The Politics of Southeast Asian Oil

(Second of Two Parts)

SINGAPORE (DNSI) - International oil companies developing offshore oil reserves appear at first glance to demand relatively little in the way of political guarantees. With their wells, rigs and even many of the refineries offshore (all Singapore's refineries, for example, are on satellite islands) they are comparatively more immune from domestic problems than most investors.

For example, one American oilman, when asked if the war would hinder development of Vietnam's offshore oil, said, "Why should it? The supply can be done from Singapore if necessary." Once in production, offshore wells can feed tanker ships directly. The oil can be carried off without ever touching base with the mainland.

Kenneth Wells, Singapore representative of Ray Geophysical Company, which did recent seismic exploration off the coast of Vietnam, said, "The North Vietnamese don't have much naval power. It is a calculated risk but not much worse than some in the Middle East these days,"

The determining political factor for international oil companies plunging on beyond the "risk capital"-they have so far invested in Southeast Asia's oil-appears to be confidence that friendly governments will stay friendly and stay in power, even if only muddling through revolution and war onshore.

(There is an increasing fear among Americans opposed to the Vietnam war that the oil industry will pressure the Nixon Administration to make an even stronger commitment to the Thieu-Ky government. A pamphlet making this argument was done in February by the "Another Mother for Peace" group. This has prompted 10,000 letters to the Senate Foreign Relations Committee, according to Chairman J. W. Fulbright (D-Ark). State Department officials, in response to Senator Fulbright's query, have disclaimed knowledge of oil fields offshore Vietnam.)

It is likely that Japan in addition to the U. S. will make the political, economic and military commitments necessary to guarantee the survival of the current Southeast Asian governments. The most recent symbol of Japan's growing political and economic concern with the area is the dispatch in February of a 34-member "Asian investment and finance research mission" led by the Director of Tokyo's stock exchange under government sponsorship.

Japan's trade with Southeast Asia is now over $6 billion yearly. Two-thirds of her investment in developing countries in 1969 went to East and Southeast Asia.

Involvement in the oil industry in particular is growing. Most recent of a spate of aid-investment programs is a private $40 million loan to Indonesia's Petramina for guiding oil tanks and pipelines in Western Java. The late-February loan made by the Japanese companies Mitsui and Marnbeni-lida, is to be repaid in oil exports to Japan.

Japanese firms now hold outright over 60,000 square miles of on and offshore concessions in Indonesia. In the last year, moreover, Japanese firms have bought into concessions of at least four other foreign oil companies in Indonesia and Malaysia, and have shown interest in getting involved in offshore exploration in the Philippines, Burma, and Thailand. Japanese firms are reportedly negotiating with the Burmese, although Burma has long been ideologically opposed to foreign private investment.

According to Petramina's General Sutowo, Japan now consumes one-half of Indonesia's oil, some 70 per cent of Indonesian oil exports. In late February, the Japanese entertained Sutowo in Tokyo, agreeing to a 30 per cent rise in price for Indonesian oil sold directly to Japan, in an apparent attempt to reduce dependency on foreign oil companies.

On the military side, the February 1 statement by Yashuhiro Nakasone, Director General of Japan's Self-Defense Agency, that Japan may give priority to expanding its navy from 138,000 tons to about 240,000 tons with some nuclear-powered ships has increased speculation that Japan will soon be a military power in the China Sea Basin.

Handing over its assumed responsibility for Southeast Asia to Japan may be on Washington's agenda, but it is highly unlikely this will be anything more than a gradual readjustment designed not to endanger the counter-revolutionary status quo in Southeast Asia. Growing American investments in Southeast Asia oil bear this out.

In this vein, Assistant Secretary for Economic Affairs Philip H. Tresize said last October that, "as a practical matter, we cannot merely shrug off these other people's problems. Any real worsening of the oil situation in Europe and Japan, where we have mutual defense commitments on top of otherwise close and important relationships, would have to affect us... we recognize the mutuality of our interests in seeking to assure against an energy crisis that could harm us all."

