China to ExxonMobil: pull out of Vietnam exploration deal

Eric Watkins
Senior Correspondent

LOS ANGELES, July 23 -- The Chinese government has warned ExxonMobil Corp. to pull out of an exploration deal off Vietnam, describing the project as a breach of Chinese security, according to a Hong Kong newspaper.

The Sunday Morning Post, citing sources close to the firm, said Chinese diplomats in Washington, DC, have made repeated verbal protests to ExxonMobil executives in recent months, warning them that its future business interests on the mainland could be at risk.

The protests are said to involve a preliminary cooperation agreement between state oil firm Petrovietnam and ExxonMobil covering exploration in the South China Sea off Vietnam's south and central coasts.

ExxonMobil is confident of Vietnam's sovereign rights to the blocks it would be exploring, the paper's sources said—those off central Vietnam start at the coastline—but it could not dismiss China's warnings out of hand.

"If it was simply a legal question it would be easy," one of the sources said. "Vietnam would probably prevail in international mediation. But it's political, too. China's concerns make the situation much more complicated for a company like Exxon…China is a very important player in the international oil industry."

The Chinese envoys based their protests on Beijing's historical claim to virtually all of the South China Sea, the source said. Both countries claim the entire Paracels and Spratlys archipelagos and much of the surrounding waters.

Vietnam bases its claims on its extensive continental shelf and the exclusive economic zone this allows it to stake out according to the United Nations' International Law of the Sea. China's claim is legally vaguer, independent academics say.

An ExxonMobil spokesman refused to discuss any approaches from China, saying only that the firm is evaluating a "business opportunity, and sovereignty is a matter only governments can address."

Carl Thayer, a Vietnam-watcher at the strategic and defense studies centre of Australian National University, said Vietnam's sovereignty was "under threat" and that Hanoi was struggling to deal with the situation.

"Chinese hard power is once again part of the equation, as far as Vietnam is concerned," he said, adding that China may be trying to push Vietnam towards a joint exploitation deal like the one struck with Japan in the East China Sea.

Contact Eric Watkins at [email protected].