on Sea Border Advance,” China Daily, October 26, 2004. 29. Text is reprinted in Park Hee Kwon, The Law of the Sea and Northeast Asia: A Challenge for Cooperation (The Hague: Kluwer Law International, 2000), 181–198. For details on China’s position, see Zhao Lihai, Studies on the Law of the Sea Issues (Beijing: Peking University Press, 1998) (in Chinese), 41–57. 30. Jonathan I. Charney, “Central East Asian Maritime Boundaries and the Law of the Sea,” American Journal of International Law 89 (1995): 724. 31. “Pirate Attacks Jumped 28% in First Quarter,” The Shipping Times (Singapore), May 10, 2002. 32. “Reports on Acts of Piracy and Armed Robbery against Ships,” IMO Doc. MSC.4/Circ.32, April 17, 2003.

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33. See, e.g., “Oceans and Law of the Sea,” Report of the Secretary-General, UN Doc. A/57/57, March 7, 2002, 27–29. The IMO definition is also accepted by the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia. 34. The whole text of the testimony is available at http://www. pacom. mil /speeches/sst2004/040331housearmedsvscomm.shtml (accessed November 11, 2004). 35. PSI is an effort to consider possible collective measures among the participating countries, in accordance with national legal authorities and relevant international law and frameworks, in order to prevent the proliferation of weapons of mass destruction, missiles, and their related materials that pose threats to the peace and stability of the international community. The PSI is administered by the “core group” countries, which, at present, consist of fifteen countries (Japan, United States, United Kingdom, Italy, the Netherlands, Australia, France, Germany, Spain, Poland, Portugal, Singapore, Canada, Norway, and Russia); see “The Proliferation Security Initiative (PSI) Maritime Interdiction Exercise Hosted by Japan,” October 18, 2004, available at http://www. mofa.go.jp/policy/un/disarmament/arms/psi/exercise-2.html (accessed November 11, 2004). 36. See “U.S.–RMI Agreement: Maritime Security Initiative Signed,” August 15, 2004, available at http://www.yokwe.net (accessed November 11, 2004). 37. Michael Byers, “Policing the High Seas: The Proliferation Security Initiative,” American Journal of International Law 98 (2004): 543. 38. See “The Proliferation Security Initiative (PSI) Maritime Interdiction Exercise Hosted by Japan,” supra note 35. 39. See “Indonesia and Malaysia Jointly Oppose American Army to Patrol in the Straits of Malacca,” Lianhe zaobao (in Chinese), May 8, 2004; and “As Piratical Attacks Become Fiercer in the Straits of Malacca, Indonesia, Malaysia and Singapore Will Coupe with Them Jointly,” October 9, 2004, available at http://www.people.com.cn/GB/guoji/1029/2905373. html (accessed October 9, 2004). 40. British Institute of International and Comparative Law, Joint Development of Offshore Oil and Gas: A Model Agreement for States for Joint Development with Explanatory Commentary (London: British Institute of International and Comparative Law, 1989), 45. 41. Text is reprinted in Jonathan I. Charney and Lewis M. Alexander, eds., International Maritime Boundaries (Dordrecht: Martinus Nijhoff Publishers, 1993), Vol. 1: 1099–123. 42. See ibid. 43. See Article 7 of the 1990 Agreement. 44. See Article 8 of the 1990 Agreement. 45. See Nguyen Hong Thao, “Vietnam and Joint Development in the Gulf of Thailand,” Asian Yearbook of International Law 8 (2003): 145.

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46. “Wu Bangguo Proposes Multiple Cooperation for Oil in the Spratly Islands,” Lianhe zaobao, September 1, 2003. 47. “Chinese, Philippine Firms Join Forces to Look for Oil in South China Sea,” Agence France Presse, November 13, 2003. 48. See “China, Philippines and Vietnam Sign Agreement to Explore Oil in the South China Sea,” Lianhe zaobao, March 15, 2005, available at http:// www.zaobao.com/gj/yx501_150305.html (accessed March 15, 2005). 49. For details, see “Shelving the Dispute and Developing Jointly: China, Philippines and Vietnam Jointly Explore Oil in the South China Sea,” March 16, 2005, available at http://world.people.com.cn/GB/1029/ 42354/3246614.html (accessed March 16, 2005). 50. See Joint Declaration of ASEAN and China on Cooperation in the Field of Non-Traditional Security Issues, 6th ASEAN-China Summit, Phnom Penh, Cambodia, November 4, 2002, available at http://www.aseansec. org/13185.htm (accessed July 2, 2004). 51. Text is available at http://www.aseansec.org/13163.htm (accessed March 28, 2005). 52. See Japanese Ministry of Foreign Affairs, Diplomatic Bluebook 2001, available at http://www.mofa.go.jp/policy/other/bluebook/2001/chap2-4-d. html (accessed January 26, 2002). 53. Text is available at http://www.aseansec.org/14838.htm (accessed July 18, 2003). 54. Ibid. 55. Article 3 of the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia. It is reported that Cambodia, Japan, Laos, and Singapore at first officially signed the Agreement on April 28, 2005; see “Singapore, Japan, Laos and Cambodia Take the Lead to Sign the Anti-Piracy Agreement,” Lianhe zaobao, April 29, 2005. 56. See Tommy Koh, “A Constitution for the Oceans,” in United Nations, The Law of the Sea: United Nations Convention on the Law of the Sea with Index and Final Act of the Third United Nations Conference on the Law of the Sea (New York: United Nations, 1983), xxxiii. 57. Article 123 of the LOS Convention. 58. See Brad J. Kieserman, “Preventing and Defeating Terrorism at Sea: Practical Considerations for Implementation of the Draft Protocol to the Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation (SUA),” in Recent Developments in the Law of the Sea and China, 436 and appending note. 59. See “Malaysia and Singapore Jointly Submit a Dispute Concerning Sovereignty over Pedra Branca/Pulau Batu Puteh, Middle Rocks and South Ledge to the International Court of Justice,” Press Release 2003/22, July 24, 2003, http://www.icj-cij.org/icjwww/ipresscom/ ipress2003/ipresscom2003-22_ms_20030724.htm (accessed July 26, 2003).

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60. “ICJ Awards Pedra Blanca to Singapore, Middle Rocks to Malaysia,” Economic Times (India), May 24, 2008, also posted at http://economictimes. indiatimes.com / PoliticsNation / ICJ _ awards _ Pedra _ Blanca _to_ Singapore_Middle_Rocks_to_Malaysia/articleshow/3068368.cms (accessed June 23, 2008).

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7 Traffic Pattern, Safety, and Security in the Straits of Malacca Takashi Ichioka

Introduction The Straits of Malacca and Singapore are one of the most important chokepoints in the sea lanes of communication in the Asia-Pacific. These Straits are located on the strategic position where the Pacific and the Indian Oceans are linked at their shortest distance. The safe and secure transportation of raw materials and finished products, especially crude oil, through the Straits is vital to economic growth of Asian countries, particularly for East Asian countries. The major part of the Straits of Malacca and Singapore lie in the territorial waters of their littoral states, namely, Indonesia, Malaysia, and Singapore. As a result, these states play a primary role in ensuring navigational safety, environment protection, and maritime security in the Straits. At the same time, there have been great concerns with maritime safety and maritime security in the Straits. A considerable number of accidents involving transiting ships have occurred throughout the last decade. The littoral states of the Straits have repeatedly experienced major oil spills caused by shipping, some of which have resulted in serious damage on coastal environments and marine resources. From the late 1990s to the mid-2000s a spike in the number of piracy and armed robbery incidents happened in the Straits and

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neighboring waters. Although such incidents have decreased recently, they still remain a constant worry to the shipping community as in the past crews have been wounded, killed, or kidnapped for ransom by violent robbers. In addition, since the 9/11 attacks in the United States much attention has been given to the potential threat of a maritime terrorism incident in the Straits. Out of these concerns and in order to ease the littoral states’ burden of maintaining security of this vital sea link of the AsiaPacific, nations who are dependent on the Straits, including the United States and China, have been actively engaged in discussion on cooperation in the Straits. Although a great deal of discussion has been made on risk of accidents and threat of piracy and terrorism, there is a need for information on (1) physical characteristics and traffic situation, (2) actual status of incidents and vulnerability in terms of security in the Straits and to a lesser extent (3) the positions taken by the littoral and the user states. The aforementioned information can help improve discussion on the security and safety of the Straits. This chapter sheds light on the traffic pattern and risks of incidents of the Straits and analyzes remedial measures. It first examines the patterns of shipping in the Straits, such as tonnage, number and types of vessels, as well as tonnage of vessels by flag states, nationality of parent company, nationality of last calling ports. It also reveals projected growth of the traffic volume for the coming decade. Then the chapter analyzes risks for shipping in the Straits, including navigational safety, environmental protection, piracy, and maritime terrorism. It also examines countermeasures taken by littoral states and Japan. Last, it addresses the latest development in international cooperation involving littoral states and user states, especially from 2004 to 2007.

Data on the Traffic of the Straits The Straits of Malacca and Singapore have always been called “the most important waterway for global trade.” It is often said that onequarter of the trade ships plying international waterways pass through the Straits, along with one half of ships carrying oil internationally.

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According to an analysis by the IEA (International Energy Agency), 11 mb/d (million barrels per day) of oil passed through the Straits of Malacca and Singapore in 2002.1 This figure accounts for 32 percent of global interregional oil trade. It ranks as the world’s second busiest oil route, next to the Strait of Hormuz, which is located at the mouth of the Persian Gulf and handles 15 mb/d. In contrast, 1.3 mb/d of oil is shipped through the Suez Canal and only 0.4 mb/d through the Panama Canal. Thus the presence of the Malacca and Singapore as a major oil route is much more significant than the Suez and Panama Canals. Despite the importance of the Straits, there are very few detailed sources available on traffic volume through the Straits. The Marine Department of Malaysia publishes information on the number of vessels plying the Straits. The Mandatory Ship Reporting System known as “STRAITREP,” which was proposed by Indonesia, Malaysia, and Singapore and adopted by the IMO (International Maritime Organization), has been in operation since December 1, 1998. Ships entering the operational area are required to report to VTS (Vessel Traffic Station) authorities through very high frequency (VHF) channels. This regulation is applied to vessels of 300 gross tons (GT) and above and not less than 50 meters in length, vessels carrying hazardous cargo, passenger vessels, and others. Statistics published by the Marine Department of Malaysia suggested that in 1999, 43,964 vessels reported to Klang VTS, which was located near the north inlet of the Straits, that this number increased to 55,955 in 2000, and grew to 70,718 in 2007. 2 The number in 1999 may be less reliable as the Mandatory Reporting System appears to have not been fully enforced at that time due to insufficient publicity. Compared with that of 2000 and within seven years, traffic volume of the Straits increased by 26.4 percent. Singapore is also involved in the operation of STRAITREP. However, it does not publish similar statistics. It releases only the number and gross tonnage of vessels calling at the Port of Singapore, which received 128,568 vessels in 2007. This number is nearly double of the Malaysian STRAITREP statistics probably because Singapore port’s figures covers smaller and coastal transiting vessels not covered by STRAITREP rules.

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Recently, Japan has made an effort to present a clearer picture of traffic in the Straits. A survey entitled “Past and present vessel traffic through the Straits of Malacca and Singapore” was jointly conducted by Ministry of Land, Infrastructure and Transport of Japan (MLIT) and the Nippon Foundation. The results of this survey were presented at the Kuala Lumpur Meeting on the Straits of Malacca and Singapore cohosted by the IMO and the Government of Malaysia in September 2006. In the 1960s, Japan initiated various joint projects in the area of navigation safety. Japanese ships were the dominant users of the Straits in those days. Since then, traffic volume and the share of user states have dramatically changed due to recent economic growth in Asian countries. This latest survey aims to contribute to discussions on international cooperation over maritime security and safety by estimating the latest trends in traffic in the Straits. The survey estimated traffic volumes for 1994 and 2004 in September 2006. These estimates use the global vessel movement data of Lloyd’s Marine Intelligence Unit (LMIU)3 for its wide coverage and credibility. Vessels using the Straits were selected from 606,911 ocean going vessel movements of not less than 100 GT in 2004, based on their assumed route. When either the origin or destination of the vessel was located within the Straits, the vessel clearly used the Straits. When both the origin and destination of the vessel lay outside the Straits, its assumed route would be used to estimate whether or not it would have passed through the Straits. This approach of data selection ensured a high level of accuracy on ships that traveled in the Straits.

Shipping Traffic Patterns in the Straits It was estimated that 75,061 vessels used the Straits in 1994 and 93,755 in 2004. Traffic volume therefore increased by 24.9 percent in ten years, or by 2.2 percent per annum. A useful measure for cargo volume is deadweight tonnage (DWT). DWT denotes a measurement of weight of cargo, fuel, and stores. In terms of deadweight tonnage traffic volume in 2004 amounted to 3.99 billion tons. This was an increase of as much as 59.3 percent, or 4.8 percent per annum, from the 2.50 billion tons in 1994 (see table 7.1).

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Table 7.1 Number and tonnage (D.W.) of vessels 1994 Number of transitting vessels Total deadweight (1,000 metric tons) Average deadweight (1,000 metric tons)

Table 7.2

2004

2004 as of 1994

75,061

93,755

1.25

2,503,755

3,989,321

1.59

33

43

1.28

Number of vessels by ship type

Ship types

2004 Vessel transit

Container vessels Tanker vessels Cargo vessels Bulk carriers Roll-on/roll-off (RORO) cargo carriers LNG/LPG Others

29,672 22,995 14,064 13,599 4,454 3,933 5,038

Grand total

93,755

The traffic volume could be broken down into categories of ship type, flag state, nationality of parent company, and the nationality of last and first ports of call. In terms of ship type container vessels accounted for 29,672 (31.6 percent), followed by tanker vessels (22,995, 24.5 percent), cargo vessels (14,064, 15.0 percent), and bulk carriers (13,599, 14.5 percent) (see table 7.2) In 2004, almost half the transit volume on the basis of DWT was carried by tanker vessels that include crude oil tankers, product tankers, chemical tankers, and so on. Tanker vessels accounted for 1.9 billion tons of cargo (46.6 percent), followed by container vessels (1.0 billion tons, 25.4 percent). Breakdown by flag states (DWT) in 2004 suggested that Panama accounted for 27.8 percent, followed by Liberia (10.2 percent), China including Hong Kong (8.4 percent), Singapore (8.2 percent), and the Marshall Islands (5.0 percent). Not surprisingly, open register countries, such as Panama, Liberia, and Marshall Islands, ranked highest because of their comparatively large shipping registry (see table 7.3.)

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Table 7.3

Tonnage (D.W.) of vessels by flag state Deadweight (1,000 metric tons)

Rank 1 2 3 4 5

Flag state Panama Liberia China including Hong Kong Singapore Marshall Islands

Table 7.4 No.

1994

Share (%)

2004

Share (%)

508,420 291,081 177,618 213,892 81,406

20.3 11.6 7.1 8.5 3.3

1,108,025 408,303 334,696 328,160 201,227

27.8 10.2 8.4 8.2 5.0

Tonnage (D.W.) of vessels by nationality of parent company

Parent company

1 2 3 4 5

Japan Greece China including Hong Kong Germany United Kingdom

6

Singapore

% of total, 1994

% of total, 2004

20.8 8.1 7.8 2.2 7.1

18.6 13.4 10.5 9.3 2.1

5.8

5.2

“Parent company of the vessel” refers to the company that would be paid by insurers if a ship is lost, or the person or company that has the right to sell/dispose of a ship or transfer shares in that ship. The parent company is therefore regarded as the substantial ship owner who has the stake in the ship. As far as nationality of parent company (DWT) is concerned, in 2004 Japan was at the top with 18.6 percent, followed by Greece (13.4 percent), China (10.5 percent), Germany (9.3 percent), and Singapore (5.2 percent). Japan topped in 1994 also with a share of 20.8 percent. In 1994 in second–fifth places were Greece (8.1 percent), China (7.8 percent), United Kingdom (7.1 percent), and Singapore and the United States (at the same rate of 5.8 percent). Although Japan continued to be the largest substantial owner country from 1994 to 2004, its share decreased by 2.2 percent (see table 7.4). When looking at tonnage by the last calling port (DWT) in 2004, Singapore emerged at the top, accounting for 29.5 percent, followed by China (10.7 percent), Japan (7.8 percent), Malaysia (5.9 percent), and

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Tonnage (D.W.) of vessels by nationality of last calling ports Deadweight (1,000 metric tons)

Rank 1 2 3 4 5 6 7

Last calling port’s nationality—all ships Singapore China including Hong Kong Japan Malaysia Saudi Arabia U.A.E. Republic of Korea

1994

% of total

2004

% of total

787,803 307,958

31.5 12.3

1,176,228 428,445

29.5 10.7

181,646 88,871 148,961 154,983 114,890

7.3 3.5 5.9 6.2 4.6

311,324 234,675 213,655 182,740 173,373

7.8 5.9 5.4 4.6 4.3

Saudi Arabia (5.4 percent). In 1994, Singapore had the biggest share at 31.5 percent, followed by China (12.3 percent), Japan (7.3 percent), the United Arab Emirates (6.2 percent), and Saudi Arabia (5.9 percent) (see table 7.5.) Each country’s share for tankers was also calculated in the survey. It should be noted that the tanker vessels covered in the survey consist not only of crude oil tankers, but also product tankers, chemical tankers, and the like. However, it is supposed that tanker vessels engaged in the transportation of crude oil accounted for the largest proportion of traffic volume. In terms of last calling port by tankers (DWT) in 2004, Singapore was at the top, accounting for 23.2 percent, followed by Japan (12.2 percent), Saudi Arabia (10.5 percent), the United Arab Emirates (7.4 percent), China (7.4 percent), and the Republic of Korea (6.9 percent). Excluding Singapore, Saudi Arabia, and the United Arab Emirates, the countries ranking in the top six were Japan, China, and Korea, which are assumed to be the top three oil importers reliant on transportation through the Straits. In 1994, Singapore had a share of 23.3 percent of the last calling port by tankers, followed by Japan (18.5 percent), the United Arab Emirates (10.4 percent), Saudi Arabia, the Republic of Korea, and Indonesia. China was at the eighth position with a share of only 2.9 percent. Compared to 1994 and after a decade Japan became less dominant in tanker transportation in 2004. In contrast, China more than doubled its presence from 1994 to 2004 (see table 7.6).

