The Curious Case of India’s Withdrawal from the South China Sea

The withdrawal of ONGC Videsh Limited (OVL) from the South China Sea (SCS) has added a new facet to the existing maritime dispute in the region. The Ministry of Petroleum and Natural Gas, in a letter to the MEA dated 10 April 2012 said, “OVL’s decision to initiate relinquishment process is based purely on techno-commercial considerations.” Why did OVL withdraw now? What were the earlier stated positions? Is the timing right to make an announcement to this effect?

Why did OVL withdraw from the SCS?
In 2006, OVL signed a contract with Petro Vietnam to jointly explore sectors 127 and128 in the Phu Khanh Basin. Later, in September 2011, it signed three deals to jointly explore oil and natural gas in these blocks. These two blocks have been at the centre of a diplomatic uproar between India, China and Vietnam. China feels that India is trying to impinge on its area of influence. However, according to the UNCLOS guidelines, the blocks lie within Vietnam’s Exclusive Economic Zone and Continental Shelf. The official spokesperson of the MEA Vishnu Prakash, stated “Our cooperation with Vietnam or any country for that matter in the world is always as per the international law, norms and conventions.” Since then, New Delhi has maintained the position that its explorations in the SCS have been purely commercial. 

OVL relinquished block 127 after it encountered dry wells. It had already invested USD 50 million in exploration in block 128 until last year. After repeated exploration, it was found that due to the hard seabed in the area the prospects of finding oil in the block were low. Hence, it was not a very cost effective project to continue. Besides, India had to pay USD 15 million as exit fee to Petro Vietnam to get out of the block. By giving up exploration in these two blocks India has extracted itself from the SCS dispute.

Apart from these two blocks, OVL had already signed a gas exploration contract with Vietnam in 1988. This gives access to Lan Tray and Lan Do fields in Block 06.1, off the coast of Vietnam in the SCS. India would continue to engage in the Nam Con Son basin (close to Natuna Sea) that OVL was awarded as a goodwill gesture to India. Currently, OVL has 45 per cent stakes in these blocks. The blocks where India is now involved are not part of the dispute.

India and the SCS: The stated positions
Exploration of oil and petroleum is just one of the many interests India has in the SCS. India has taken the position that it supports the freedom of navigation in the SCS under the Declaration of Code of Conduct, 2002. Almost 55 per cent of India’s trade with the Asia Pacific transits through the SCS. The Indian Maritime Doctrine suggested in 2007 that the events in the SCS have a bearing on the Indian Ocean region.  Despite the withdrawal, India is keen on maintaining a strong role for itself in the region.

China has always been assertive about its claims in the SCS. It claims almost the entire SCS on historical grounds. It does not want any third party mediation and supports bilateral talks to resolve the dispute rather than multilateral discussions among the stakeholders. It has objected to any companies from countries that are not stakeholders from engaging in energy exploration. The Royal Dutch Shell Company surveying this area on behalf of OVL was called upon by the Chinese Embassy in The Hague and told to discontinue its operations. However, this is not the reason for the OVL exit.

SCS: India and Vietnam
The frequent spats in the SCS have revived India-Vietnam relations. Both countries have close friendly ties which encompass the entire range of political, economic, social and cultural relations. Strategically, Vietnam is a vital country for India in its Look East policy (LEP). This year (2012) is being celebrated as the India-Vietnam friendship year to mark the fortieth anniversary of bilateral diplomatic relations. India and Vietnam have strategic defence ties and both the countries are involved in joint exercises between all three wings of the armed forces. India also provides training to Vietnamese police personnel. Apart from holding joint naval exercises, India is training its military personnel in information technology and English language skills. The trade volume in 2011 was USD 3.9 billion - India exported USD 2.34 billion and Vietnam exported 1.56 billion.

Given the fact that it was not a commercially viable project, it was a judicious decision to exit. However, the timing of the announcement was not appropriate - it could have come later. This particular move by the OVL can hamper India’s international stature especially at a time when India is expanding its maritime boundaries. The Southeast Asian countries look upon India as a trustworthy balancer of China, and Vietnam was disappointed with the Indian exit. The announcement could have come in a more subtle manner; this is inept and crude diplomacy at play. Any development in the region will certainly have reverberations on India’s foreign policy.

For additional reading on this topic please see:

South China Sea: Opportunity or Liability?
China in View of the US's "Return to the Asia-Pacific"
Stirring up the South China Sea (I)