The potential of international conflict over Southeast Asia's offshore oil is very great, particularly since long-term big power alliances in the regions are still up in the air. For the moment, Japanese-American togetherness seems assured because of interlocking military and economic interests.

From the Japanese point of view, particularly, the alliance is important. Not only do the Japanese rely on an American defense umbrella, but, more importantly perhaps, they are dependent on Esso, Caltax, and other American firms, along with the Dutch-British Shell combine for most of their crude oil.

The Japanese-American alliance is not necessarily long-term, however, as is indicated by warming relations between the Soviet Union and Japan, as evidenced in the joint Siberian development agreement, and also by recent Japanese attempts to normalize relations with China.

There is no doubt the Japanese are increasingly unhappy with their dependency on American oil interests. Following the price hike from 23.2 to 28.5 cents per barrel on February 18 by the five major Western oil suppliers to Japan, Japan's Minister of International Trade and Industry urged the Japanese petroleum refining industry to put up all-out resistance to the price rise. At the same time, the Finance Minister stated Japan had to make epochal changes in her policy of securing natural resources for her industries.

The Soviet Union's ambitions on Southeast Asian oil are unclear, though it is obvious the Soviets are trying to develop more rapport with Singapore, Malaysia, Thailand and Indonesia.

In Singapore, the most recent indication of this came in early February when the outgoing Ambassador to Singapore, Ilya Ivanovitch Safranov, told the local press that there is "much similarity in the parliamentary systems" of Singapore and the Soviet Union.

On February 23, with regard to American development of offshore oil in the region, Pravda carried an article blaming American aggression in Indochina on aspirations of the U. S. oil interests to get offshore oil along the coast of Indochina.

China's position on the status quo in Southeast Asia is well-know. However, her position on offshore oil in Southeast Asia is a question-mark.

The Chinese are now reported to be self-sufficient in oil from onshore wells in northern China. However, production is reported to be less than 100,000 barrels per day, an amount which will have to be expanded as China further industrializes. On February 24 China launched its largest oil tanker to date, a 22,000-ton vessel giving indications they plan to expand their role in the oil trade.

The Chinese have involved themselves in the dispute over control of the Senkaku Islands north of Taiwan. Whether or not they are interested in developing their offshore oil reserves at this point is not clear, however.

In any case, the chance of an international confrontation involving oil between the Chinese and another nation is real. For example, there are many islands in the center of the South China Sea over which sovereignty is in dispute between China and other governments. Some of these islands are thought by geologists to be in the vicinity of rich oil reserves.

One such island is Spratley Island, a 500 by 300-yard uninhabited bit of land 280 miles southeast of Cam Ranh Bay and 775 miles northeast of Singapore. It is claimed at least by China. South Vietnam and the Philippines. The Philippines has already let oil concessions near it. What would happen if either China or Vietnam let concessions involving it is anybody's guess.

The State Department avowedly takes no position when there is a sovereignty dispute over the islands. However, an official in the Asian-Communist Affairs Office stated that if any islands "were administered through the Philippines, we probably would recognize the Philippines as having sovereignty."

This is only one kind of boundary problems that could arise over oil. As drilling is about to begin in Cambodia, for example, continental shelf boundary disputes exist with Thailand and Vietnam. Further south, the continental shelf boundary between Thailand and Malaysia is not officially settled. And between the Philippines and Malaysia there is a long-standing feud over who should own Sarawak and the Palapan island. Only Malaysia and Indonesia have settled all their continental shelf boundary problems.

In Vietnam there is the very real problem of how oil development will influence the war and just how many lives will be lost keeping the country at least safe for off-shore concessions. The Provisional Revolutionary Government of the NLF announced February 23 it would not recognize oil agreements made by Saigon.

The search for offshore oil is indeed one of the biggest things happening to Southeast Asia today. But it augurs problems for the future as great or greater than any in the history of the region.

(Copyright Dispatch News Service International)

The CRIMSON is pleased to announce the election of Robert N. Gogel '74 of Weld Hall and Livingston, New Jersev, and Alexander C. Smythe '73 of Leverett House and Houston, Texas, to the Business Board.