164 Table 7.6

Rank 1 2 3 4 5 6 7 8

Table 7.7

Takashi Ichioka Tonnage (D.W.) of tanker vessels by nationality of last calling ports Last calling port’s nationality— tanker vessels Singapore Japan Saudi Arabia U.A.E. China including Hong Kong Republic of Korea Indonesia Malaysia

Deadweight (1,000 metric tons) 1994

Share (%)

2004

Share (%)

277,869 220,715 115,767 123,609 34,093

23.3 18.5 9.7 10.4 2.9

430,628 226,622 194,276 137,193 137,074

23.2 12.2 10.5 7.4 7.4

78,175 73,690 44,838

6.6 6.2 3.8

127,308 60,903 43,716

6.9 3.3 2.4

Number and tonnage (D.W.) of vessels (projection) 1994

Number of transitting vessels

Number (1,000) Ratio to that of 2004

Total deadweight

DW (1,000 metric tons) Ratio to that of 2004

2004

2010

2020

75

94 1.00

117 1.24

141 1.50

2,504

3,989 1.00

4,729 1.19

6,449 1.62

In 2007, the MLIT and the Nippon Foundation conducted a follow-up survey of the earlier-mentioned one and presented the results at the Singapore Meeting on the Straits of Malacca and Singapore held in September 2007, which succeeded the Kuala Lumpur Meeting in September 2006. The survey in 2007, which was entitled “Projection of Future Trends in Vessel Traffic through the Straits of Malacca and Singapore,” covered the projection of future traffic volume in the Straits. It was estimated that traffic volume would increase from 94,000 vessels in 2004 to 117,000 vessels in 2010 and that it would further increase to 141,000 vessels (a gain by 50 percent) in 2020. In terms of DWT, it was estimated that traffic volume would increase from 3.9 billion tons in 2004 to 4.7 billion tons in 2010 and that it would increase by 62 percent from 2004 to 6.4 billion tons in 2020 (see table 7.7). If the shipping traffic figures from 1994 are compared to those in 2004, it is evident that total traffic volume grew significantly in a decade. Furthermore, it is expected that traffic volume in the Straits will

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further expand at the considerably high rate in the coming decade, particularly due to rapid economic development in East Asia. As a steady increase in traffic volume can be foreseen in the near future, countermeasures to further enhance navigational safety should be taken now so that many more ships will be able to navigate through the Straits safely. The earlier-mentioned two surveys revealed that Japan was still one of the biggest users of the Straits. It took the top position for substantial ship owner country in 2004 and was one of the major origin and destination countries. The survey also suggested that Japan is the number one oil-importing country using the Straits. Although it is undeniable that Japan has been enjoying and will continue to enjoy great benefits from passage through the Straits, a wide range of countries from East Asia, Europe, and Middle East have now also become major beneficiaries. This has led to a recent decline in the relative importance of Japan in the Straits.

Energy Security But to what extent does Japan rely on the Straits for its oil imports? In 2003, Japan was reliant on foreign countries for 99.7 percent of its oil demand. Approximately 90 percent came from the countries of the Middle East in 2004.4 Conversely, Japan imported very little oil from African countries. This being the case, about 90 percent of the oil consumed in Japan comes through the Straits of Malacca and Singapore. This is why the Straits are generally recognized as an indispensable and irreplaceable energy lifeline for Japan. It is also one of the reasons why Japan has been cooperating with the littoral states to enhance safety and security in the Straits. The Institute of Energy Economics (IEEJ), Japan, released the results of its study that included a forecast of oil traffic through the Straits of Malacca and Singapore in September 2006. The study, entitled Asia/World Energy Outlook 2006, made long-term predictions based on a world energy supply and demand simulation to 2030, particularly regarding Asia.5 The study projected that the world’s primary energy consumption would grow at an annual rate of 1.7 percent, from 102 million toe (ton of oil equivalent) in 2004 to 159 million toe in 2030.

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About one half of the estimated increase would be accounted for by increases in Asia, particularly in China (26 percent) and India (11 percent). In Asia, dependency on imported oil was expected to increase from 55 percent in 2004 to 89 percent in 2030. Most of the imported crude oil was expected to come from the Middle East because of advantages in supply capacity and cost competitiveness. China’s dependency on the Middle East in oil imports would increase from 46 percent in 2004 to 74 percent in 2030. With the increasing dependency of Asia on imported oil from the Middle East, the transportation of oil through the Straits of Malacca and Singapore would grow from 11.7 mb/d in 2004 to 24.0 mb/d in 2030. Consequently, the number of VLCCs (very large crude carriers) passing through the Straits would increase from about 4,200 vessels per year in 2004 to about 8,300 vessels in 2030. The size of VLCCs that could pass through the Straits of Malacca today had already reached its maximum limits, so much so that the term “MalaccaMax” VLCC had already been coined by shipbuilders. The study concluded that congestion would become a much more serious problem in the future. The study also projected that if Asian countries succeeded in diversifying their oil supply by introducing Canadian oil sands and Russian crude oil to reduce dependence on Middle East, then transportation of oil through the Straits could be reduced to 21.6 mb/d in 2030. Although this scenario would result in less transportation of oil in 2030, volume was estimated to almost double that of 2004. The study by the IEEJ also shed light on the Straits’ role in the energy route. It unambiguously demonstrates that smooth energy flow through the Straits had contributed and will continue to contribute to regional and even global economic development.

Safety and Environmental Protection As seen in the previous sections, the Straits of Malacca and Singapore have been playing a vital role in the global transportation network, particularly interregional energy transportation. It is therefore of

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significant importance to keep the Straits safe and open to international navigation. Much attention has been given to security in the Straits. The increasing number of piracy cases has become a great concern to the world maritime community as well as policymakers in developed countries. Potential threats of maritime terrorism in the Straits have received worldwide attention, especially since the 9/11 attacks in the United States. Recently, navigation safety in the Straits has been creating less sensational media coverage than such security issues as the existing threat of piracy and the potential threat of maritime terrorism. However, the risk of accidents, such as collisions and groundings, has been a constant worry to the littoral states and the shipping community. It is this real and present threat that affects the dayto-day operation of ships plying the Straits and has the potential to harm economic activities dependent on smooth and efficient flow of materials and products. Furthermore, accidents involving ships in the Straits, particularly crude oil carriers, sometimes cause oil spills that can damage the marine environment of the coastal regions along the Straits. According to various newspaper reports and press releases by maritime authorities, a considerable number of accidents involving ships have occurred in the Straits in recent years. There were no fewer than fifty-three collisions in the Straits from 1999 to 2007. Over the same nine-year period there have been eleven grounding incidents. The following is a sample of the major accidents that have occurred in recent years. In January 2003, the Singapore Naval vessel RSS Courageous collided with a container vessel and sank off Horsburgh Lighthouse in the eastern Singapore Straits. Four crew members lost their lives in the accident. In May 2004, a large car carrier MV Hundai 105 (40,772 GT) collided with a large crude tanker MV Kaminesan (159,813 GT) while transiting through the Singapore Straits. After the collision, it sank, along with about 4,000 cars on board. In June 2005, bulk carrier Everise Glory (13,519 GT) collided with a container vessel (12,405 GT). As Everise Glory sank in a position where she may have affected the safety of transiting

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vessels, the governments of Singapore and Malaysia decided to remove the wreck. The Straits have repeatedly experienced oil spill incidents over the years because of their status as one of the world’s largest oil routes. The Evoikos accident that occurred in October 1997 is a well-known example of a major oil spill. The oil tanker collided with a VLCC and caused 28,500 tons of oil to spill into the ocean. This resulted in tremendous damage to local fishing communities. The risk of such accidents continues to be high in the Straits due to their physical characteristics and traffic patterns. Looking at an ordinary map, the Straits do not look that narrow. Southwest of Singapore, where the Straits are at their narrowest, there is a distance of as much as 4,000 meters. Seen on a navigational chart, however, the corridor turns out to be only 600 meters wide corridor for VLCC, which has a draft of as much as 20 meters. This is because the Straits have a number of shoals, rocks, and wrecks in the main navigation lanes, which, for the sake of safe navigation, should be avoided by large vessels with deep drafts, such as VLCC. With 130,000 vessels per year calling port of Singapore, the traffic density is especially high in the Straits of Singapore. Moreover, passing in the vicinity of the port can sometimes be quite risky because of complex traffic patterns as vessels passing through the Straits will encounter ships crossing the Straits to enter and leave port and other vessels that are passing the opposite way within the narrow traffic lanes.

Japanese Efforts for Straits Safety In the late 1960s, Japan began to cooperate with littoral states to improve navigational safety in the Straits. By then tankers had become larger, and were exceeding two hundred thousand tons. Vessels passing through the Straits, however, were still forced to depend on old navigational charts made by Britain and the Netherlands before World War II. It therefore became necessary to survey the Straits and update these charts. Since Japan established Malacca Straits Council in 1969, the council has implemented various projects, including hydrographic surveys, removal of shipwrecks, dredging works, installation and

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maintenance of aids to navigations (buoys, lighthouses, etc.), and the donation of buoy tender vessels specially designed to facilitate maintenance works on aids to navigation. In addition, Japan Coast Guard provided technical assistance for the littoral states in the area of navigational safety. In order to help littoral states prepare for and respond to oil spills, the “Revolving Fund” was established in 1981 to finance initial cost for combating such incidents. In addition, the OSPAR (Oil Spill Preparedness and Response) project provided six ASEAN countries, including the littoral states, with oil spill combating equipment and an information network system. Japan’s total financial support so far amounts to about US$130 million. About three-fourths of the fund has come from the Nippon Foundation. The other contributors are the Japan Maritime Foundation and associations related to the shipping, oil, marine insurance, and shipbuilding industries. The Japanese government also made some financial contribution in the initial stages. While these initiatives were coordinated by the government, Japan’s contribution is very unique in that funding for the projects mainly came from private organizations such as the Nippon Foundation. When Japan began working with the littoral states, there was strong concern over sovereignty and a high sensitivity toward Japan’s involvement as the projects were being implemented in the territorial waters of these littoral states. Cooperation in the form of private initiatives enabled Japan and the littoral states to avoid politicizing the matter and successfully implement the projects. Japan has long been the only country that assisted the littoral states in developing and maintaining aids to navigation. However, given that traffic volume continues to increase rapidly and now a wider range of countries receives benefit, it is equitable for the other user states and stakeholders to shoulder the burden for ensuring navigational safety in the Straits.

Littoral States’ Efforts for Safety of the Straits The littoral states set up a forum called the TTEG (Tripartite Technical Experts Group) to discuss matters related to navigational safety and

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environmental protection. The littoral states have been working together and have succeeded in upgrading safety measures in the Straits through amicable talks within the TTEG framework. The Traffic Separation Scheme (TSS) proposed by the littoral states was adopted by the Inter-Governmental Maritime Consultative Organization (IMCO), the predecessor of the IMO that came into force in 1981. At that time the TSS was applied in three zones, namely, One Fathom Bank Zone, Horsburgh Lighthouse Zone, and the Island of Singapore Zone. In 1998, the TSS was extended to cover the whole Straits area from One Fathom to Horsburgh Lighthouse to cope with increasing traffic. Thus, it became the world’s longest TSS, at a length of five hundred kilometers. Introduction and extension of the TSS was made possible by the projects jointly completed by the littoral states and Japan, such as hydrographic surveys and installation of aids to navigation. In addition to the introduction of TSS, the mandatory ship reporting system known as STRAITREP was also adopted by the IMO and introduced in 1998. Under STRAITREP, ships not less than 300GT navigating the Straits must provide information to the maritime authorities of the littoral states. The authorities can monitor the ships by radars and provide assistance and advice to the ships if necessary to ensure navigational safety. These measures taken by the littoral states have helped greatly to reduce accidents. They now constitute a major part of the navigational safety system in the Straits. Despite these measures there have still been a considerable number of accidents in the Straits, damaging ships and cargos, claiming the lives of seafarers, and affecting the safe passage of other ships. In view of rapid increase in traffic expected in the near future, it is vital to further enhance the safety of navigation in the Straits. As it is clear that energy transportation will sharply increase in the coming decades, the risk of oil spills is also expected to become much greater. Furthermore the transportation of hazardous and noxious chemical substances through the Straits is likely to increase with continued economic development in Asian countries. Inevitably, the littoral states will need to enhance their preparedness and capacity to respond to oil and chemical spills.

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As a major part of the Straits lies in the territorial waters of the littoral states, these states should play a primary role in implementing measures for ensuring safety and environmental protection. However, as it would not be fair for only the littoral states to shoulder the burden for implementing the necessary measures, user states and relevant industries should provide support and share the costs of navigational safety and environmental protection. The issue of cooperation between the littoral states and users will be addressed in the latter part of this chapter. So far this chapter has analyzed the traffic volume, energy flow, and the status of accidents in the Straits. Little information has been publicized by maritime authorities in the region on such matters. On occasions even information on major accidents has not been released by the relevant organizations. It would be desirable for the littoral states to provide more information on navigational safety in the Straits so that users can correctly interpret the current situation. This may also be also beneficial for mariners in navigating with caution near accident-prone areas. Moreover, it could help the littoral states to seek assistance from user states and industries.

Littoral States’ Antipiracy Efforts There have been grave concerns over security in the Malacca and Singapore Straits, particularly since the devastating 9/11 attacks in the United States. Adding to the existing and real threat of piracy and armed robbery, some security analysts also emphasize the threat of potential terrorism in the Straits. Some of the littoral states, however, are more inclined to conclude that their maritime enforcement agencies have the issue of piracy and armed robbery under control, and that the risk of terrorism is hype and exaggeration created by the big powers with the intention of interfering in the security affairs of the region. Which one is true? In order to address security issues adequately, it is essential to understand the situation as it stands through analysis of accurate facts and figures. Piracy and armed robbery at sea have become rampant in the seas of Asia, especially since the late 1990s. According to statistics by the International Maritime Bureau (IMB), 263 such inci-

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dents occurred all over the world in 2007. Incidents in Southeast Asia accounted for about 26 percent of total at 69 cases, making this region the world’s hotspot for piracy and armed robbery. In 2004, there were 46 cases in the Straits of Malacca and Singapore, 94 in Indonesian waters (excluding the Straits), and 9 in Malaysian waters (excluding the Straits). In 2007, there has been much improvement with 10 cases in the Straits, 43 in Indonesia, and 9 in Malaysia. Some specialists have concluded that countermeasures, including intensified patrols by maritime security agencies, have led to the recent reduction in cases of piracy. The Straits of Malacca and Singapore, labeled as a “War Risk Area” by the Joint War Committee of Lloyd’s Market Association since June 2005, were de-listed in August 2006. The littoral states seem to have made serious efforts to control piracy, including the initiation of joint air patrol “Eyes in the Sky” in September 2005. This is to complement “MALSINDO,” a coordinated trilateral maritime patrol introduced in July 2004, when the states were struggling to have the Straits removed from the infamous list. It is difficult to determine how effective antipiracy initiatives, such as coordinated maritime patrols from sea and air, have been, and to what extent they were actually put into action. But some experts have said that operations focused on specific hotspots have worked. Naturally, the decrease in incidents is good news. However, pirates are still operating in the region, with more armed with knives and guns, and occasionally injuring, kidnapping, and killing seafarers. The hijacking of ships was rampant in late 1990s. However, tracking systems like “ShipLoc” and an effective network comprised of ship owners, maritime security agencies, and the IMB have made it easier to trace and recover hijacked ships. In recent years, the kidnapping of crew for ransom has become a more popular modus operandi for these criminals. There have been numerous cases of armed pirates boarding navigating slower ships with lower deck, such as tugs and barges, to abduct crew and make a quick escape. Some officials in the littoral states say that the risk of piracy is surprisingly low given the probability of attack is only 0.07 percent. They insist that even in 2004, the year with the highest number of incidents, there were only 46 cases among the 63,636 vessels transiting the Straits. However, the situation should not be taken so lightly.

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Once ships are attacked, the safety and lives of the crew are frequently threatened. It is not appropriate to regard this issue as a matter of probability. The littoral states should not be complacent about piracy and armed robbery, and should continue to make every effort to prevent such incidents.

Japan’s Antipiracy Efforts Japan has been greatly concerned by the cases of rampant piracy, particularly in Southeast Asia where critical sea lanes such as the Straits of Malacca and Singapore are located. Japanese ships have often been attacked in the region. The Japanese-operated cargo vessel Alondra Rainbow was hijacked in the Straits of Malacca in 1999. The seventeen crew of the vessel, including two Japanese, were forced to board an emergency boat and dropped into the sea. The crew floated for as many as eleven days, and nearly lost their lives. Fortunately, they were finally rescued in Thai waters by local fishermen. After this case attracted much public attention, Japan began to actively cooperate with other Asian countries to combat piracy and armed robbery in the region. The Regional Conference on Combating Piracy and Armed Robbery against Ships was proposed by the then Japanese prime minister Kenzo Obuchi at the ASEAN Summit Meeting held in Manila in November 1999. The conference was held in Tokyo in April 2000 and was the first international gathering of head of maritime security agencies, maritime policy authorities, representatives of shipping associations in the region. The resolution “Asia Anti-Piracy Challenges 2000” was adopted at the conference, affirming the importance of each country’s actions as well as cooperation between relevant organizations. Based on this resolution, Japan has been implementing various projects with the relevant agencies and authorities in the region. These joint projects include visits by patrol vessels for coordinated antipiracy maritime exercises and other interchange programs, the holding of experts meetings and heads of coast guards meetings, seminars on controlling maritime crimes, and the enrollment of officers from other Asian countries in the Japan Coast Guard Academy.

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At the ASEAN Summit Meeting held in Brunei in 2001 Japan also proposed that Asian countries should establish a legal framework to combat piracy. After negotiations initiated by Japan, Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) was adopted in November 2004, and came into force in September 2006. Fourteen countries have signed the Agreement by the end of 2006. The Information Sharing Center (ISC) was officially set up and a Japanese diplomat was selected the first executive director of the ISC in the first ReCAAP Governing Council meeting held in December 2006. Japan will continue its support to the other Asian countries through the framework of ReCAAP. Over this matter two points should be emphasized for a better understanding of Japan’s philosophy on antipiracy cooperation. First, these initiatives have been implemented not by military forces, but by the Japan Coast Guard (JCG) and MLIT, partly supported by the Nippon Foundation. Although the navies are key players in antipiracy initiatives in the ASEAN region, such as patrols, surveillance, and apprehension, Japan understands that the problem of piracy must be seen as a matter of maritime law enforcement, and therefore should be handled by such civilian agencies as the coast guard and marine police. The engagement of a civilian agency such as the JCG seems to have put to rest any anxiety that Japan may reemerge as a military power in Southeast Asia, and therefore led to acceptance of Japan’s cooperation by other Asian countries. Second, Japan has chosen not to participate in actions such as patrols and suppression of piracy in the territorial waters of other Asian countries. The littoral states have demonstrated a high level of sensitivity over territorial integrity and sovereignty. The repeated visits of JCG patrol vessels to Asian countries aim to participate in coordinated exercises and other mutual interchange programs, but do not aim to conduct patrols in the territorial waters of countries bordering the Straits of Malacca and Singapore. Instead of taking direct action in these territorial waters, Japan has been providing technical assistance to maritime law enforcement agencies so that they may further enhance their own capacities. Japan has therefore managed to address regional sensitivities in undertaking a variety of projects with

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its counterparts in Southeast Asia. Japan has so far been successful in building an amicable relationship with other Asian countries in the area of antipiracy cooperation. No other country has exercised such leadership in creating a framework of cooperation to combat piracy in Southeast Asia. The littoral states of the Straits have continued to reinforce antipiracy measures over recent years. Patrols at sea have been strengthened and pirates have been prosecuted for their crimes. Although the number of piracy cases has decreased, any weakening of law enforcement will see the resurgence of criminal operations. It is of great importance that these countries keep up the momentum on initiatives. Moreover, the context of maritime crime should be carefully taken into account. The problem of piracy has a close linkage with the issues of poverty and political and economic marginalization. Many of the offenders are believed to be poor fishermen from coastal villages in the less developed regions. In order to eradicate piracy at its source, it is essential for the littoral states and users to address the issue of regional economic development so that these people can earn decent livelihoods without engaging in criminal activity.

