As the entire world turns its attention to the Middle East, further east, a crisis is emerging in one of the most important arteries of global trade, in which can be a new challenge for the logistics market from all over the world. For several months, the South China Sea has been threatened by an open diplomatic conflict between China and the rest of the countries whose waters wash its coasts: Vietnam, the Philippines, Malaysia, Cambodia, Indonesia and Taiwan. An official map was launched from Beijing in which they claim much of the region as their own, with areas also claimed by these countries. All this at a time when these seas are experiencing a historic awakening of oil discoveries which place them as one of the areas with the greatest potential in the world.
As the U.S. Energy Information Administration noted in a report on the South China Sea, “the majority of discovered oil and natural gas deposits are in undisputed areas, close to the coasts of each country. According to Rystad, approximately 3.6 billion barrels of oil and 40.3 trillion cubic feet (Tcf) of natural gas are found in proven and probable reserves in the South China Sea. »
Until a few weeks ago, the problem did not go beyond diplomacy with cross-statements as countries like Malaysia began exploiting its waters with oil rigs and explorations. Shortly after China began commanding coast guard vessels who tried to hinder their activity as much as possible, however, the conflict goes beyond the diplomatic framework and is getting worse.
From Beijing, they have started an escalation against the Philippines and it is no longer just their fleets that watch each other from a distance. This week there are already accusations from both sides of intentional attacks among coastal ships. From Manila, they also accuse the fleet of the Asian giant of firing water cannons on its troops, while bare-handed and stabbing fights take place.
The latest case occurred near Scarborough Shoal and Sabina Shoal in the Spratly Islands, an area within the Exclusive Economic Zone (EEZ) of 370 kilometers from the Philippinesbut where China claims sovereignty. Beijing has spoken out in recent hours recognizing the direct clashes, but asserting that they were the fault of the Philippines, which would “illegally” invade their territory. After that, he threatened his neighbor, saying their future was at a crossroads, and advised them to think seriously about the implications of these skirmishes on the two countries’ relations.
Foreign Secretary Anthony Blinken spoke out about the latest attacks, saying he was “concerned about Chinese activities increasingly dangerous and illegal” in this sea. From Washington, they call for open negotiations between all countries to prevent the situation from degenerating, while the President of the Philippines, Ferdinand Marcos, affirmed that a “campaign of harassment and intimidation” was underway against his country.
The United States has already warned since the beginning of August that if the conflict continues to escalate, the blow will fall on the entire world. “The People’s Republic of China’s illegal claims to ‘territorial sovereignty’ over ocean areas where no land territory exists, and its increasingly aggressive actions to enforce themthreatens freedom of navigation and overflight of all nations,” the White House commented in a statement.
In that same letter, the United States issued a serious warning to China, alleging that if it crossed the line and committed an attack on the Philippines, Washington is obliged to defend its ally. “The United States reaffirms that Article IV of the United States-Philippines Mutual Defense Treaty of 1951 extends to armed attacks against Philippine armed forces, public vessels or aircraft, including those of its coast guard, all over the “South China” sea.
Tensions between the two countries are escalating, with the Philippines reducing flights to China due to “geopolitical tensions”, as Philippine Air announced on Friday. Currently, the archipelago has also taken measures, such as banning Chinese players from being served in the country’s casinos.
The biggest threat to global trade
With the crisis in the Middle East, with the possibility of an escalation between Iran and Israel which would end in bombings on the latter’s oil structures, this question has been put on the back burner. For experts at BCA Research, the issue does not receive the attention it deserves. “”The South China Sea is the most valuable sea route in the world in terms of the value of the trade that passes through it. » Therefore, an escalation could cause disruptions in global logistics routes at a time when logistics problems have continued to occur in recent years.
First, Chinese ports closed by Covid caused a global crisis, then we saw how the Suez Strait made headlines after Houthi rebel attacks on cargo ships. Other problems such as drought in the Panama Canal have affected the world and the Strait of Hormuz, through which 25% of the world’s crude oil passes, has also been affected.
Given the importance of the region, this could be one of the most complicated episodes in this succession of problems. According to the latest study by the University of Leipzig, the South China Sea60% of global maritime trade passes through these watersor 22% of the total, whatever its mode of transport.
According to the American Department of Defense itself, we are talking about the maritime routes of the area alone representing 5,000 billion dollars in trade. And it’s not just the volume of activity, but its importance for the world Because this is where essential components for all Western industry and Middle Eastern oil flow to the East.
“Geopolitical events are ignored by the markets but represent a great risk”
Researchers at Duke University in North Carolina calculated that total trade via the South China Sea and the East China Sea (which lies between China, the two Koreas and Japan)) amounts to 7.4 trillion dollars per year. 40% of Chinese trade passes through this sea, a third of that of India and 20% of that of Japan, according to data from the Center for International Strategic Studies (CSIS). For its part, the impact on the oil market could also be decisive by increasing barrel prices with transport, since oil products from around the world transit here via the South China Sea, according to the CSIS.
In this sense, even if the possibility of a blockade of the Strait of Hormuz is constantly repeated, the danger is even greater in this same sea, with the Strait of Malacca. According to the latest EU report, nearly 23.7 million barrels of crude oil pass through this narrow passage, only 64 kilometers wide, or 13% more than what passes through the Persian Strait. In this sense, the IEA highlighted the blockade of the United States and its allies as one of the possible scenarios in the event of an escalation of the conflict with China, in order to block its trade and harm its economy. The institution spoke of this affair in reference to a possible invasion of Taiwan from Beijing, but the Philippines is also a first-class ally of Washington and the country has already defended it publicly.
Capital Economics believes that the escalation is dangerous but that markets traditionally ignore the dangers of the region while taking into account those of the Middle East. “It is true that the financial markets have ignored many geopolitical tensions between the United States and China in recent years”, comments Shivan Random. “With the arrival of Nancy Pelosi in Taiwan or the elections on the island, there has been practically no movement”, comments the expert, “geopolitical events represent a big risk. »
