Thayer Consultancy Background Brief

ABN # 65 648 097 123

South China Sea: Will Exxon
Mobile’s Blue Whale Project be
China’s Next Target?
March 26, 2018

We are currently a report about recent news that Vietnam ordered Repsol to stop
operations in the South China Sea, within Vietnam's Exclusive Economic Zone (EEZ,
amid pressure from Beijing - similar to last year's pull out.
However, this comes as President Trump takes a harder line toward China, at least in
trade and with continued freedom of navigation voyages in the South China Sea, and
just weeks after the USS Carl Vinson visited Danang.
To up the ante geopolitically, Exxon Mobil is engaged in the Blue Whale Project off of
Vietnam's coast. The project could read a FID (Financial Investment Decision)
sometime this year.
We request your analysis about what you think could happen with Exxon and its
project. Do you think Beijing will also pressure Hanoi enough for them to postpone or
cancel the Blue Whale Project? Or do you think given that Exxon is a US based oil
major, it would have more leverage and weight in the matter or some kind of support
from Washington?
ANALYSIS: Oil exploration by Repsol in the waters around Vanguard Bank to the south
of the Spratly islands and oil exploration by Exxon Mobil in the waters off central
Vietnam are two separate issues.
China claims that it reached agreement with Vietnam to maintain the status quo in
the Vanguard Bank area. When Vietnam resumed oil exploration in this area last year
China put enormous pressure on Vietnam reportedly even threating armed force.
Vietnam backed down.
Exxon Mobile is operating in a block that comes close to but does not cross China’s
ambiguous nine dash line. Vietnamese sources intimate that both sides have reached
an informal understanding that they will not interfere in activities by the other party
if it falls on their side of a hypothetical median line of their claimed Exclusive Economic
Zones. Both sides are free to make public protests but the informal understanding is
that both sides will exercise restraint and not interfere. This understanding should
reduce the risk to Exxon Mobile in its present operations.
The fact that Exxon Mobile is U.S. owned and that Rex Tillerson, until recently
Secretary of State, was its former chief executive officer means that American
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commercial interests are directly involved. It is a relatively minor matter for China to
put pressure on Repsol a Spanish company but it would be a major matter if China
took action against a U.S. owned company.
Both the North Korean nuclear proliferation issue and the tariff contretemps between
Washington and Beijing mitigate against China taking direct action against Exxon
Mobile. Chins is more likely to press Hanoi to stop Exxon Mobile’s Blue Whale project
and thus drive a wedge between Hanoi and Washington. Beijing will play the long
game in the South China Sea while the U.S. is focused on North Korea and its trade
imbalance with China.
U.S. freedom of navigation operations are part of a multifaceted program to challenge
what Washington views as excessive maritime claims. These patrols are not intended
to address issues related to maritime disputes in the South China Sea to which the U.S.
is not a party. There has been some speculation that the recent visit of the USS Carl
Vinson aircraft carrier to Vietnam was a ploy by Vietnam to deter China from exerting
pressure over oil exploration in the Vanguard Bank area. If so, it was badly misjudged.
My assessment is that the two issues are unrelated. The U.S. has no interest in taking
sides between China and Vietnam over disputed maritime claims.

Suggested citation: Carlyle A. Thayer, “South China Sea: Will Exxon Mobile’s Blue
Whale Project be China’s Next Target?,” Thayer Consultancy Background Brief, March
26, 2018. All background briefs are posted on Scribd.com (search for Thayer). To
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Thayer Consultancy provides political analysis of current regional security issues and
other research support to selected clients. Thayer Consultancy was officially
registered as a small business in Australia in 2002.