Threat of Maritime Terrorism Some security experts have issued warnings about the possibility of maritime terrorism in the Straits of Malacca and Singapore. But how probable is this threat? The littoral states offer differing observations on the probability of such incidents. Singapore has firmly insisted on previous occasions that the threat of maritime terrorism is real and present, though it fell silent after the Joint War Committee classified the Straits as a war-risk area in June 2005. Undoubtedly, Singapore gains numerous benefits from safe and secure passage through the Straits due to its status as the world’s biggest maritime hub. It has been making significant efforts to secure its port by introducing measures such as the early implementation of the ISPS code (International Ship and Port Facilities Security Code; an amendment to the SOLAS Convention), thorough monitoring of its port and neighboring waters, and the introduction of a low-cost tracking system for harbor craft.

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(These small vessels are exempted from obligations covering the installation of the Automatic Identification System or AIS). On the other hand, Indonesia and Malaysia argue that the “threat of terrorism” is simply hype created by the big powers (on occasions, naming the United States, which often becomes the target of antipathy by these Muslim-dominated countries) and is just an excuse for these powers to exercise military powers in their territorial waters and infringe upon sovereignty. What is the basis of claims about the probability of maritime terrorism in the Straits, and exactly how reasonable are such claims? Internationally, there have been some recent examples of maritime terrorist attacks. In 2000, the U.S. navy destroyer USS Cole was hit by a speedboat loaded with explosives off Aden, Yemen. The blast killed seventeen sailors and wounded forty. In 2002, the French tanker Limberg went up in flames after suicide bombers rammed the ship using a small boat, again off Aden. The blast caused the spill of about ninety thousand barrels of oil. Both attacks are believed to have been plots by the world’s most notorious terrorist group, al-Qaida.6 These events heightened concerns over maritime terrorism, and then the United States proposed an accelerated adoption of the U.S.-proposed ISPS code at the IMO. Such maritime terrorism has yet to happen in the Straits. However, Jemaah Islamiyah, an ally of al-Qaida, has been operating in Southeast Asia. This group has allegedly drafted multiple terrorist attacks including those on large crude carriers within the Port of Singapore. This Port and the Straits of Malacca and Singapore are likely targets according to security experts because of their pivotal role in the global sea transportation network. Moreover, these experts say that Singapore, sandwiched between two Muslim-dominated countries, is regarded a loyal U.S. ally and therefore may be attacked by Islamic fundamentalist groups. If such attacks were to be carried out, experts assume that crude carriers, LNG tankers, or cruise liners navigating the Straits could fall prey to terrorists because of the magnitude for potential damage and the high associated publicity. Suicide attacks by small boats, like that of the USS Cole and the Lindberg, are said to be a possibility. If terrorists succeed in sinking a vessel in the narrowest chokepoint of the Straits, experts say, closure of the Straits would

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disrupt interregional sea transportation and thus bring about a disastrous impact on the regional and even global economy. Shipping costs for detoured vessels (adding a further two–three days to journeys) will increase, as will increase insurance premiums. Another nightmare scenario is the hijacking of a large vessel carrying highly flammable cargo such as crude oil or LNG, and ramming of this vessel into the business center of Singapore or its petrochemical facilities to create, so to speak, a maritime version of the 9/11 attacks. Singapore has already taken some countermeasures against these kinds of attacks. Many assumptions can be made on the risk of terrorist attack in the Straits. It is true that sea transportation is more vulnerable than air transportation in terms of accessibility to targets. Nevertheless, there have so far been very few cases of ships being targeted by terrorists in Southeast Asia, except for a small number in the Philippines. In contrast, major terrorist acts involving numerous people have occurred on land, such as bombings in Jakarta (in 2003 and 2004) and Bali (in 2002 and 2005). It would be much easier to detonate explosives at targets on land such as rail transportation systems or congested shopping malls. Although the Straits has some narrow bottlenecks, it would not be easy to fully block passage in the Straits using a stricken ship as there would still be room for transiting ships to maneuver through, even at the narrowest points. Moreover, some specialists believe that the use of crude oil or LNG tankers as “floating bombs” would be difficult, from a technical perspective, as it would take a significant explosion to blow up such a vessel. LNG tanks are situated at a distance from the outer skin of the ship, and could resist disruption from most collisions.7 There is little doubt that the maritime authorities and maritime security agencies of the littoral states, as well as the shipping companies operating in the Straits, should continue to be vigilant and monitor every type of potential threat. However, when addressing the issue of maritime terrorism, it is necessary for us to keep a cool head and make a distinction between vulnerability and probability.

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Latest Development: Comprehensive Cooperative Framework As mentioned earlier, it is of significant importance to keep the Straits of Malacca and Singapore safe, pollution-free, secure, and open to international navigation. The safety and security of the Straits is a matter of public concern due to the real threats of accidents, marine pollution, piracy, and armed robbery, and the potential threat of terrorism. It is the littoral states that are primarily responsible for safety and security of the Straits. However, considering the heavy burden laid on the littoral states and the great benefits enjoyed by users of the Straits, it seems unfair that only littoral states shoulder the burden for managing the Straits. The idea of burden sharing between the littoral states and users of the Straits used for international navigation is provided for in Article 43 of the 1982 United Nations Convention on Laws of the Sea (UNCLOS). Since UNCLOS came into force in 1994, many discussions have taken place on this issue, but mainly by the littoral states themselves. A series of international meetings were held between 1994 and 1999 by the MIMA (Maritime Institute of Malaysia) in Malaysia as well as the IPS (Institute of Policy Studies, Singapore) and IMO in Singapore to discuss how the littoral and user states could cooperate to manage the Straits. In spite of these efforts, little development had been made on commitment by the user states to the issue of cooperation as they showed little interest. Japan continued to be the only contributor to safety of navigation in the Straits. In October 2004, MIMA organized the “Conference on the Straits of Malacca” in Kuala Lumpur. Surprisingly, an official of the Chinese Foreign Ministry expressed willingness to cooperate with the littoral states at the conference for the first time. China appeared to change its mind because it had become concerned by security in the Straits. China is said to depend on the Straits for about 80 percent of its oil supply. With rapid economic growth it now consumes and imports much more oil than ever before. China has surpassed Japan, and is now the second biggest oil importer in the world. Once China showed a positive response to cooperation in the Straits, more and

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more user states have shown their readiness to support the littoral states. The littoral states convened a series of TTEG-User States meetings in December 2004 and March 2006. The 2004 meeting was the first meeting where littoral states and users met to consider how to cooperate in the area of navigation safety under the situation that users are willing to do so. In addition, the IMO initiated another series of meetings in partnership with the littoral states in Jakarta in September 2005, in Kuala Lumpur in September 2006, and in Singapore in 2007. At the Kuala Lumpur meeting, the littoral states proposed six projects to enhance navigational safety and environmental protection in the Straits. Japan, China, the United States, Republic of Korea, Australia, and United Arab Emirates have shown their willingness to support some of these six projects by the Singapore Meeting. At the Singapore meeting the littoral states, user states, and other stakeholders agreed on the Cooperative Mechanism, which comprised of the Cooperation Forum, the Project Coordination Committee and the Aids to Navigation Fund. It was expected that the Cooperative Mechanism will be established as early as 2008. In the area of navigational safety, Japan has been cooperating with the littoral states for more than thirty years. At the Singapore Meeting, the Japanese government pledged to support two of the six projects and the Nippon Foundation made its commitment to contribute to the Aids to Navigation Fund. Japan is ready to continue its cooperation with the littoral states in the area of safety of navigation, fully utilizing its experience attained through long history of its cooperation in the Straits. Japan’s funding provided in the past was raised mainly by the private sector, namely, the Nippon Foundation, the shipping, petroleum, and other industries. Private bodies, such as the shipping industry, could play an important role in a framework for cooperation, as they are both direct users and beneficiaries. Also, it is becoming more commonly accepted that even private companies should embed “Corporate Social Responsibility” (CSR) into their business practices. In particular, the shipping industry could contribute to an improvement of navigational safety measures as a part of its CSR activities.

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It is expected that shipping industry will be actively engaged in cooperation in the Straits. In order to maximize the benefits of projects for navigational safety and environmental protection, these projects should be prioritized through consultations between the littoral and user states. This would ensure a consistent and efficient approach. It is essential that the Project Coordination Committee will function as an effective system for such consultations. The Cooperative Mechanism will be established under the principles of international law, and above all, adhere to UNCLOS and respect the sovereignty of the littoral states. However, the concept of sovereignty has sometimes conflicted with the interests of the user states. It would be reasonable for users to be reluctant to contribute unless they have their say on management of related projects. However, some littoral states had been arguing that users’ involvement in the projects in the Straits would lead to an “internationalization of the Straits” that infringed on their sovereignty. Thus these littoral states would want to control the projects themselves. It is necessary for both the littoral states and user states to go through patient discussion to reach a positive and practical compromise in the process of operation of the Cooperative Mechanism. Despite these existing issues, given the aforementioned noticeable progress in regional cooperation over safety and security of the Straits, we can maintain a sense of optimism that this vital shipping artery will remain open and continue to bring forth economic growth in the region.

Notes 1. International Energy Agency, World Energy Outlook 2004 (Paris: OECD/ IEA, 2004), 118. 2. See “Type and Total of Vessel Report to Klang VTS from January 1999 to December 2010,” posted at the website of the Marine Department of Malaysia at http://www.marine.gov.my/service/statistik/BKP/total_ report_07.pdf (accessed March 28, 2008). 3. Lloyds Maritime Intelligence Unit is a division of Informa Plc, a FTSE 250 company. 4. METI, Energy in Japan 2006 (Tokyo: Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry, Japan, 2007).

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5. Institute of Energy Economics, Japan, Asia/World Energy Outlook 2006 (Tokyo: IEEJ, 2006), http://eneken.ieej.or.jp/en/whatsnew/ 395.htm. 6. Michael Richardson, A Time Bomb for Global Trade: Maritime-Related Terrorism in an Age of Weapons of Mass Destruction (Singapore: Institute of Southeast Asian Studies, 2004), 18. 7. Lloyd’s Register, “Statement on LNG risks from Lloyd’s Register North America, Inc.” http://www.lr.org/News+and+Events/News+Archive/2004/ Statement+on+LNG+risks+from+Lloyds+Register+North+America+ Inc.htm.

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8 Piracy and Energy Security in Southeast Asian Waters Ke Xu

Introduction Piracy was rampant in Southeast Asia in the early nineteenth century, following the European colonizers taking control of the seaborne trade with China, which provided tempting targets for pirates.1 The European colonizers took pains to suppress piracy in their domains. With the help of steamships and powerful firearms, the Europeans gained the upper hand over pirates. The large scale of piracy had dwindled at the beginning of the twentieth century. 2 However, starting from early 1990s, maritime piracy has made a dramatic comeback in Southeast Asian waters, especially in the Straits of Malacca. The Straits of Malacca remains the shortest sea route from the ports of India and the Persian Gulf to ports on mainland East Asia. Today, oil tanker traffic through the Straits of Malacca is more than three times that of Suez Canal traffic, and well over five times that of the Panama Canal. Annually, more than 1,100 fully laden supertankers travel eastbound through the strait. It was estimated that nearly 9.5 million barrels of oil transit the strait every day.3 Piracy in Southeast Asia threatens the security of energy transportation of East Asian countries. In Southeast Asia, piracy is characterized as a transnational crime and requires related states to cooperate in antipiracy operations. However, there are many obstacles

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to antipiracy cooperation that are yet to be solved. The following sections will examine these issues.

Definition Piracy, as maritime crime, has many definitions in the contemporary era. Currently, three definitions are well known: first is the definition in the UN Convention on the Law of the Sea (UNCLOS; 1982), Article 101; the second, the International Maritime Bureau Piracy Reporting Centre (IMB-PRC); and the third, the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP). According to the definition of Article 101 of the UNCLOS, piracy consists of any of the following acts: 1. any illegal acts of violence or detention, or any act of depredation, committed for private ends by the crew or the passengers of a private ship or a private aircraft, and directed; (i) on the high seas, against another ship or aircraft, or against persons or property on board such ship or aircraft; (ii) against a ship, aircraft, persons, or property in a place outside the jurisdiction of any state; 2. any act of voluntary participation in the operation of a ship or of an aircraft with knowledge of facts making it a pirate ship or aircraft; 3. any act of inciting or of intentionally facilitating an act described in subparagraph 2 or 3.

This definition applies only to any of the described illegal acts committed either on the high seas or outside the jurisdiction of any state. Thus, technically, any violent and illegal acts against ships or property and people on board ships taking place in ports or territorial waters do not fall under the definition of Article 101. The illegal acts taking place in ports or territorial waters are defined as “armed robbery against ships” by the International Maritime Organization (IMO) Code of Practice for the investigation of the Crime of Piracy and Armed Robbery against Ships.4 The IMB defined piracy as “an act of boarding any vessel with the intent to commit theft or any other crime and with the intent or capability to use force in the furtherance of that act.”5 This definition is much wider than the UNLOS Convention Article 101. It covers

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“actual or attempted attacks whether the ship is berthed, at anchor or at sea.”6 The Article 1 of ReCAAP, adopts the earlier mentioned two terms—piracy, as defined in UNCLOS Article 101, and the armed robbery against ships, as defined in IMO Code of Practice. Considering that few acts of piracy in Southeast Asia take place on high seas (rather, most of the attacks occur in territorial waters), this chapter adopts the IMB definition of piracy as the working definition, that is, “piracy” refers to both piracy as defined under Article 101 of the UNLOS and armed robbery against ships as defined by the IMO.

Sources on Contemporary Piracy There are three time-series piracy reports on contemporary piracy accessible to the public: IMB-PRC, IMO, and Information Sharing Centre (ISC) of ReCAAP. The IMB Piracy Reporting Centre (IMB-PRC) is a nongovernmental organization sponsored by shipping industry in Kuala Lumpur, Malaysia.7 The IMB-PRC has published annual reports since 1992. The IMB-PRC also provides weekly updates on pirate activities via the Internet. The IMB reports provide detailed information on locations of actual and attempted attacks, status of ships during actual attacks, the types of arms used, the type of violence, types of ships attacked, nationalities of ships attacked, and countries where victim ships were controls, as well as trend and highlight of piracy attacks. Thus, the IMB reports are widely used by researchers. IMO has also published reports on piracy and armed robbery against ships since 1995. The IMO data come from the shipping industry’s report, which are similar to IMB reports. The most recent new piracy reports are published by ISC, which was set up in Singapore in November 2006, pursuant to ReCAAP agreement, which will be elaborated later. The ISC data are collected directly from focal points of member states, but it only covers piracy and armed robbery against ships in Asian waters.8 Some countries in Southeast Asian countries, such as Indonesia and Malaysia, have their own classified data on piracy. Considering piracy as a sensitive issue, these countries are reluctant to release their data on piracy. Besides, newspaper reports, magazines, shipping columns,

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government gazettes, treaties, court cases, witness testimonials, photographs, and video reports are also important sources to gain an in-depth knowledge of piracy.

Piracy Trends (1990–2007) According to the IMB piracy reports, the number of incidents of piracy and armed robbery against ships in Southeast Asia kept increasing in the 1990s, culminated in 2000, and declined after 2004. The trend continues up to the present.9 The most piracy-prone areas are in Indonesian waters, the Straits of Malacca, and the South China Sea.

Typology of Pirates The majority of piratical attacks in Southeast Asia are perpetrated by small-scale criminal gangs. Their targets are vessels in port or anchorage, especially in Indonesian waters. Most pirates carry knives or machetes, aiming at cash and valuables on board. Their attacks are more opportunistic and less organized. Many pirates were Indonesian fishermen, living in coastal villages, who used piracy as a way of supplementing their inadequate livelihoods.10 In the late 1990s, international criminal syndicates got involved in piracy. These criminal syndicates feature well-trained personnel using fast boats, automatic weapons, and sophisticated communications. The syndicates have close links to the black market, where they would be able to dispose of their stolen cargo. They hijack ships, sell the stolen cargoes, repaint and reregister the ships under other names, and turn them into “phantom ships.” The phantom ships were used for all kinds of illegal activities, such as smuggling, drug or human trafficking, and marine fraud.11 To support their operation, the criminal syndicates are usually in collusion with the local law enforcement officers.12

The Victims Shipping industry, that is, the ships, cargoes, and crew, are the main prey of pirates. The bulk carriers, which carry large volume of energy cargoes such as coal, are the easy targets of pirates in Southeast Asia. Nearly a third of all attacks in Southeast Asia belong to this category. The reason is simple: bulk carriers travel at a limited speed and their

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freeboards are low, which are easier for pirates to board when they are underway. General cargo ships, container ships, and oil tankers are also vulnerable because they have to slow down when passing through the Straits of Malacca and Singapore. Furthermore, fishing vessels and tugs frequently ply closer to the coast, also making them easy targets for pirates.13

Piracy and Energy Transportation Piracy endangers security of the energy transportation from two aspects: disruption of energy supply and increase in the cost of energy transportation. The serious piratical attacks, such as earlier mentioned phantom ship, not only hijack ships, but also steal cargoes. Bulk carriers and oil tankers, which are heavily loaded with energy products, are vulnerable to piratical attacks when passing through the Straits of Malacca and Singapore. These ships are on the top of victim ships list, amounting to over half of the total number from 2003 to 2007.14 Furthermore, one dangerous scenario is that pirates killed or hijacked all the crew on board during the attack, and abandoned the ship in the Straits of Malacca. The unmanned ship might cause the collision with other ships in the congested channels in the Straits, thus cutting off traffic passing through the Straits. If the Straits were closed, ships have to use the alternative route via Sunda and Lombok–Makassar Straits, the transit time and distance for the passing fleet would increase by two–three days, and freight rate will increase nearly 20–30 percent than that while using the Straits of Malacca.15 Not surprisingly, Japanese policymakers regard piracy as a direct threat to Japan’s comprehensive security, including economic security, energy security, and the safety of Japanese citizens.16 The Japanese media has been reporting intensively on piracy incidents related to Japan, such as the MV Tenyu (1998), MT Global Mars (2000), Arbey Jaya (2001), and MV Alondra Rainbow (2002).17 China also depends on the oil import from the Middle East, as half of China’s oil import comes from the Middle East through the Straits of Malacca in 2003. The trend will continue till 2020.18 The piracy in the Straits of Malacca thus threatens the security of energy supply of China as well.

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Antipiracy Cooperation in Southeast Asia A primary approach to reducing the threat of piracy to the security of energy transportation in Asia is to suppress piracy in the Southeast Asian waters. Piracy in Southeast Asia is generally a transnational crime involving parties or processes in more than one country. As such, the suppression of piracy requires cooperation from related states. The antipiracy cooperation in Southeast Asia can be divided into two phases. In Phase One (1992–2001), antipiracy cooperation was characterized by low-profiled bilateral and multilateral cooperation among the ASEAN and East Asian countries. Japan played an important role in antipiracy initiatives. In Phase Two (2002–to date), after the 9/11 terrorist attacks on America, the allegation of piracy and terrorism nexus has raised the concerns of the world, the United States and other user states of the Straits of Malacca began to take active actions to enhance maritime security.

Phase One (Before 9/11) Since the early 1990s, there have been a number of bilateral and multilateral cooperation initiatives among the littoral countries. In 1992, bilateral agreements were signed between Singapore and Indonesia on coordinated naval patrols and periodic antipiracy exercises in the Straits of Malacca and Singapore Straits.19 In December 1992, Indonesia and Malaysia established an operational co-coordinating border arrangement to deal with maritime issues arising along the common border, including co-coordinated maritime patrol operations in the Straits of Malacca. The arrangement also aimed at enhancing bilateral cooperation in combating illegal activities. 20 There has also been similar cooperation between Malaysia and Singapore in which the police departments of the two countries share information and discuss maritime issues and criminal activities. The issue of piracy in Southeast Asia was raised at the ASEAN workshops in 1990. However, little progress was made, and the piratical attacks kept on increasing in Southeast Asian waters. In 1997, the first ASEAN Conference on Transnational Crime was held in Manila. At that conference, the participating countries signed the ASEAN Declaration on Transnational Crime, the first such

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document to include piracy as an issue for the entire membership to consider. 21 Japanese Antipiracy Initiatives Since the late 1960s, the Japanese have been funding littoral states to improve navigation safety in the Straits of Malacca, including the installation and maintenance of navigation aides, such as marine safety data management systems and buoys, and hydrograph survey.22 These assistance programs were carried out both by the Japanese government and a private organization, the Nippon Foundation. In November 1999, at the ASEAN Plus Three Summit in Manila, Japanese prime minister Obuchi proposed that Japanese Coast Guard (JCG) vessels should carry out joint patrols with Southeast Asian maritime forces.23 The following year, two antipiracy conferences were held in Tokyo. Delegates from seventeen countries, regional maritime law enforcement agencies, ship-owners’ associations, and IMO attended at the conferences. Although no state supported Japanese patrols in foreign waters, Japan did reach bilateral arrangements with littoral states by offering antipiracy training. In November 2000, the JCG conducted antipiracy training exercises with India and Malaysia. In 2001, Japanese proposed a regional “Maritime Coalition” that would include Japanese Maritime Self-Defense Force (JMSDF) vessels in a multinational maritime security force. But the proposal was declined by the related countries. 24 In short, in Phase One, antipiracy cooperation mainly took place among the ASEAN countries and East Asian countries (namely, China and Japan). Japan was enthusiastic about antipiracy cooperation and put forward many antipiracy proposals. Japanese antipiracy proposals reflected Japanese priorities—protection of the security of energy supply, economic security, and the safety of Japanese citizens. Furthermore, antipiracy operation also served as a vehicle to expand Japan’s overseas presence and further normalize Japanese security policies. The current Japanese constitution restricts the Self-Defence Force (SDF) from operating in a traditional military manner, and the JCG is also restrained by antimilitarist prohibition. 25 China was suspicious of Japanese intentions regarding its antipiracy proposals, and claimed that Japan was attempting to use piracy as an excuse to flex its military muscles in Southeast Asia. China thus

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strongly opposed the Japanese proposals for joint patrols and multilateral solutions. The littoral states, considering Japan as a counterbalance power against China, have been willing to cooperate with Japan for pragmatic reasons. However, Indonesia and Malaysia worry about the erosion of their sovereignty and prestige in antipiracy cooperation. These perceptions were reflected in their rejection of Japanese proposals for a standing Ocean-Peace Keeping (OPK) fleets and joint patrols. 26

Phase Two (Post-9/11) After the events of 9/11, the allegation of terrorism and piracy nexus evoked further concern from the world. The United States and other user states of the Straits of Malacca began to integrate antipiracy operation as a component of antiterrorism at sea. Against this backdrop, the littoral states were under great pressure to combat piracy, and a good number of regional multilateral antipiracy operations has been implemented. In 2002, the Malaysian and the Philippine navies conducted a sixday joint military antipiracy exercise. In 2002, Indonesia, Malaysia, and the Philippines signed a trilateral security pact to bolster cooperation on transnational crime issues. In February 2003, Indonesia and the Philippines conducted antipiracy drills with Japan, similar to those held between Malaysia and the Philippines. 27 On July 20, 2004, Malaysia, Singapore, and Indonesia launched new coordinated patrols, Trilateral Coordinated Patrols, or MALSINDO, the new coordinated patrols that involve year-round patrols in the Straits of Malacca.28 On May 27, 2005, the Republic of Singapore Navy (RSN) and the Indonesian Navy officially launched Project SURPIC (Surface Picture) in Batam. SURPIC is a sea surveillance system that allows the RSN and Indonesian navies to exchange information, and share common real-time sea situation pictures of the Singapore Strait. 29 In 2005, three littoral states, together with Thailand, began coordinated air patrols, or “Eyes in the Sky,” over the Straits of Malacca. The aerial patrols provide a valuable supplement to the earlier mentioned MALSINDO patrols carried out by the navies of the littoral states. It was reported that the aerial patrol planes can fly over three nautical miles inside the territorial waters of the participating states, while in the sea patrols the navies were only limited to patrolling in

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their own territorial waters. Malaysia has also announced that its navy plans to buy up to sixty modern patrol vessels over the next decade in order to strengthen maritime security in its waters.30 China’s Responses China showed great concern on the maritime security in the Straits of Malacca after 9/11. In 2002, China and ASEAN reached consensus on the Declaration on the Conduct of Parties in the South China Sea, which not only reaffirmed both sides’ commitment to maintain peace and stability of the region, but also the willingness to enhance cooperation on maritime environment protection, maritime transport, and navigation safety, and fight against transnational crimes at sea. China and ASEAN signed a memorandum of understanding (MOU) on Cooperation on Non-traditional Security Issues in 2004. 31 In 2004, China–ASEAN Prosecutors-General Conference was held in China, and both sides agreed to work together in the fight against crimes, including maritime transnational crimes.32 ReCAAP Shortly after 9/11, Japanese prime minister Junichiro Koizumi, at the ASEAN Plus Three Summit in Brunei in November 2001, proposed to set up a government-level working group to draft a regional antipiracy cooperation agreement. Negotiations on this issue continued for three years. Eventually, the ReCAAP was concluded in Tokyo in November 2004 among representatives of the ten ASEAN states (Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Malaysia, Philippines, Singapore, Thailand, and Vietnam), China, Japan, South Korea, India, Sri Lanka, and Bangladesh.33 The key pillar of ReCAAP was the establishment of the ISC, which aimed to facilitate communication and information exchange among member countries, as well as to improve the quality of statistics and reports on piracy and armed robbery against ships in the region. Singapore was chosen as the host country of the ISC. The ISC was officially launched in November 2006 in Singapore. According to the ReCAAP agreement, the ISC consists of the Governing Council and the Secretariat. The Governing Council comprises one representative from each contracting party and will meet at least once a year in Singapore. A Japanese diplomat, Yoshiaki Ito, was appointed as the

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first executive director of ISC by the Governing Council during its first meeting held in Singapore from November 28 to 30, 2006. 34 It is noteworthy that the two important littoral states, Indonesia and Malaysia, have yet to ratify the ReCAAP agreement. ASEAN Regional Forum The ASEAN Regional Forum (ARF) is an informal multilateral dialogue group of twenty-five members that seeks to address security issues in the Asia-Pacific region. ARF countries, comprising the ten ASEAN countries, China, Japan, South and North Korea, Mongolia, India, Pakistan, New Zealand, Australia, Russia, Papua New Guinea and Timor Leste, the United States, Canada, and European Union, represents approximately 80 percent of the world GDP and trade.35 After the 9/11, the ARF adopted the Statement on Cooperation against Piracy and Other Threats to Maritime Security at its ministerial meeting in Phnom Penh in June 2003. 36 In the statement, the participants of ARF seek to achieve effective implementation of the following relevant international instruments and recommendations/ guidelines for the suppression of piracy and armed robbery against ships: ●

●

●

●

●

The United Nations Convention on the Law of the Sea 1982 (UNCLOS 1982); The Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation 1988 (the SUA Convention); Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms Located on the Continental Shelf (the SUA Protocol); The International Maritime Organization’s recommendations and guidelines for preventing and suppressing piracy and armed-robbery against ships at sea; The International Convention for the Safety of Life at Sea 1974 (the SOLAS Convention); particularly the new Chapter XI-2 and the International Ship and Port Facilities Security Code. 37

Asian Security Summit (Shangri-La Dialogue) In May 2002, Singapore hosted the first Asian Security Summit (Shangri-la Dialogue) in the Shangri-la Hotel. The Shangri-la Dialogue is an informal forum organized by the London-based International Institute of Strategic Studies (IISS). Since the inaugural meeting, the Shangri-la Dialogue has become a key multilateral event for defense

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and security dialogue in Asia-Pacific region because its informal setting of Shangri-la Dialogue has “facilitated a frank exchange of views, and allows new concepts to be floated and discussed.”38 At the third Shangri-la dialogue in June 2004, the United States expressed its intention to retain its “forward presence” in the AsiaPacific region, and seek to update its military–strategic doctrines through Regional Maritime Security Initiative (RMSI). The goal of RMSI is to “develop a partnership of willing regional nations with varying capabilities and capacities to identify, monitor, and intercept transnational maritime threats under existing international and domestic laws.”39 Singapore welcomed American involvement in security in the Straits of Malacca, but Indonesia and Malaysia rebuffed U.S. offers to provide intelligence, conduct joint patrols, and send U.S. Marines into their territorial waters.40 IMO and Antipiracy Cooperation In the wake of 9/11, the IMO, at its Assembly held in November 2001, called for a review of the existing international legal and technical measures to prevent and suppress terrorist acts against ships at sea and in port, as well as to improve security aboard and ashore. After the IMO Assembly, a Diplomatic Conference on Maritime Security was held, from December 9 to 13, 2002, which was attended by 109 contracting governments to the 1974 International Convention for SOLAS. The Conference adopted a number of amendments to SOLAS and the new International Ship and Port Facility Security Code (ISPS Code). The ISPS Code contains detailed security-related requirements for governments, port authorities, and shipping companies in a mandatory section (Part A), together with a series of guidelines about how to meet these requirements in a second, nonmandatory section (Part B). The Conference also adopted a series of resolutions designed to add weight to the amendments, not covered by the ISPS Code.41 In the Phase Two of antipiracy cooperation, the United States, in place of Japan, began to lead antipiracy operations in Southeast Asia. The allegation of piracy and terrorism nexus provides the United States with an excuse to intervene in Southeast Asia in the name of antiterrorism. Furthermore, China’s ascent in the recent decade has made it necessary for the United States to “re-energize” its relationship in Southeast Asia. U.S. policymakers have been taking into

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reckoning China’s desire for a blue-water fleet, which will operate beyond its shores to protect its security of energy supply, most of which is shipped through the Straits of Malacca.42 From a geopolitic perspective, if the United States can control the Straits of Malacca, it could not only combat the alleged terrorism, but also cut off the vital energy supplies to China, and thus deter China’s intention to launch cross-strait operations against Taiwan.

Obstacles in Antipiracy Cooperation National Interests, Priorities, and Incentives Indonesia, together with Malaysia and Singapore, is a signatory party of UNCLOS. It is one of beneficiaries of the UNCLOS. For instance, the “Archipelagic principle,” for which Indonesia has struggled for recognition since 1957, is confirmed by the UNCLOS (1982). Pursuant to the UNCLOS, Indonesia’s marine resources base has extended tremendously.43 However, Indonesia lacks sufficient capability of law enforcement to protect its vast maritime territory. There are many urgent maritime crimes need to be dealt with, such as smuggling, illegal fishing, and sand exploitation, which cause great loss for Indonesia. Smuggling causes the loss of US$1 billion per year; illegal fishing has been robbing an estimated US$2 billion a year44; and the illegal sand exploitation costs Indonesia more than two trillion rupiah each year.45 As a consequence, antipiracy operations are not on the Indonesian priority list. According to an IMB report, only a few victim ships of piratical attack belong to Indonesia, and the economic loss of Indonesian ships is little.46 Most of Indonesian policymakers are reluctant to use significant resources to what is perceived as a low-priority problem. Furthermore, the Indonesian government officials have been strongly opposing the IMB definition of piracy. Indonesian officials argued that piracy in IMB report is actually petty theft or burglary perpetrated in Indonesian ports and anchorages. They insist that the definition of piracy should be pursuant to Article 100 of UNCLOS: Piracy is an illegal act on the high seas or in any other place outside the jurisdiction of any state. Thus, the unlawful act, which takes place in territorial waters, is not an act of piracy, but an act of armed robbery against ships, which should be dealt with exclusively by littoral

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states, and subject to the principle of littoral states’ sovereignty and national security. The former Indonesian Navy admiral Bernard Kent Sondakh claimed that the piracy situation in the Straits of Malacca had been deliberately exaggerated, and that it was part of an international strategy to justify foreign intervention in Indonesia by portraying the country as weak and incapable of looking after its own waters.47 Facing budget constraints and insufficient maritime capability, the costs of antipiracy operations are too high; thus Indonesia lacked the incentives to implement them. For instance, setting up an antipiracy command and control center between the Strait of Singapore and Jakarta alone would cost Indonesia about US$38.5 million.48 Indonesian policymakers frequently cited the requirement Article 43 of UNCLOS that user and littoral states should share the responsibility for navigation safety in international straits, and complained that, apart from Japan, no user state was fulfilling its aid responsibilities, or the “Burden Sharing Scheme.”49 The Malaysian government strongly supports the Burden Sharing Scheme, urging other users of the Straits of Malacca, together with Japan, to share the cost of maintaining and enhancing maritime safety and security in the Straits of Malacca.50 Malaysia regards the user states of the Straits of Malacca who do not contribute to the maintenance of navigational facilities of the Straits as “Free Riders.” It is also unwilling to spend money on Free Riders. It was estimated that only about 10 percent tankers passing through the Straits of Malacca called at Malaysian and Indonesian ports, and these ships thus bought little economic benefits for these two littoral states. 51 Nevertheless, Malaysia’s economy relies increasingly on trade and the sea lines of communications in the Straits of Malacca and the South China Sea. The Malaysian government aims at redirecting the cargo traffic away from the Port of Singapore. Tanjung Pelapas Port, located about forty-five minutes from Singapore, was set up to compete with Singapore as the region’s hub port. Malaysia’s government also envisages Port Klang, the largest port in Malaysia, becoming the hub port for national and regional traffic.52 These two main ports are located in the Straits of Malacca; thus, the maritime security in the Straits of Malacca has a direct impact on the Malaysian economic prosperity. Furthermore, from the perspective of internal

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trade, Malaysia’s two geographically separated landmasses require the safe passage through the South China Sea. To safeguard the security in Straits of Malacca and the South China Sea is a priority task for Malaysian government. After 9/11, a new interagency Malaysian Maritime Enforcement Agency (MMEA) was set up in November 2005. The new agency, made up of personnel from the navy, police, and other government agencies, is responsible for ensuring the security of the country’s maritime zone against threats such as piracy and terrorism.53 Singapore depends on maritime trade for its economic survival. Freedom of navigation through the Strait of Malacca and the South China Sea is fundamental to the survival and prosperity of Singapore.54 To safeguard the sea lane passing through the Straits of Malacca is its top priority. After 9/11, the Singapore authorities are convinced that there exists the possibility of a piracy and terrorism nexus. In December 2001, Singapore arrested thirteen members of Jemaah Islamiyah terrorist group, and discovered that the group had made preliminary plans to conduct suicide attacks on the U.S. military vessels entering Singapore harbor. As a result, Singapore has expressed a great concern on the piracy issue and has high incentives to combat piracy. 55 In a nutshell, the divergent national interests, different priorities, and insufficient incentives on antipiracy issue in littoral states hinder antipiracy cooperation. What’s more, there are legal problems on antipiracy issues.

Legal Problems in Antipiracy Cooperation UNCLOS 1982 The UNCLOS 1982 is the main international law governing the law enforcement on piracy. It is also the legal basis for international antipiracy cooperation.56 Piracy is defined in Article 101 of the UNCLOS; the duty and obligation of every state to act against piracy are reaffirmed in Article 100; the right to seizure of a pirate ship or aircraft is provided in Article 105; and the right of warships to visit a foreign ship on the high seas when the ship is suspected to engage in piracy is provided in Article 110. It is noteworthy that Article 111 stipulates the right of “hot pursuit,” which provides a legal basis for responding to attempted acts of piracy. However, piracy perpetrated by terrorists

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for “political ends” at sea is excluded. After the Achille Lauro incident happened in 1985, the SUA Contention and the SUA protocol were signed in 1988 to cover the “political end” piracy and other unlawful acts. The SUA Convention and the SUA Protocol As the supplements of the UNCLOS, the SUA Convention and the SUA Protocol cover both political and private-end unlawful acts, and expand the definition of piracy to the unlawful acts committed on board a ship or on fixed Platforms (the SUA Protocol), particularly if the act is likely to endanger the safety of navigation.57 The SUA convention requires the state party to criminalize the unlawful acts under national law and to cooperate in the investigation and prosecution of perpetrators. In a comparison with UNCLOS, the important difference of the SUA Convention is on the scope of application: the SUA Convention also applying to the territorial waters. That means the right of boarding and searching a suspect ship stipulated in the UNCLOS Article 105 can be exercised within the territorial water of a signatory state. It empowers the law enforcement agencies to crack down on piracy. 58 Sovereignty Concerns of the Littoral States Although Malaysia and Indonesia are the signatory states of UNCLOS, they are not the signatory states of the SUA convention. As discussed earlier, the SUA Convention removes the obstacle of jurisdiction that has often hampered states from prosecuting pirates, who found sanctuary in their territory, under the UNCLOS. The SUA Convention empowers signatory states to conduct hot pursuit of the suspected pirate ships into other countries’ territorial waters, to extradite or prosecute pirates arrested in their territorial waters for crimes committed under the jurisdiction of other countries. Indonesia and Malaysia both have vast maritime territories; hence, they are concerned that their sovereignty will be eroded if they ratify the SUA Convention. Sovereignty concerns are reflected in the bilateral and multilateral antipiracy patrols among Indonesia, Malaysia, and Singapore. In contemporary Southeast Asia, there are two forms of antipiracy patrols—one is called “coordinated patrol,” which means

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that the law enforcement agencies coordinate while patrolling within their own territorial waters, but they cannot cross the national sea borders. Each of law enforcement agencies has its own commander. The other form is the “joint patrol”: the law enforcement agencies of all the participatory countries constitute one task force and patrol together under one commander and the task force is empowered to cross the national sea borders. 59 In Southeast Asia, the current bilateral or multilateral antipiracy operations are “coordinated” patrols rather than joint patrols, which does not allow for hot pursuit into a neighbor’s territorial waters. However, the practice is very problematic. Following this principle, the law enforcement agencies in the Straits of Malacca are likely to miss the best chance to catch pirates red-handed. In fact, in many cases, by the time the foreign counterparts arrive at the scene, the pirates have disappeared into the blue. The shipping industry strongly criticized coordinated patrols as “a potential cause for confusion, inefficiency and misallocation of resources.”60 Under this pattern, pirates can take advantage of jurisdictional limits and commit their crimes in territorial waters of one state and then flee into another country’s territory waters. However, if the patrol is the joint patrol, law enforcement agencies can undertake hot pursuit into the territorial waters of other countries, and the pirates cannot escape easily. In short, the coordinated patrol protects the sovereignty of the coastal countries, but reduces the effectiveness of patrol. Joint patrols obviously would be more effective, but owing to Malaysia and Indonesia not being the signatory parties to the SUA Convention, they cannot be implemented. The shipping industry and international communities have been appealing to Malaysia and Indonesia to ratify the SUA convention. However, there has been no further progress toward ratification of SUA Convention in Malaysia or Indonesia at the time of writing.

The Challenge Ahead After 9/11, the allegation of piracy and terrorism nexus in Southeast Asia has pushed the littoral states for some paradigm shifts on antipiracy policies. The littoral states, Malaysia and Indonesia in particular, have enhanced their maritime capabilities in order to show

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that they are capable of safeguarding their own waters and to prevent foreign navies from intervening in the name of protecting the Straits of Malacca. Singapore takes advantage of its hub location, hosting Information Sharing Centre of ReCAAP. Three littoral states, with the help of IMO, also actively promoted a Burden-sharing Scheme in a series of IMO meetings on maritime security, which later has led to the establishment of the Cooperative Mechanism on navigation safety, maritime security, and environment protection in the Straits of Malacca between littoral states and user states in September 2007.61 Although piracy incidents in Southeast Asia have declined in recent years, the challenge to the security of energy transportation still remains. For example, the two key littoral states of the Straits of Malacca, that is, Indonesia and Malaysia, have yet to ratify the SUA Convention and the ReCAAP agreement. Without accurate and prompt information on piracy from these two countries, the effectiveness of ReCAAP information sharing Centre will be lowered. Due to the divergence in national interests among littoral states and user states, it will not be easy to persuade Malaysia and Indonesia to sign and ratify the SUA Convention and the ReCAAP agreement, since the perception of both countries toward piracy and armed robbery against ships is different from that of other countries. Both believe that their sovereignty will be eroded after the accession of the SUA Convention and the ReCAAP agreement. They prefer the littoral states to deal with this issue themselves. To that end, both countries have been involved in coordinated patrols with Singapore, such as the trilateral Coordinated Patrol (or MALSINDO), in the Eyes in the Sky air patrols, and in information exchange among these countries outside the ReCAAP framework. Hopefully, these efforts will make up for the absence of Malaysia and Indonesia in ReCAAP, contribute to antipiracy cooperation in Southeast Asia, and reduce the threat of piracy to the security of energy transportation.

Notes 1. Nicholas Tarling, Piracy and Politics in the Malay World: A Study of British Imperialism in Nineteenth-Century South-East Asia (Singapore: D. Moore, 1963).

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2. Eric Tagliacozzo, Secret Trades, Porous Borders: Smuggling and States along a Southeast Asian Frontier, 1865–1915 (New Haven: Yale University Press, 2005). 3. Michael Richardson, A Time Bomb for Global Trade: Maritime-Related Terrorism in an Age of Weapons of Mass Destruction (Singapore: Institute of Southeast Asian Studies, 2004). 4. IMO, “Draft Code of Practice for the Investigation of Crimes of Piracy and Armed Robbery against Ships (Msc/Cir.984)” (International Maritime Organization, 2000). 5. ICC-IMB, Piracy Report 1992 (Kuala Lumpur: ICC International Maritime Bureau, 1993). 6. Ibid. 7. ICC-IMB, “Piracy and Armed Robbery against Ships (1 January– 30 June 2005)” (Essex: ICC International Maritime Bureau, 2005). 8. ReCAAP-ISC, Adding Value, Charting Trends: Annual Research Report 2007 (Singapore: Information Sharing Centre of ReCAAP, 2008). 9. ICC-IMB, “Piracy and Armed Robbery against Ships Annual Report (1st January-31st December 2007)” (Essex: ICC International Maritime Bureau, 2008). 10. P. Mukundan, “The Scourge of Piracy in Southeast Asia: Can Any Improvements be Expected in the Near Future?” in Piracy in Southeast Asia: Status, Issues, and Responses, eds. Derek Johnson and Mark Valencia (Singapore: ISEAS Publications, 2005), 35. 11. ICC-IMB, “Piracy and Armed Robbery against Ships: Annual Report (1 January–31 December 2004)” (London: ICC International Maritime Bureau, 2005). 12. Peter Chalk, “Grey-Area Phenomena in Southeast Asia: Piracy, Drug Trafficking and Political Terrorism,” Canberra Papers on Strategy and Defence No. 123 (Canberra: Strategic and Defence Studies Centre Research School of Pacific and Asian Studies, Australian National University, 1997). 13. ICC-IMB, “Piracy and Armed Robbery against Ships Annual Report (1 January–31 December 2002)” (Essex: ICC-International Maritime Bureau, 2003). 14. ICC-IMB, “Piracy and Armed Robbery against Ships Annual Report (1st January–31st December 2007),” (Essex: ICC-International Maritime Bureau, 2003). 15. Richardson, A Time Bomb for Global Trade. 16. MOFA, Diplomatic Bluebook 2001 (Tokyo: Ministry of Foreign Affairs of Japan, 2002). 17. John F. Bradford, “Japanese Anti-Piracy Initiatives in Southeast Asia: Policy Formulation and the Coastal State Responses,” Contemporary Southeast Asia 26, no. 3 (2004): 480–505. 18. Bo Kong, An Anatomy of China’s Energy Insecurity and Its Strategies (Springfield, VA: U.S. Department of Commerce, 2005).

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19. Peter Chalk, “Contemporary Maritime Piracy in Southeast Asia,” Studies in Conflict and Terrorism 21, no. 2 (1997): 87–112. 20. Ralf Emmers, Non-Traditional Security in the Asia-Pacific: The Dynamics of Securitisation, Non-Traditional Security in Asia Series (Singapore: Eastern Universities Press, 2004). 21. Hasjim Djalal, “Piracy and Challenges of Cooperative Security and Enforcement Policy,” The Indonesian Quarterly 30, no. 3 (2002): 106–116. 22. Michael Leifer, International Straits of the World: Malacca, Singapore, and Indonesia (Alphen aan den Rijn: Sijthoff & Noordhoff, 1978). 23. Nayan Chanda, “Foot in the Water,” Far Eastern Economic Review 163, no. 10 (March 9, 2000): 28–29. 24. Hideaki Kaneda, “Japanese Maritime Strategy in the New Era,” in Maritime Strategies in Asia, ed. Jurgen Schwarz (Bangkok: White Lotus Press, 2002), 246. 25. Bradford, “Japanese Anti-Piracy Initiatives in Southeast Asia.” 26. Ibid. 27. France-Presse Agence, “Malaysia, RP Begin Maritime Exercises,” Jakarta Post, May 13, 2002. 28. AFP, “Indonesia, Malaysia, Singapore Agree to Joint Malacca Strait Patrols,” Jakarta Post, June 30, 2004. 29. Graham Gerard Ong, “ ‘Ships Can Be Dangerous Too’: Coupling Piracy and Maritime Terrorism in Southeast Asia’s Maritime Security Framework,” in ISEAS Working Papers: International Politics and Security Issues, No. 1(04) (Singapore: Institute of Southeast Asian Studies, 2004). 30. ABC-News, “Indonesian Navy Plans Fleet Expansion to Boost Maritime Security,” ABC News Online, February 12, 2005; available from http://www.abc.net.au/news/newsitems/200502/s1301509.htm (accessed October 16, 2005). 31. ASEAN Secretariat, “Memorandum of Understanding Between the Governments of the Member Countries of the Association of Southeast Asian Nations (ASEAN) and the Government of the People’s Republic of China On Cooperation in the Field of Non-traditional Security Issues,” http://www.ASEAN.org. 32. Jianhua Zhao, “Straits of Malacca and Challenges Ahead: Perspectives from Littoral and User States,” paper presented at the “Straits of Malacca: Building a Comprehensive Security Environment,” Kuala Lumpur, Malaysia, October 11–13, 2004. 33. MFA, “The Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP)” (The Ministry of Foreign Affairs, Singapore, April 28, 2005). 34. ReCAAP, “Recaap News,” http://www.ReCAAP.org (2006). 35. ARF, The ASEAN Regional Forum, available at http://www. aseanregionalforum.org/ (accessed May 2, 2006).

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36. Zhao, “Straits of Malacca and Challenges Ahead: Perspectives from Littoral and User States.” 37. ARF, “ARF Statement on Cooperation against Piracy and Other Threats to Security” (June 17, 2003), available at http://www.aseansec. org/14838.htm (accessed May 10, 2006). 38. Chee Hean Teo, “Speech by Mr Teo Chee Hean, Minister for Defence, at Committee of Supply Debate” (Singapore: Ministry of Defence, 2008). 39. Admiral Thomas Fargo, Strategy for Regional Maritime Security (Hawaii: U.S. Pacific Command, 2004). 40. AP, “Malaysia, U.S. To Discuss Port Security,” USA Today, June 6, 2004; available at http://www.iiss.org/conferences/the-shangri-la-dialogue/ press-coverage/press-coverage-2004/usa-today—discuss-port-security (accessed June 2, 2006). 41. IMO, States Make Progress in Co-Operation to Enhance Safety of Navigation, Security and Environmental Protection in Straits of Malacca and Singapore (International Maritime Organization, 2006), available at http://www.imo.org/ (accessed October 2, 2006). 42. Bhagyashree Garekar, “China’s Rise Prompts Us to ‘Re-Energise’ S-E Asia Ties,” The Straits Times, June 3, 2006. 43. Hasjim Djalal, Indonesia and the Law of the Sea (Jakarta: Centre for Strategic and International Studies, 1995). 44. MoD, Defending the Country Entering the 21st Century (Jakarta: Ministry of Defense, Indonesia, 2003). 45. Hasjim Djalal, “Piracy in Southeast Asia: Indonesian & Regional Responses,” Indonesian Journal of International Law 1, no. 3 (2004): 419–444. 46. ICC-IMB, “Piracy and Armed Robbery against Ships: Annual Report (1 January–31 December 2005)” (Essex: ICC International Maritime Bureau, 2006). 47. Bernard Kent Sondakh, “National Sovereignty and Security in the Straits of Malacca,” paper presented at the “Straits of Malacca: Building a Comprehensive Security Environment,” Kuala Lumpur, Malaysia, October 11–13, 2004. 48. Hasjim Djalal, “Combating Piracy: Co-Operation Needs, Efforts, and Challenges,” in Piracy in Southeast Asia: Status, Issues and Responses, eds. Derek Johnson and Mark Valencia (Singapore: IIAS/ISEAS 2005), 146. 49. Bradford, “Japanese Anti-Piracy Initiatives in Southeast Asia.” 50. A. Hamzah and Mohd. Nizam Basiron, The Straits of Malacca: Some Funding Proposals [Kuala Lumpur: Maritime Institute of Malaysia (MIMA), 1996]. 51. Donald B. Freeman, The Straits of Malacca: Gateway or Gauntlet? (Montreal: McGill-Queen’s University Press, 2003), 119. 52. Lin Sien Chia, Mark Goh, and Jose Tongzon, Southeast Asian Regional Port Development: A Comparative Analysis (Singapore: ISEAS, 2003).

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53. Channel News Asia, “Malaysia to Boost Malacca Straits Security with 24-Hour Radar System,” March 11, 2005, available at http://www. channelnewsasia.com/stories/afp_asiapacific/view/136822/1/.html (accessed December 18, 2005). 54. Donna Nincic, “Sea Lane Security and U.S. Maritime Trade: Chokepoints as Scarce Resource,” in Globalization and Maritime Power, ed. Sam Tangredi (Washington: National Defense University, 2002), 156. 55. MHA, “White Paper: The Jemaah Islamiyah Arrests and the Threat of Terrorism” (Singapore: Ministry of Home Affairs, 2003). 56. J. Ashley Roach, “Enhancing Maritime Security in the Straits of Malacca and Singapore,” Journal of International Affairs 59, no. 1 (2005): 97–117. 57. Zou Keyuan, “Seeking Effectiveness for the Crackdown of Piracy at Sea,” Journal of International Affairs 59, no. 1 (2005): 117–134. 58. Ibid. 59. Sondakh, “National Sovereighty and Security in the Straits of Malacca.” 60. Ioannis Gatsiounis, “Strait: Target for Terror,” available at http://www. atimes.com/atimes/Southeast_Asia/FH11Ae02.html on July 26, 2004 (accessed October 12, 2004). 61. IMO, “The Co-Operative Mechanism between the Littoral States and Users States on Safety of Navigation and Environmental Protection in the Straits of Malacca and Singapore,” (International Maritime Organization, 2007).

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9 The Security of Sea Lanes in Southeast Asia Joshua H. Ho

The Rise of Asia The emergence of China and India as new major global players is expected to transform the regional geopolitical landscape. Behind the rise is a combination of high economic growth rates, expanding military capabilities, and large populations. The combined 2002 gross domestic products (GDP) of China, India, and Japan already total half that of the United States in nominal terms.1 By 2015, a study by the National Intelligence Council in the United States forecasts that the same combined GDPs will surpass those of the United States and the European Union (EU), reaching $19.8 trillion (China), $14 trillion (India), and $11.6 trillion (Japan), respectively, in 1998 dollars. 2 By 2050, Goldman Sachs projects that the situation will become even more astounding when the three Asian GDPs combined will add up to slightly more than twice the U.S. GDP and about four times that of Russia, the United Kingdom, Germany, France, and Italy combined in 2003 dollars.3 In 2050, therefore, the largest economies in the world will be China, the United States, and India, respectively, with Japan at a distant fourth. The sheer size of China’s and India’s populations— projected by the U.S. Census Bureau to be 1.4 and almost 1.3 billion, respectively, by 2020 4 —implies that the standard of living there need not approach Western levels in order for these countries to become important economic powers.

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Besides China, India, and Japan, the economies of other developing countries such as Indonesia could also approach the economies of individual European countries by 2020. Experts assess that over the course of the next decade and a half, Indonesia may revert to high growth of 6–7 percent, which, along with an expected population increase from 226 to around 250 million, would make it one of the largest developing economies. Barring any unforeseen reversals to the globalization process, the rise of these regional powers is virtually guaranteed; this will result in an increase in regional demand for energy and raw materials both as factors of production and consumption and will also spur interregional and intra-regional trade flow. Because the sea is the major transportation medium for trade and the conveyance of energy and raw materials, dependence on the regional sea lanes will increase. In particular, the sea lanes along Southeast Asia are vital to the transportation of goods, energy, and raw materials to the dynamic economies of Northeast Asia.

Major Sea Lanes in Southeast Asia The major sea lanes in Southeast Asia are constricted at key straits such as the Straits of Malacca and Singapore Strait, the Sunda Strait, and the Lombok Strait. The Straits of Malacca are 600 miles long and provide the main corridor between the Indian Ocean and the South China Sea. The major sea lanes used by tankers from the Middle East are the Straits of Malacca and the Singapore Strait: around twenty-six tankers, including three fully loaded supertankers heading for Asian ports, pass through the Singapore Strait daily. Because this strait is relatively shallow, only 23 meters deep at most points, the International Maritime Organization (IMO) has required an under-keel clearance of 3.5 meters for ships transiting the straits, which translates to ships of at most two hundred thousand deadweight tons (DWT). At its narrowest point, the navigable channel is only 1.5 miles wide. In terms of total volume, more than 200 ships of 300 gross tons and above and of 50 meters or more in length pass through the Straits of Malacca daily—about 60,000 annually—carrying 80 percent of the oil transported to Northeast Asia. 5 In terms of value, the total tonnage carried by the Straits of Malacca amounts to 525 million

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metric tons worth a total of $390 billion.6 The traffic volume makes Malacca the busiest straits in the world currently, and it is likely to be even busier in future because of increasing trade flows and energy demands in Asia. According to the Lloyd’s List bulletin, new orders for 200 liquefied nitrogen gas (LNG) carriers will be required to satisfy the growth in demand during the next fifteen years.7 The trend of increasing traffic has also been observed for the traffic data as reported via the Malacca Straits Ship Reporting System, or STRAITREP.8 The data from 1999 to 2005 indicate that traffic in the Malacca Straits increased by 42 percent within the six-year period. The Lombok Strait in Indonesia is wider, deeper, and less congested than the Straits of Malacca. It separates the islands of Lombok and Bali. The minimum passage width in the Lombok Strait is 11.5 miles and the depths are greater than 150 meters. Lombok is therefore considered the safest route for supertankers; the bigger types of these eastbound ships sometimes transit this channel. For example, tankers that exceed 200,000 DWT have to divert through the Lombok Strait because of the depth constraints of the Straits of Malacca. Most ships transiting the Lombok Strait also pass through the Makassar Strait between the Indonesian islands of Borneo and Sulawesi, which has an available width of 11 miles and a length of 600 miles. About 3,900 ships transit the Lombok Strait annually; in terms of value, the total tonnage carried by the Lombok Strait is 140 million metric tons worth a total of $40 billion. Ships carrying iron ore from Australia to China also enter the Indonesian Archipelago through the Lombok Strait. The least of the three straits is the Sunda Strait. Located between Java and Sumatra, it is 50 miles long and is another alternative to the Straits of Malacca. Its northeastern entrance is 15 miles wide; because of its strong currents and limited depth, deep-draft ships of over 100,000 DWT do not transit the strait, and it is not heavily used. About 3,500 ships transit the Sunda Strait annually; in terms of value, their total tonnage is 15 million metric tons worth $5 billion. In addition to permitting the transport of oil and iron ore to the major economies in Northeast Asia such as China, Japan, Taiwan, and South Korea, the Straits of Malacca and Sunda Strait also carry a significant amount of container traffic: large ports sit astride both these sea lanes. The ports that lie along the Malacca and Singapore Straits

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include Singapore as well as Malaysia’s primary port, Port Klang, and Tanjung Pelepas. In Indonesia, Tanjung Priok sits astride the Sunda Strait. Singapore, of course, is a major transhipment hub and overlooks the main east–west route within the global hub and spoke container network. Based on 2007 data, Singapore was the top container port in the world, handling 27.9 million twenty-foot equivalent units (TEUs); Port Klang (the sixteenth largest container port) handled 7.1 million TEUs; Tanjung Pelepas (eighteenth largest) handled 5.5 million TEUs; and Tanjung Priok (twenty-third largest) handled 3.9 million TEUs.9 Because the Malacca, Lombok, and Sunda Straits are so important to the transport of oil and raw materials—such as iron ore—as well as for the conveyance of container traffic, the free and safe navigation of commercial vessels in these sea lanes is an important issue. In this respect, piracy and terrorism are major threats to the security of shipping in the sea lanes of Southeast Asia.

Piracy/Armed Robbery A myth has been perpetuated that the Straits of Malacca and Singapore Strait are both infested with pirates. However, the data obtained do not seem to correlate with this view. Taking International Maritime Bureau (IMB) data from the year 2000 to 2005, the total number of piracy attacks in these straits ranged from twenty-six to sixty-four per year.10 To the puritan, one piracy attack is one too many, but before any alarm bells are rung we should note the fact that these figures represent only a tiny proportion of the ships that transit the straits. The proportion of ships attacked in the Malacca and Singapore Straits ranges from 0.04 to 0.11 percent of the total number of ships transiting annually. This figure is dwarfed by figures for crimes committed on terra firma in some countries. Furthermore, attacks are predominantly made on vessels proceeding on local voyages as well as on smaller vessels, for example, fishing vessels or tugs below one thousand gross tons. Relatively few attacks occur on mainline “through-traffic” vessels such as oil and gas tankers bound for East Asia. As to the profile of the pirates, it is reported that three types of groups typically perpetrate sea piracy in Southeast Asia: (1) small criminals, (2) well-organized criminal gangs, and, it is said by academics

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(3) armed separatists.11 Although piracy has occurred in the region for centuries, what makes it dangerous now is that pirate gangs appear to be better equipped and organized than most local naval authorities. They make use of speedboats, modems, radars, satellite phones, very high frequency (VHF) radios, and modern weaponry to take control of merchant ships. They also use hijacked ships for human smuggling and the transport of illicit drugs and weapons.12 Crime syndicates involved in piracy incidents take advantage of governments that lack the financial resources, political will, or efficient policing to successfully tackle the pirates’ criminal activities. The emphasis on combating piracy is important because sea piracy has been linked to the threat of maritime terrorist attacks since the events of 9/11. Young and Valencia note that the “conflation of ‘piracy’ and ‘terrorism’ has become common in the U.S. mass media and in government policy statements.”13 However, the authors challenge this conflation, and their article focuses on the difference between piracy and terrorism. Young and Valencia also conclude that the root causes of piracy and terrorism are different: pirates are financially motivated whereas terrorists are politically or religiously motivated to redress perceived injustices. This distinction will be important in determining the long-term approaches to combating both phenomena, even if short-term measures may appear to be similar. This view of the different motivating factors behind the pirate and the terrorist has gained wide acceptance in the region. Even so, we must continue to watch for the possibility of an overlap between piracy and maritime terrorism simply because they are operationally similar and it is difficult to distinguish between the two when an incident is unfolding. Piracy thus forms the background noise from which maritime terrorist attacks may materialize.

Maritime Terrorism Another threat to Southeast Asian resource and trade security is the specter of maritime terrorism. In the new era of globalization, ports have evolved from being traditional interfaces between sea and land to being providers of complete logistics networks, spurred chiefly by containerization. Containerization has made it possible for carriers to shift cargo delivery from a port-to-port focus to a door-to-door

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focus. This stems from the interchangeability of the various modes of transporting containers (by road, rail, or sea) also known as intermodalism, whereby it has become possible for goods to move from the point of production to the point of sale or final destination without being opened. Ports are also being differentiated by their ability to handle the latest generation of container ships coming on-stream. According to a study by Ocean Shipping Consultants, it is expected that by 2010, ships of eight thousand TEUs will be dominant in all trades. Concepts for a container ship of eighteen thousand TEUs, the draft of which will maximize the available depth of the Straits of Malacca, are already on the drawing board.14 The dual trend for ports is to be providers of complete logistics networks and also venues capable of handling large container ships coming online. This means that high-volume, mainline trade will focus on just a few mega-ports that will become the critical nodes of global seaborne trade. So important are hub ports in the global trading system that it has been estimated that the global economic impact from a closure of the hub port of Singapore alone could easily exceed US$200 billion per year from disruptions to inventory and production cycles.15 The shutdown of the ports on the west coast of the United States in October 2002 because of industrial action cost the United States up to US$1 billion a day, highlighting the crucial role of hub ports.16 Hub ports therefore are potentially lucrative targets for terrorists. Maritime terrorists could hijack carriers of liquefied petroleum gas (LPG) and turn them into floating bombs to disable ports.17 The immolation of a tanker carrying six hundred tons of LPG would cause a fireball twelve hundred meters wide, destroying almost everything physical and living within this diameter. Besides, a large number of fatalities and casualties would occur.18 Other possible scenarios for maritime terrorism include detonation in a hub port of a “dirty bomb”—a conventional bomb configured to disperse radioactive material. Such a bomb could be smuggled via a container in a container ship. Besides attacks on hub ports, attacks on shipping could also be an attractive option for maritime terrorists. If such attacks were to become severe, owners and captains might choose to divert from current sea lanes to safer routes. This kind of diversion would likely be costly for industry. A 2002 study done by the U.S. National Defense

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University concluded that if the Malacca, Sunda, Lombok, and Makassar Straits and the South China Sea were blocked for transit, the resultant extra steaming costs would run to US$8 billion a year, based on 1993 trade flows.19 No doubt the cost would be even higher if current trade flows were used for the estimate. The organization that currently appears to be the only real threat to shipping in the Straits of Malacca is the Jemaah Islamiah (JI, lit., Islamic community or organization). The group has shown an interest in attacking shipping in the Straits of Malacca and U.S. naval vessels visiting Singapore. 20 Prominent officials have also indicated that commercial shipping could be a potential target. At the 2003 Shangri-La Dialogue, 21 Singapore’s then deputy prime minister Dr. Tony Tan warned that with the hardening of land and aviation targets, the threat of terrorism is likely to shift to maritime targets, particularly commercial shipping.22 Other officials have echoed Tan’s warning. On August 5, 2004, England’s First Sea Lord and chief of naval staff Admiral Sir Alan West warned that al-Qaeda and other terrorist groups were plotting to launch attacks on merchant shipping. He also said that seaborne terrorism could potentially cripple global trade and have grave “knock-on effects” on developed economies.23 Singapore and its Western official counterparts tend to highlight the maritime terrorism threat and to conflate maritime terrorism with piracy to create a sense of urgency in developing immediate countermeasures to the threat. Both Malaysia and Indonesia have preferred to delink the issue of piracy and maritime terrorism and adopt a lowprofile approach. Their predominant Muslim populations and longheld suspicion of Western intentions have led them to pursue a more nuanced and sensitive approach; both countries prefer to emphasize indigenous solutions to the problem and to adopt a long-range view. For Malaysia this means adopting a more moderate version of Islam; in Indonesia’s case it means focusing on strengthening the capacity of the security agencies to handle such threats and economically developing the poorer regions. Despite the different approaches, all three countries, even the initially reluctant Malaysia and Indonesia, have realized the need to adopt visible hard measures, not only as a deterrent but also to assure the international community that something is being done to improve the security of the sea lanes.

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That said, maritime terrorism remains a low-probability event. For example, over the past three decades maritime terrorist attacks have constituted only 2 percent of all terrorist attacks worldwide. Apart from a small number of hostage-taking incidents, none of these has taken place in the Straits of Malacca. 24

National Measures Having detailed the nature of the threats of piracy and maritime terrorism, we can add that the littoral countries have already taken steps to address these issues. Their measures can be classified as national, bilateral, or multilateral. For example, the Indonesian Navy is responding to increasing piracy in its waters by promoting a package of reforms and modernizing the Navy’s ships to push toward a new emphasis on coastal interdiction and more patrols against illegal activities.25 Indonesia has also set up well-equipped Navy control command centers (puskodal) in Batam and Belawan, emplacing special forces that can respond to armed hijackings and piracy. 26 The Indonesian chief of naval staff has urged the shipping community to contact the two control command centers if it faces problems with piracy in Indonesian waters. The Indonesian Ministry of Home Affairs has also undertaken dissuasion programs that focus on alleviating poverty and bolstering people’s welfare in remote areas. In particular, the regencies—Rokan, Hilir, Bengkalis, Siak, Palawan, Indragiri Ilir, and Karimun—that border the Malacca and Singapore Straits are currently the main priority areas. The next priority goes to the dozens of regencies that border the other sea lanes of communications (SLOCs) through Indonesia.27 Malaysia has also taken action to keep the piracy rates low in the Malacca and Singapore Straits. The Royal Malaysian Navy has built a string of radar tracking stations along the Straits of Malacca to monitor traffic and has acquired new patrol boats.28 In 2000, at the maritime enforcement level, a special antipiracy task force was established by the Royal Malaysian Marine Police with immediate acquisition of twenty fast-strike craft and four rigid inflatable boats (RIBs) at a cost of RM 15 million (US$4.12 million). Sixty marine police officers have been trained to form the marine police tactical commando unit. This unit will be assisted by two more elite police forces, the Special

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Action Forces, and the 69 Commando Unit, which will accompany the marine police. The marine police tactical commando unit has been deployed along the Straits of Malacca. 29 In addition, the Malaysian Police have also deployed assault weapons on tugs and barges plying the busy shipping lanes of the Straits of Malacca in response to two attacks involving tugs in March 2005 after a long absence of piracy in Malaysian waters.30 The Royal Malaysian Navy has also intensified its training activities and patrols in the northern reaches of the Straits beyond the area of the one-fathom bank, in an effort to increase the naval presence and thus deter both piracy and maritime terrorism.31 Another important measure adopted by the Malaysian government is the formation of the Malaysian Maritime Enforcement Agency (MMEA), the equivalent of a coast guard, which was set up in November 2005. The MMEA will bring together several existing maritime enforcement agencies such as the Royal Malaysian Marine Police, the Fisheries Department, Immigrations Department, Customs Department, and Marine Department. The consolidation of maritime-related agencies into a single command of the MMEA is expected to enable more focus and enhance Malaysia’s ability to deal with maritime-related offenses.32 The MMEA will also be involved in enforcement duties and search and rescue. The Royal Malaysian Navy transferred six patrol vessels to the MMEA in June 2005.33 Singapore has also implemented a range of measures to step up maritime security. These include an integrated surveillance and information network for tracking and investigating suspicious movement, intensified Navy and Coast Guard patrols, random escorts of high-value merchant vessels plying the Singapore Strait and adjacent waters, and the redesignation of shipping routes to minimize the convergence of small craft with high-risk merchant vessels.34 In addition to increasing its own patrolling activities, Singapore has cooperated closely with the IMO by implementing amendments to the International Convention for the Safety of Life at Sea in the form of the International Ships and Port Facility Security (ISPS) Code, which came into effect in July 2004.35 Singapore has also signed the 1988 Rome Convention on the Suppression of Unlawful Acts against the Safety of Maritime Navigation (SUA Convention). The convention would extend the rights of maritime forces to pursue terrorists, pirates, and maritime criminals into foreign territorial waters; it also provides

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guidelines for the extradition and prosecution of maritime criminals. Under the U.S. Megaports Initiative, Singapore will install radiation detectors at its ports to scan containers for nuclear and radioactive material.36 The Singapore Navy has formed the Accompanying Sea Security Teams (ASSeT), similar to armed marshals, to board selected merchant ships proceeding into and out of harbor to prevent the possibility of a ship being taken over by terrorists.37

Bilateral Measures In addition to individual measures, there have been efforts at bilateral cooperation based on a web approach. Indonesia and Singapore agreed in 1992 to establish the Indonesia–Singapore Coordinated Patrols in the Singapore Strait. This has involved the setting up of direct communication links between their navies and the organization of coordinated patrols every three months in the strait.38 Singapore and Indonesia have also set up a joint radar surveillance system, known as Project SURPIC, for Surface Picture, which will monitor traffic in the Singapore Strait.39 Indonesia and Malaysia also decided in 1992 to establish a Maritime Operation Planning Team to coordinate patrols in the Straits of Malacca. The Malaysia–Indonesia Coordinated Patrols are done four times a year, and so is the Malaysia– Indonesia Maritime Operational Coordinated Patrol, which is conducted together with other maritime institutions, such as customs, search and rescue, and police forces from the two countries.40 Besides the three littoral states, other regional countries have become involved in the security of the Straits of Malacca. Since September 2004, the Indian and Indonesian navies have conducted joint patrols of the Six Degree Channel, the waterway just west of the Straits of Malacca that lies between Indonesia’s Sa-bang Island and the coast of Aceh in Sumatra and India’s Nicobar Islands. All international shipping entering or leaving the Straits of Malacca normally transits the Six Degree Channel.41 Beginning in September 2003, Malaysia and Thailand also publicly increased the intensity of their cooperative maritime patrols in the northern portion of the straits because of concerns over arms smugglers, insurgents, and terrorists operating in the area.42 The United States has conducted antipiracy exercises with Indonesia involving the boarding and inspection of shipping.43 China

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signed a strategic partnership agreement with Indonesia in April 2005 calling for possible increased maritime cooperation that could include joint efforts to combat smuggling and piracy.44

Multilateral Measures In comparison to the bilateral cooperation that exists in Southeast Asia, the multilateral response to piracy and terrorism has been limited in scope and is only now starting to take shape. Although many multilateral forums such as the Asia-Pacific Economic Cooperation (APEC), the Association of Southeast Asian Nations (ASEAN), ASEAN Plus Three, and the ASEAN Regional Forum (ARF) exist, concrete measures have materialized only from the latter two.

ASEAN ASEAN comprises ten nations: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. The ASEAN work program adopted in Kuala Lumpur in 2002 included an agreement to cooperate in eliminating piracy in the region. The program seeks to increase information sharing about piracy through several mechanisms involving ASEAN. It asks member states to disseminate laws, regulations, agreements, and conventions; cooperate with UN agencies and the IMB and IMO; and study piracy trends in the region. The work program also proposes training efforts and encourages ASEAN to seek technical and financial assistance from dialogue partners, relevant UN bodies, and other specialized organizations. The Bali Accord II, adopted at the ASEAN Summit in Bali in October 2003, declared that maritime issues and concerns are transboundary in nature and therefore shall be addressed regionally in a holistic, integrated, and comprehensive manner. The Plan of Action of the proposed ASEAN Security Community also included recommendations to cooperate mutually and to coordinate border patrols to combat terrorism.

ASEAN Regional Forum The ARF currently comprises twenty-four countries, the ASEAN countries, plus Australia, Canada, China, the European Union, India,

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Japan, North Korea, South Korea, Mongolia, New Zealand, Pakistan, Papua New Guinea, the Russian Federation, and the United States. The ARF adopted the Statement on Cooperation against Piracy and Other Threats to Maritime Security at the tenth ARF Post-Ministerial Conference held in Cambodia in June 2003. In this document, ARF participants regard maritime security as “an indispensable and fundamental condition for the welfare and economic security of the ARF region.”45 The ARF participants also expressed their commitment to becoming parties to the SUA Convention and its protocol. To date, half of ASEAN have signed the convention, namely, Brunei, Myanmar, Singapore, the Philippines, and Vietnam. As a confidence building measure, the ARF conducted its first multilateral maritime security shore exercise in January 2007.46

ASEAN Plus Three The ASEAN Plus Three forum comprises the ASEAN nations together with China, Japan, and South Korea. ASEAN Plus Three is an attempt to build a regional association that is more limited in its geographic membership than APEC or the ARF. The First ASEAN Plus Three Ministerial Meeting on Transnational Crime (AMMTC3) was held in Bangkok in January 2004. The meeting focused on all types of transnational crime in the region, including terrorism, money laundering, sea piracy, cyber crime, and the smuggling of drugs, arms, and human beings. Attendees vowed to improve communication and enhance intelligence sharing, especially against the growing threat of terrorism in the region.47 The meeting’s joint communiqué recognized that the root causes of transnational crime—including poverty and development gaps—might be addressed within the ASEAN Plus Three cooperative framework.48 In November 2001, at the ASEAN Plus Three Summit in Brunei, Japanese prime minister Junichiro Koizumi proposed convening a government-level working group to study formulation of a regional cooperation agreement related to antipiracy measures. Acceptance of this proposal has led to negotiations for the establishment of the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP) among representatives of the ASEAN states, China, Japan, South Korea, India, Sri Lanka, and Bangladesh. At a November 2004 meeting in Tokyo, the sixteen

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nations agreed to set up an Information Sharing Center (ISC) in Singapore. It will have the status of an international organization and employ thirteen–fifteen full-time staff at full strength, including representatives from the ReCAAP member countries. The ReCAAP ISC was launched on November 29, 2006, in Singapore.49 This is the first time that governments in East, Southeast, and South Asia have institutionalized their cooperation in combating piracy and armed robbery against ships in the form of a permanent body with full-time staff.50 The ISC maintains a database of piracy-related information and facilitates communication between national agencies prosecuting piracy cases; it will critically analyze the whole topic of piracy based on information made available through government agencies. An Information Network System (IFN), which is web-based, has been developed to support the communication flow and exchange between the ISC and ReCAAP member countries. The expenses of the ISC are funded largely by voluntary contributions from ReCAAP member countries. As the host, Singapore will bear the cost of the premises to house the ISC and the organization’s entire start-up costs, including the development of the IFN, as well as the ISC’s annual cost of operations.51 Japan is also contributing $350,000 toward supporting the ISC’s activities.

Malacca Straits Coordinated Patrols When the Regional Maritime Security Initiative (RMSI)52 was announced by the U.S. Pacific Command (PACOM), 53 the littoral states of Malaysia and Indonesia perceived it as a way for the United States to secure its interests in the Straits of Malacca by conducting operational patrols. Both Kuala Lumpur and Jakarta opposed the notion of patrols conducted by extra-regional countries, while Singapore was more open to this option. As a by-product of the RMSI, and in response to concerns expressed by the United States over security for vessels transiting the straits, Operation MALSINDO (i.e., Malaysia, Singapore, Indonesia) was born. Currently, seventeen ships have been allocated to the patrols, seven from Indonesia, five from Malaysia, and five from Singapore. The first trilateral naval patrols were launched in July 2004; they are aimed at reducing piracy and smuggling activities in the straits, round the clock. Navies patrol only within the territorial waters of their respective countries. The Malacca Straits

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Coordinated Patrols is part of the Malacca Straits Security Initiative, which encompasses the security arrangements between the three littoral states.

“Eyes in the Sky” Initiative The “Eyes in the Sky” (EiS) Initiative is also part of the Malacca Straits Security Initiative. Launched in September 2005 at the behest of Malaysia, the initiative augments MALSINDO and focuses on the conducting of maritime air patrols in the Straits of Malacca by the three littoral countries (and Thailand, possibly sometime in the future). 54 The participating countries each currently contribute two maritime patrol aircraft (MPA) sorties per week for the EiS; each MPA is allowed to fly above the waters of the states in question no less than three nautical miles from land. Each aircraft has a Combined Maritime Patrol Team (CMPT) on board, comprising a military officer from each of the participating states. As a team, the CMPT establishes a comprehensive surface picture over the patrol area and broadcasts any suspicious contacts on designated radio frequencies to ground-based Monitoring and Action Agencies (MAAs) in each of the four countries. Depending on whose territorial waters the incident takes place in, the respective MAAs can activate patrols to follow up with action. So far the EiS is still in its first phase, with the four countries as the principal operators of the MPA flights. Under Phase 2, extra-regional countries will be invited to participate in the MPA surveillance flights as well. Singapore, Malaysia, and Indonesia also signed an agreement to form a Joint Coordinating Committee (JCC) that will oversee the aerial and sea patrols of the Straits of Malacca.55 The JCC will be the channel of communication, intelligence exchange, and coordination for all operational security measures relating to the Malacca and Singapore Straits. Officials also signed the Standard Operating Procedures for both Malacca Straits Coordinated Patrols and the EiS maritime air patrols. The procedures enshrine the existing bilateral cross-border pursuit arrangements between Singapore and Indonesia and between Malaysia and Indonesia. The three littoral countries have also developed the Malacca Straits Patrol (MSP-IS) to aid them in the conduct of patrols.56 The MSP-IS is a data sharing system that allows users to share information about

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shipping to boost security in the Malacca Strait. The system includes a reference database on more than 150,000 vessels and is able to detect ships with fake identities. It also allows information of an incident to be passed quickly to agencies in the three littoral states and Thailand, so that a coordinated response can be delivered.

Other Multilateral Arrangements Besides the agreements and arrangements arising out of existing multilateral mechanisms, two other arrangements exist that have not originated from these more formal mechanisms but are nevertheless important. The two arrangements include the Five Power Defense Agreement (FPDA) and the Western Pacific Naval Symposium (WPNS). Five Power Defense Agreement The FPDA was founded in 1971 and brings together Australia, Malaysia, New Zealand, Singapore, and the United Kingdom in a consultative defense arrangement. It was formed primarily as a response to the Indonesian Confrontation57; it calls for mutual consultations if any member state faces a security threat. The agreement’s original focus on conventional threats has now given way to more nonconventional threat scenarios. Recently, the FPDA agreed to expand the scope of its activities to include nonconventional security threats such as maritime terrorism. Members conducted an antiterror drill as part of Bersama Lima (Together Five) in September 2004. Western Pacific Naval Symposium The WPNS was created in 1988 and brings together eighteen member navies, namely, those of Australia, Brunei, Cambodia, China, France, Indonesia, Japan, Malaysia, New Zealand, Papua New Guinea, the Philippines, Russia, Singapore, South Korea, Thailand, Tonga, the United States, Vietnam, plus the observer navies of Canada, Chile, and India.58 The administrator of the WPNS is the U.S. PACOM. The WPNS originally was a forum designed to promote mutual understanding among navies of the region and increase naval cooperation in the western Pacific by providing a forum to discuss maritime issues, both global and regional. In the process, the WPNS would generate a flow of information and opinion among

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naval professionals leading to common understanding and possibly agreement. The symposium has now grown to include regular shore-based and sea exercises and could well form the basis of a U.S.-led security architecture in the Asia-Pacific. At the very least, it is an important confidence building measure that will grow in importance as more countries participate in its activities. It was also decided recently that Coast Guard agencies will be invited to participate in the next WPNS sea exercise to bolster interagency coordination and understanding. 59 In May 2005, the WPNS conducted a two-day multilateral sea exercise whose aims included improving the interoperability of participating navies by compiling a picture of the sea situation and the sharing of data through a common data link. Another new initiative is “Connecting Networks for the Enhancement of Knowledge Sharing,” which aims to allow non-navy agencies and intergovernmental agencies to be invited to present topics of interest at workshops and symposia.

Toward a Stable Maritime Environment The Asia-Pacific century is poised to begin, with China, India, and Japan leading the way. Fueling the Asia-Pacific engine will be the continued economic growth of China, as well as India, Japan, and the United States. As a by-product and because of regional economic growth, trade flows into and within Asia-Pacific and demand for energy in the region have grown and will continue to grow, leading to an increasing reliance on the sea as a mode of transport. This surge in the use of the sea means that it is ever more crucial to safeguard the sea lanes. An act of armed robbery that occurred in February 2005 shows the transnational character of the threat to shipping in the sea lanes. The incident involved a Japanese tug and occurred in Malaysian waters; the Japanese crew was taken hostage. Perpetrators from Indonesia were suspected to be responsible. The hostages were finally released in the vicinity of southern Thailand after the Japanese owners paid a ransom. In the wake of transnational threats, the littoral states—besides taking individual measures—must move toward a more cooperative regime among themselves and also with other stakeholders to enhance the security of the sea lanes.

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Because countries in the region share significant maritime interests, the creation of a stable maritime environment needs to remain high on the regional political agenda. However, it is important to also keep in mind the three broad principles espoused by Singapore’s defense minister Teo Chee Hean at the March 2005 ARF Confidence Building Measure Conference on Regional Cooperation in Maritime Security: littoral states have the primary role in addressing maritime security issues, other stakeholders have important roles to play, and consultation should be pursued and the rule of international law observed in the implementation of any new initiative.

Notes Originally published in a slightly different form as “The Security of Sea Lanes in Southeast Asia,” Asian Survey, July/August 2006. © 2006 by The Regents of the University of California. Reprinted from Asian Survey, Vol. 46, No. 4, pp. 558–574, by permission of the Regents. 1. Economic Intelligence Unit, Country Report: United States of America (London: Economist Intelligence Unit, November 2003), 5; “Country Forecast: China,” ibid., 11; “Country Forecast: Japan,” ibid., 12; and “Country Forecast: India,” ibid. The 2002 GDPs of the United States, China, Japan, and India are US$11,145 bn; US$1,299 bn; US$3,986 bn; and US$501.2 bn, respectively, in nominal terms. 2. National Intelligence Council, Global Trends 2015: A Dialogue about the Future with Nongovernment Experts (Washington D.C.: National Intelligence Council Publication, 2000), 34–38. 3. Dominic Wilson and Roopa Purushothaman, “Dreaming with BRICs: The Path to 2050,” Goldman Sachs Global Economics Paper, no. 99, http:// www.gs.com/insight/research/reports/99.pdf, October 1, 2003: 4. The forecast 2050 GDPs of China, the United States, India, and Japan are US$45 bn, US$35 bn, US$27 bn, and US$7 bn, respectively, in 2003 dollars. 4. National Intelligence Council, Mapping the Global Future: Report of the National Intelligence Council’s 2020 Project (Washington D.C.: Government Printing Office, December 2004), 47. 5. John J. Brandon, “Piracy on High Seas is Big Business,” International Herald Tribune, December 28, 2000. 6. Sumihiko Kawamura, “Shipping and Regional Trade: Regional Security Interests,” in Shipping and Regional Security, eds. Sam Bateman and Stephen Bates (Canberra: Strategic and Defense Studies Center, Australian National University, 1998), 15. 7. Tony Gray, “Fears of Growing LNG Carrier Surplus Dismissed by Expert,” Lloyd’s List, In-forma PLC, May 13, 2005. 8. The STRAITREP is a Mandatory Ship Reporting System adopted by the IMO to aid in navigational safety in the Straits of Malacca and Singapore

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18. 19. 20.

21.

Joshua H. Ho whereby ships transiting the Straits will have to report details of their passage to the respective Vessel Traffic Services (VTS). Ravindra Galhena, “Chinese Record Takeaway,” Containerization International, March 2008: 50–52. Annual International Chamber of Commerce International Maritime Bureau Piracy Reports, 2000–2005. Peter Chalk, Grey-Area Phenomena in Southeast Asia: Piracy, Drug Trafficking, and Political Terrorism (Canberra: Canberra Papers on Strategy and Defense, no. 123, Strategic and Defense Studies Center, Australian National University, 1997), chapter 2. William M. Carpenter and David G. Wiencek, “Maritime Piracy in Asia,” in Asian Security Handbook 2000, eds. W. Carpenter and D. Wiencek (Armonk, N.Y.: M. E. Sharpe, 2000), 92–93. Adam J. Young and Mark J. Valencia, “Conflation of Piracy and Terrorism in Southeast Asia: Rectitude and Utility,” Contemporary Southeast Asia 25, no. 2 (August 2003): 270–274. Daniel Y. Coulter, “Globalization of Maritime Commerce: The Rise of Hub Ports,” in Globalization and Maritime Power, ed. Sam J. Tangredi (Washington, D.C.: National Defense University Press, 2002), 135–138. John H. Noer and David Gregory, Chokepoints: Maritime Economic Concerns in Southeast Asia (Washington, D.C.: National Defense University Press, 1996). George Bush, “Remarks by President George W. Bush Re: West Coast Ports Work Stoppage,” White House Briefing, Federal News Service, October 8, 2002. Michael Richardson, A Time Bomb for Global Trade: Maritime Related Terrorism in an Age of Weapons of Mass Destruction (Singapore: Institute of Southeast Asian Studies, 2004), 112–114. Ben Sheppard, “Maritime Security Measures,” Jane’s Intelligence Review, Jane’s Information Group, March 1, 2003. Coulter, “Globalization,” 139. “Malacca Strait is Terror Target, Admit Militants,” Lloyd’s List, August 26, 2004; and Singapore White Paper, The Jemaah Islamiyah Arrests and the Threat of Terrorism (Singapore: Ministry of Home Affairs, 2003), 29–30. Started in 2002, the Shangri-La Dialogue is a conference held by the United Kingdom’s International Institute for Strategic Studies (IISS) that has involved, at one point or another, defense ministers, deputy ministers, chiefs of defense staff, national security advisers, permanent under secretaries, intelligence chiefs, and other national security and defense officials from Australia, Brunei, Cambodia, Canada, China, East Timor, France, India, Indonesia, Japan, Korea, Malaysia, Mongolia, Myanmar, New Zealand, Pakistan, the Philippines, Russia,

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23. 24.

25. 26.

27.

28. 29.

30. 31.

32. 33.

34. 35.

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Singapore, Thailand, the United Kingdom, the United States, and Vietnam. Dr. Tony Tan, deputy prime minister and minister for defense, Singapore, “Maritime Security after September 11,” Second IISS Asia Security Conference, Singapore, May 30–June 1, 2003. “First Sea Lord Warns of al-Qa’eda Plot to Target Merchant Ships,” Lloyd’s List, Informa PLC, August 5, 2004. Data converted from Lieutenant Commander Krzysztof Kubiak, Polish navy, “Terrorism is the New Enemy at Sea,” United States Naval Institute Proceedings 129, no. 12 (December 2003): 68. Robert Karniol, “Indonesian Navy to Focus on Coastal Interdiction,” Jane’s Defense Weekly, November 12, 2003. Admiral Bernard Kent Sondakh, “National Sovereignty and Security in the Strait of Malacca,” paper delivered at the Conference on “The Straits of Malacca: Building a Comprehensive Security Environment,” Maritime Institute of Malaysia, Kuala Lumpur, October 11–13, 2004, 8–10. Robert Magindaan, “Maritime Terrorism Threat: An Indonesian Perspective,” paper presented at the Observer Research Foundation Workshop on “Maritime Counter Terrorism,” New Delhi, November 29–30, 2004, 3. Nick Brown, “Malaysia Asks for Help to Fight Piracy,” Jane’s Navy International, Jane’s Information Group, November 1, 2003. Iskander Sazlan, “Counter Maritime Terrorism: Malaysia’s Perspective,” paper presented at the Observer Research Foundation Workshop on “Maritime Counter Terrorism,” 13. “Malaysia to Deploy Armed Police on Tugs and Barges,” Lloyd’s List, April 4, 2005. Admiral Dato’ Sri Mohd. Anwar bin H. J. Mohd. Nor, chief of navy, Royal Malaysian Navy, “Malaysia’s Approach,” presentation at the ASEAN Regional Forum (ARF) Regional Cooperation in Maritime Security Conference, Singapore, March 2–4, 2005. Iskander Sazlan, “Counter Maritime Terrorism,” 13. Nick Leong, “RMN to Transfer Six Patrol Ships to New Agency,” Star (Petaling Jaya, Malaysia), April 27, 2005, http://thestar.com.my/ news/story.asp?file/2005/4/27/nation/10767646& sec=nation (accessed April 27, 2005). Richand Scott, “IMDEX: Singapore Stresses Counters to Maritime Terrorism,” Jane’s Defense Weekly, November 1, 2003. The ISPS Code is an IMO-mandated code that entered into force on July 2004. The code covers ships of over five hundred gross tons on international voyages, port facilities serving ships on international voyages, passenger ships, and mobile offshore drilling units. It requires that ships and port facilities carry out security assessments, after which ship and

224

36. 37. 38. 39.

40. 41.

42.

43.

44.

45.

46.

47.

48.

49.

Joshua H. Ho ports are required to create security plans, appoint security officers, and maintain certain security equipment. David Boey, “Radiation Detectors for Singapore Port,” Straits Times (Singapore), March 11, 2005. Goh Chin Lian, “Armed Navy Escorts for Suspect Ships,” ibid., February 28, 2005. Robert Go, “Singapore Strait Patrols Keep Pirates at Bay,” ibid., May 16, 2002. “Singapore and Indonesian Navies Launch Sea Surveillance System,” Ministry of Defense (Singapore), news release, May 27, 2005, http://app. sprinter.gov.sg/data/pr/20050527997.htm (accessed June 2, 2005). Sondakh, “National Sovereignty,” 11. Donald Berlin, “Navy Reflects India’s Strategic Ambitions,” Asia Times Online, November 6, 2004, http://www.atimes.com/atimes/South_Asia/ FK06Df05.html (accessed May 17, 2005). “Malaysia and Thailand to Boost Maritime Border Crime Watch,” Agence France-Presse, September 10, 2003, http://quickstart.clari. net/qs_se/webnews/wed/bl/Qmalaysia-thailand-crime. RtY8_DSA.html (accessed May 17, 2005). “TNI Starts Anti-Piracy Exercise with U.S. Military,” Gatra [Phrase] (Jakarta), May 2, 2005, http://www.gatra.com/2005-05-02/artikel. php?id84037 (accessed May 9, 2005). “China and Indonesia Seal Strategic Pact,” International Herald Tribune, April 26, 2005, http://www.iht.com/articles/2005/04/25/news/ indonesia.php (accessed May 9, 2005). The Tenth ASEAN Regional Forum, ARF Statement on Cooperation against Piracy and Other Threats to Security (Jakarta: ARF Unit of ASEAN Secretariat, June 17, 2003). “Singapore Hosts First Ever ASEAN Regional Forum Maritime Security Shore Exercise,” MINDEF News, January 23, 2007, http://www. mindef.gov.sg/imindef/news_and_events/nr/2007/jan/23jan07_nr.html (accessed June 24, 2008). Nancy-Amelia Collins, “War on Terrorism ‘ASEAN Plus 3’ Pledges to Combat Transnational Terror,” Clarinews, January 10, 2005, ht t p: //qu icksta r t.cla ri.net. /voa /a r t /ek /C 5 EC3E 5 DB39E - 4F B1872CCDFD76D82D7C.html (accessed April 11, 2005). Joint Communiqué: The First ASEAN Plus Three Ministerial Meeting on Transnational Crime (AMMTC3), Bangkok, January 10, 2004, http://www.aseansec.org/15646.htm (accessed April 11, 2005). The fourteen countries that have signed and ratified ReCAAP include Bangladesh, Brunei, Cambodia, China, Japan, Laos, Myanmar, the Philippines, Singapore, Thailand, India, South Korea, Sri Lanka, and Vietnam. Although Indonesia and Malaysia have yet to sign or ratify the Agreement, they have expressed support for the ReCAAP ISC at the Batam Meeting of the foreign ministers of the three countries held

Sea Lanes in Southeast Asia

50.

51. 52.

53. 54.

55. 56.

57.

58. 59.

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in August 2005. ReCAAP ISC, on its part, has also developed operational links with the Malaysian Maritime Enforcement Agency and the BARKORKAMLA in Indonesia. “Factsheet on the Regional Cooperation Agreement on Combating Piracy and Armed Robbery Against Ships in Asia (ReCAAP),” Singapore, Ministry of Transport, April 20, 2006. Ibid. The RMSI intends to be a partnership of Asia-Pacific nations that are willing to contribute their resources to enhance security. The RMSI aims to build and synchronize interagency and international capacity to harness available and emerging technologies, to develop a maritime situational awareness to match the picture that is available for international airspace, and to develop responsive decision-making structures that can call on immediately available maritime forces to act when required. The USPACOM, based in Hawaii, is a joint command comprising U.S. Army, Navy, Air Force, and Marine Corps assets. Graham Gerard Ong and Joshua Ho, “Maritime Air Patrols: The New Weapon against Piracy in the Malacca Straits,” Institute of Defense and Strategic Studies Commentary 70/2005, October 13, 2005, http:// www.idss.edu.sg/publications/Perspective/IDSS702005.pdf (accessed April 12, 2006). Donald Urquhart, “Malacca Strait Air and Sea Patrols Brought under One Umbrella,” Business Times (Singapore), April 22, 2006. “Inaugural Malacca Strait Patrols Information Sharing Exercise,” MINDEF News, March 28, 2008, http://www.mindef.gov.sg/imindef/ news_and_events/nr/2008/mar/28mar08_nr.html (accessed June 24, 2008). The initial underlying rationale for the Five Power Defense Arrangement was that the defense of Malaysia and Singapore remained indivisible and that they still faced common potential threats: most importantly, a revival of the Confrontation [Konfrontasi] approach in the event of reversion to a politically radical leadership in Indonesia like that in 1963 and 1966, which had attempted to destabilize Malaysia, and included Singapore before separation in 1965. WPNS, http://www.apan-info.net/wpns/ (accessed May 13, 2005). Rear Admiral Ronnie Tay, “Multilateral Frameworks and Exercises: Enhancing Multilateral Co-operation in Maritime Security,” presentation at the ARF Regional Co-operation in Maritime Security Conference, Singapore, March 2–4, 2005.

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Contributors

Joshua H. Ho is a senior fellow at the S. Rajaratnam School of International Studies, Singapore, and coordinator of the Maritime Security Programme. He has an MA from Cambridge University, United Kingdom, on an SAF (Overseas) Scholarship and also holds an MSc (Management) (Distinction) from the Naval Postgraduate School, California, where he was awarded the Graduate School of Business and Public Policy Faculty award for excellence in management. He is a serving naval officer with twenty-two years of service and currently holds the rank of lieutenant colonel. He has coedited two volumes on maritime security, published in local and overseas journals, and his commentaries have also been published in the local media. Takashi Ichioka is general manager of Policy Research Department at Ocean Policy Research Foundation, Japan. He was the former managing director of Nippon Maritime Center. A nongovernment organization fully funded by the Nippon Foundation, Nippon Maritime Center functions as a focal point for cooperative initiatives in navigational safety, environmental protection, and maritime security between Japan and Southeast Asian countries. The center is also engaged in related research and analysis. Hongyi Lai (PhD, UCLA) is a lecturer of School of Contemporary Chinese Studies, University of Nottingham, United Kingdom. He was a senior research fellow at East Asian Institute, National University of Singapore. His publications in English include five authored, edited, and translated books, sixteen published and forthcoming articles in refereed journals (including leading journals in area studies such as China Quarterly, China Journal, Modern China, and Third World

228

Contributors

Quarterly), and twelve book chapters. His recent books are Reform and the Non-State Economy in China: The Political Economy of Liberalization Strategies (Palgrave Macmillan, 2006), China into the Hu-Wen Era (World Scientific, 2006), and Harmony and Development: ASEAN–China Relations (World Scientific, 2007). Peng Er Lam is a senior research fellow of East Asian Institute, National University of Singapore. His publications have appeared in international journals such as Pacific Affairs, Asian Survey, Asian Affairs, Japan Forum, and Government and Opposition. His books include Green Politics in Japan (Routledge, 1999), Lee’s Lieutenants: Singapore’s Old Guard (Allen & Unwin, 1999), and Managing Political Change in Singapore (Routledge, 1997). His latest book is Japan’s Relations with China: Facing a Rising Power (Routledge, 2006). His latest research interests include Japan’s international relations, especially peace-building in Asia and Japanese local politics. Ke Xu is an assistant professor in Faculty of International Relations, Xiamen University, China. He was a research fellow at Centre for Maritime Studies, National University of Singapore (NUS). His PhD dissertation, completed at NUS, examines the logic behind the rise and fall of maritime piracy in Southeast Asia from 1991 to 2006. He has published several articles and book chapters on piracy issue. His research interests include security issues, especially maritime security, in Asia-Pacific region. Yuanming Alvin Yao is deputy director of Research at Foundation on International and Cross-Strait Studies (FICS) in Taiwan. He was a visiting research associate at the Sigur Center for Asian Studies of the George Washington University in Washington, D.C. in 2005. He received his PhD from National Chengchi University in Taiwan. His research interests include China’s energy security and cross-Taiwan Strait relations. His papers appeared in English and Chinese journals including Issues and Studies, East Asia, and Mainland China Studies (Chinese), and so on. Keyuan Zou is Harris Professor of international law, Lancashire Law School, University of Central Lancashire, United Kingdom. His fifty refereed English papers appeared in over twenty international journals including Asian Yearbook of International Law, Chinese Journal

Contributors

229

of International Law, Journal of Maritime Law and Commerce, and Ocean Yearbook. His recent books include Law of the Sea in East Asia (Routledge, 2005), China’s Marine Legal System and the Law of the Sea (Martinus Nijhoff, 2005), and China’s Legal Reform (Martinus Nijhoff, 2006). He is on the editorial boards of several journals, including International Journal of Marine and Coastal Law and Ocean Development and International Law.

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Index

Africa, 128, see also China’s oil and gas diplomacy anti-piracy initiatives, 184, 188, 193–4, 196 Japan, 173–5 littoral states, 171–3 ASEAN, 11, 15, 16, 38, 45, 58, 76, 121–2, 154, 169, 174, 188, 191, 201–2, 215–16, 223–4 ties with China, 147, 189 ASEAN-Japan summit, 123, 126, 146, 147 ASEAN Plus Three (APT, or ASEAN+3), 15, 122, 189, 191, 215–16, 224 ASEAN Regional Forum (ARF), 13, 147, 192, 215, 224 ASEAN Security Community, 215 Article 9, 115 China assistance to littoral states, 58–60 foreign investment, 84, 89–91, 94, 97 imports of oil products, 51–2 navy (PLAN), 34, 52–5, 70–3, 76 oil consumption (demand), 2–3, 4–5, 28–9, 82–3 oil imports and dependency, 3–4, 28–9, 82–3 peaceful rise, 43, 109, 112 sea shipping, 68–9 strategic oil stockpile (or strategic petroleum reserve, SPR), 52, 88

China–ASEAN Maritime Consultation Mechanism, 58 China–ASEAN Transport Ministerial Forum, 58 China-Russia annual bilateral energy talks, 35 China’s mercantilist oil strategy, 82, 87–90, 94–7, 101 demand side, 100 foreign investment, 84, 89–91, 94, 97 government role, 88 Japan and India, 97 vs. liberal approach, 87 state-owned oil enterprises (SOOEs), 89 supply side, 94, 100 the U.S, see United States WTO obligation, 89 China’s oil and gas diplomacy, 80–2, 87, 90–4 Africa, 7, 9, 30, 34, 46, 50–5, 68–70, 80, 88, 90, 92–3, 100, 108, 110, 132 Central Asia, 7, 42, 100 dimension of, 90 Hu Jintao’s foreign visits, 92–3 India, 7–8, 15–17, 38, 40–3, 46–7, 107, 111, see also India Indonesia, 30, 39, 42, 46, 81, 92–3, 96 Iran, 7–10, 17, 29, 30–4, 41–5, 91–3, 97, 99, 107, 111

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China’s oil and gas diplomacy—continued Japan, 34, 37–8, 41, 64–6, 80–2, 87, 90–4 Kazakhstan, 9–10, 36–7, 50–1, 61, 69 Latin America, 80, 92 Malaysia, 30, 38 Middle East, 7, 9, 27–35, 41–2, 50–2, 55, 62, 68, 81, 88–91, 95, 104–11, 187 Myanmar, 8, 10, 50, 58, 62–3, 69, 75, 92, 96, 132 obstacles for, 94 Pakistan, 10, 50, 62, 69, 75, 93, 132 Persian Gulf, 9, 14, 35 Russia, 7–10, 23, 27–8, 30, 34–7, 41–6, 50–1, 61–2, 66–9, 74, 81, 88, 90–3 Saudi Arabia, 10, 29–33, 42–4, 81, 91–3, 107 South America, 30, 50, 54 Sudan, 8, 93, 97 the U.S., see United States Vietnam, 10, 39–40 China’s oil security, 7, 11, 41–3, 79–82, 87–102 environment challenges, 84, 86–7, 99, 101 go out strategy, 88 goal, 87 institutional constraints, 83–6 mercantilist approach, see China’s mercantilist oil strategy National Energy Commission (NEC), 84–6 obstacles and constraints, 94 oil demand and dependency, 82–3 sea lines of communication (SLOC), 55–69, see also United States strategic petroleum reserve (SPR), 88 the U.S., see United States

see also strategic oil stockpile under China CNOOC, 38–40, 42, 46, 81, 84, 90, 92, 96–7, 103, 110, 146 CNPC, 36–7, 41, 61, 75, 84, 92, 111 coastal state, 126, 136–7, 140, 143, 151, 200 comprehensive security, 117–18 East Asia, 2–5, 11–17, 35, 39, 54, 63, 71, 92, 95, 97, 99, 101, 115–17, 121, 123, 126, 128–9, 135–8, 140, 142–3, 145–50, 157, 165, 183, 189, 208 East Asian Energy Security Partnership, 128–30 East Asian regionalism, 17, 22, 116 East Asian Summit (EAS), 15–16, 35, 45, 122 Cebu Declaration on East Asian Energy Security, 15 EAS Energy Cooperation Task Force, 16 East China Sea, 22, 37–8, 64–6, 69 energy nationalism, 16, 116, 121, 128–9 energy sea lane security, 50–1, 69–71 energy security, 1, 2, 5, 8–12, 14–17, 21–4, 27, 41, 43, 49, 50, 72, 77, 81, 83, 86–9, 91, 94, 96, 103–8, 111, 117–19, 123, 126, 128–30, 135–7, 139, 141, 143–5, 147, 150–3, 155, 165, 183, 187, 228 exclusive economic zone (EEZ), 37, 136–7, 139, 141–2, 151 Eyes in the Sky, 172, 190, 199, 218 Five Power Defense Arrangements, 219, 225 Hu Jintao, 28, 32, 35, 40, 47, 55, 92–5

Index India, 23, 45, 52–8, 62, 69, 73–5, 80–1, 93, 97, 104, 111–12, 131, 183, 192, 205–6, 214–16, 219–22, 224 anti-piracy activities, 19, 58, 125–6, 133, 147–8, 189, 191 coast guards and navy, 70–1, 125, 133, 147, 214 energy competition and cooperation with China, 7, 38, 40–3, 81, 107 oil consumption (demand), 3–6, 104, 166 oil imports, 3–4 see also China’s oil and gas diplomacy Indian Ocean, 10, 51, 55, 62, 95, 118, 120, 125, 127, 132, 157, 206 Indonesia, 39, 56, 58–9, 70, 110, 215, 219, 220, 222–5 gas and oil, 128, 141 navy, 190, 195, 212, 223–4 security and safety of sea lanes, 13–16, 18–22, 25, 57–8, 121, 124–5, 128, 136, 142, 144, 148–9, 157, 159, 172, 176, 185, 188, 190–5, 197–9, 201–2, 206–8, 211, 214, 217–18 territorial disputes, 22, 150, 152–3 use of Straits of Malacca, 18, 163–4 see also China’s oil and gas diplomacy Information Sharing Centre (ISC), 19, 57, 149, 174, 185, 217 Inter-Governmental Maritime Consultative Organization (IMCO), 170 international law, 2, 11, 21, 137–40, 143–5, 149–53, 180, 196, 202, 221

233

International Maritime Bureau, Piracy Reporting Centre (IMB-PRC), 184–5 International Maritime Organization (IMO), 12–13, 19, 102, 139, 143, 145, 149, 151–3, 158, 159–60, 170, 171, 176, 178–9, 184–5, 189, 193, 199, 200, 202–3, 206, 213, 215, 221, 223 international navigation, 12, 137, 167, 178 Iran, 32–4 nuclear program, 33, 91, 93 political and energy ties with China, 8, 32–4, 41 see also China’s oil and gas diplomacy Iran–Pakistan–India peace pipeline, 17, 41, 43 ISPS Code (International Ship and Port Facility Security Code), 193 Japan, 1–3, 7 African oil, 165 anti-piracy efforts, 173–5, 189–90 Arab world, 120 assistance to littoral states, 57–8 Coast Guard, 169, 174 energy cooperation and competition with China, 36–8, 41, 64–6 energy diplomacy, 119–23 Indonesian gas, 125 maritime initiatives, 123–8 Middle Eastern oil, 120–1, 125, 128, 131, 165 navy, 115, 117, 125, 127 the OSPAR (Oil Spill Preparedness and Response) project, 169 relation with littoral states, 121, 124, 131

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Japan—continued “Revolving Fund”, 169 Russian oil, 66, 75 see also China’s oil and gas diplomacy Jiang Zemin, 31–2 joint development of disputed territory, 10, 64–6, 144–6 Kazakhstan, 9, 36–7, 42, 50–1 pipeline, 37, 61 see also China’s oil and gas diplomacy Koizumi, 10–15, 33–4, 36, 64–9 Li Lanqing, 32, 36–7 littoral states, 1, 8, 10–13, 15–16, 18–21, 25, 56–60, 69–71, 74, 115–16, 121, 123–5, 127, 129, 157–8, 165, 167–73, 175, 177–80, 189–90, 192, 195–9, 203, 214, 217–21 Malacca Strait Council, 168 Malaysia, 13–15, 18, 45, 56, 57–9, 145–6, 157, 159 navy, 191 security and safety of sea lanes, 13–16, 18–20, 56–9, 70, 74, 124–5, 128, 133, 136, 148–9, 159–60, 168, 172, 176, 178, 185, 188–202, 208, 211–15, 217–20, 222–5 territorial disputes, 22, 140–1, 144, 150, 153–5 use of Straits of Malacca, 18, 162–4 see also China’s oil and gas diplomacy MALSINDO (Malaysia-SingaporeIndonesia Trilateral Coordinated Patrols), 190, 199 marine legal order, 136 maritime capability, 195 maritime claims, 12, 140, 142 maritime law, 21–2, 71, 136–40, 150, 189

maritime security, 2, 6, 8, 9–13, 14–15, 18–23, 25, 56, 59, 69, 71, 115–16, 119, 125, 127, 129, 131, 136, 143, 147, 153, 157, 172–3, 177, 188–9, 191–3, 195, 199, 201–3, 213, 216–17, 221–5 maritime terrorism, 2, 12–13, 24, 73, 138–9, 143–4, 149, 151, 158, 167, 175–7, 201, 209–13, 219, 223 maritime zones, 2, 12, 136–7, 139–40, 144, 196 Middle East, 29–34, 122, 165, 166, 206 see also China’s oil and gas diplomacy Ministry of Land, Infrastructure, and Transport of Japan (MLIT), 160, 174 Ministry of Transport, 59 Myanmar, 8, 62–3, 148, 191, 215–16, 222, 224 Sittwa, 62–3 see also China’s oil and gas diplomacy Nakhodka, 36, 75, 81 National Energy Commission (NEC), 84–6 national interests, 22, 66, 95, 97, 194, 196, 199 Nippon Foundation, 160, 174 OECD, 3–6 offshore oil and gas, 9, 12, 38, 136, 140–1, 145, 153 Oil consumption (oil demand) Asia, 3–6 China, 2–3, 4–5 EU, 3 India, 3–6 Japan, 3–6 North America, 3–6 United States, 3, 4

Index Oil imports Asia, 3–6 China, 3–4 EU, 3 India, 3–4 Japan, 3–6 North America, 3–6 United States, 3, 4, 80 oil spills, 168 Oman, 29–30, 34 Pakistan, 10, 17, 41–3, 62, 111, 192, 216, 222 Gwadar, 62 see also China’s oil and gas diplomacy Pan-Asia railway, 63 piracy (and armed robbery), 124, 132–3, 138–40, 151–2, 184 Southeast Asian waters, 8, 9, 10, 12, 13, 16, 18–19, 24, 64, 73, 118, 123, 126, 129, 130, 138, 147, 153, 183–7, 190 pirates, 13, 18, 20, 24–5, 56–7, 126, 132, 138–9, 142–3, 148, 152, 172, 175, 183, 185–7, 196–8, 208–9 public goods, 2, 13–16, 50 cost sharing, 19, 20–1 costs of provision, 18–19, 20–1 free ride, 14 global, 22, 116 providers, 18, 20–1 users, 18 Putin, 36, 46 ReCAAP (Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships), 13, 125–6, 129, 148, 174, 184–5, 191–2, 199, 200–1, 216–17, 224–5 ReCAAP Information Sharing Centre, 126, 174, 185, 191–2, 200, 217, 224–5

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see also Information Sharing Center (ISC) Regional Maritime Security Initiative (RMSI), 56–7, 73, 143–4, 193, 217, 225 Russia, 9, 14, 34–6, 42, 52–4, 61, 122, 128, 136, 140, 153, 166, 192, 205, 216, 219, 222 trans-Siberian pipeline, 35–7, 61 see also China’s oil and gas diplomacy Saudi Arabia, 18, 29–33, 97, 111, 121, 122, 131, 163–4 see also China’s oil and gas diplomacy security of sea lanes, 1, 12–13, 51, 55, 121, 136, 205 Singapore, 2, 15–16, 18, 19, 20, 51, 56–9, 62–3, 121, 125–8, 157–226 navy, 127, 190 and Straits of Malacca, 9, 157–226 Sinopec, 31–3, 39, 44–5, 63, 68, 73, 76, 84, 90, 105, 108 South China Sea, 1, 8, 10, 22, 37–8, 63–4, 69 Southeast Asia, 7–8, 10, 12–13, 21–2, 28–30, 38–9, 41–2, 50–1, 58, 61–4, 68–9, 95, 116–18, 123–7, 141, 143, 172–7, 183, 185–6, 188–9, 193, 197–9, 200–3, 205–6, 208–9, 215, 221–2 sovereignty, 14, 20, 22, 56, 59, 71, 126, 136, 137, 143, 145, 150, 169, 175–6, 180, 190, 195, 197–9 STRAITREP (Mandatory Ship Reporting System), 159, 170, 207, 221 Straits of Lombok, 13, 54, 187, 206 Straits of Malacca, 10, 51, 54–6, 59–60, 61–3, 69–71, 183 accidents (of ships), 167 anti-piracy initiatives, 16, 20, 57, 125, 147–9, 171–5,

236

Index

Straits of Malacca—continued see also anti-piracy initiatives assistance to littoral states, 57–60 burden sharing, 178, 195, 199 Cooperative Mechanism, 16, 179 coordinated patrols, 20, 124, 190, 197–9, 214, 217–18, see also MALSINDO navigation safety, 167 piracy, 2, 20, 55, 58, 74, 116, 124–5, 128, 142–4, 157–8, 167, 171–5 traffic pattern, 9, 12, 158, 160–8 traffic volume, 2, 158–64 user states, 158 Straits of Singapore, 9, 12, 13, 18 Straits of Sunda, 13, 54, 187, 206 SUA Convention (The Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation), 20, 138, 139–40, 148–9, 154, 192, 197–9, 213, 216 SUA Protocol (Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms Located on Continental Shelf), 192, 197 Sudan, 8, 30, 81, 92, 93, 97, 99, 107–8, 111 see also China’s oil and gas diplomacy Taiwan, 67 Taiwan Strait, 66–7 Thailand, 63 third party jurisdiction on territorial disputes, 21–2 Traffic Separation Scheme (TSS), 170 transit passage, 137–8, 142, 151 Tripartite Technical Experts Group (TTEG), 169 UNCLOS (United Nations Convention on the Law of the

Sea, or Los Convention), 184, 194, 196–7 United States, 1, 10–11, 17, 31–2, 34, 42, 49, 81, 91–4, 118, 126, 176, 188, 192, 205, 216, 220 anti-piracy, 8, 9, 10, 56–7, 190, 214 assistance to littoral states, 19–20, 179 in China’s maritime security, 60, 62, 64, 66–7, 69–71 in China’s oil security, 9, 95–101 energy dialogues and cooperation with China, 81–2, 98–9, 102 hedging strategy to China, 100, 102 and Japan, 117, 119–20, 123, 125, 127 in maritime security, 144, 149, 158, 176, 188, 193–4, 210, 217, 219 military preparedness to China, 99–100 navy, 14, 53, 95, 117–18, 127, 143, 176 policy response to China’s oil diplomacy, 98 Robert Zoellick’s call of “responsible stakeholder”, 81 sea lines of communication (SLOC), 95, 101 in traffic through Straits of Malacca, 162 see also oil consumption, or oil imports Vietnam, 40, 42, 64 Wen Jiabao, 35, 37, 63–4, 76, 94, 104, 108 Western Pacific Naval Symposium (WPNS), 219 Yahavaran oilfield, 17, 33, 41 Yemen, 29–30, 34