Rex Tillerson Returns to the South China Sea

Rex Tillerson has brushed up against China before. So have his competitors. In 2006, Chevron executives thought they had spotted a golden opportunity to expand their operations in Asia after noticing a body of water in the South China Sea that potentially contained a plethora of reserves. The area has a history of conflict with six countries – China, Vietnam and the Philippines included – having fought, and at times violently, over its islands. But by the time the oil executives arrived, the territorial jockeying seemed to have subsided.  Subsequent talks with the Malaysian state oil company, Petronas, went smoothly and everything seemed in order. A few months later, Chevron inked a deal and set out to investigate. Yet despite its due diligence, the American oil company encountered something it had not accounted for: the wrath and reach of an increasingly territorial China. Although Malaysia had an Exclusive Economic Zone (EEZ) in the region, Beijing responded to Chevron’s operations with accusations of infringement on their sovereignty and threatened to respond. Vietnam offered its navy in support, but by then, Chevron wanted no part in the affair. By 2007, they had officially scuttled the project.

This incident is emblematic of the way that foreign energy companies have operated in the South China Sea. The area is estimated to contain 11 billion barrels of oil and 190 million cubic feet of natural gas. Yet, when issues of sovereignty arise, these companies tread carefully and repeat the same pattern of probing, experiencing resistance, folding, and moving on. In fact, over the past decade, multinational oil companies have consistently refused to work in the South China Sea: In 2008, BP canceled a project after it faced pressure from China; that same year, ConocoPhilips divested in its South China Sea operations. To date, only one large American company has bucked the trend: ExxonMobil.

Under the leadership of former CEO Rex Tillerson, the company initiated a joint venture with the Vietnamese government known as Blue Whale. Negotiations began in 2007, and by 2011, drilling had commenced exploring nearby reserves. Shortly after, massive stores of gas were discovered in territory sitting within Vietnam’s naval rights. Prolonged discussions followed, and a week before Trump took office, during Secretary John Kerry’s final visit to Hanoi, ExxonMobil signed a contract with Vietnam’s state-owned oil company, PetroVietnam, to extract billions of dollars of gas starting in 2023.

Exxon’s strategic position separated it from its competitors, enabling it to conduct business while avoiding Chinese pressure. While other companies, such as BP and Chevron, have extensive dealings in China, Exxon does not. As a result, Beijing has less leverage when negotiating with or attempting to threaten Exxon. In the same vein, Exxon’s partner in the deal, Vietnam, has had previous grievances with Beijing concerning the South China Sea. The last violent conflict in the region occurred between those two powers in 1988 over the Johnson South Reef and resulted in a Vietnamese rout and over 60 casualties. More recently, China pushed an oil rig into disputed waters, encroaching on Hanoi’s sovereignty; Vietnam had bones to pick by the time Exxon came along.

But even within an already cutthroat industry, Exxon has displayed a unique stubbornness. In the past, despite warnings from the State Department that his actions would undermine US-Iraqi relations, Tillerson negotiated a deal with the Kurds to extract oil. When The Global Times, a mouthpiece for China’s foreign policy apparatus, issued a warning threatening the “sound of cannons” if the company proceeded with its project, Tillerson did not back down. Instead, he flew to Beijing to meet with high-ranking officials at the China National Offshore Oil Company and hammer out a settlement.

Today, as Secretary of State, Tillerson faces much higher stakes. In February of 2017, satellite photos surfaced indicating that China was close to completing the construction of surface to air missile (SAMs) systems on the Spratly Islands, a series of small islands at the heart of the conflict in the South China Sea. These facilities the latest chapter in an increasingly tense conflict, as they allow China to move significantly closer to establishing an Air Force Defense Identification Zone (ADIZ) in the area, which would secure Chinese air sovereignty. With such a zone in place, the US would face a tough choice: either play a high-stakes game of chicken and continue to fly planes, or simply cede control to Beijing.

[Rex Tillerson’s] previous success in the South China Sea may encourage him – for better or for worse – to believe that he can best approach China through confrontation.

At first glance, a comparison between Tillerson’s experience at ExxonMobil and his current position seems difficult to draw. The national security concerns over China’s territorialism dwarf Exxon’s economic interests by any measure, and the US has more complex goals in the region than pursuing a robust bottom line. At the same time, there is enough underlying analogy that the strategies Tillerson pursued, as a CEO at Exxon will doubtless influence his policies as Secretary of State, given that these are his only foreign relations experiences. Moreover, putting aside political questions, the South China Sea carries huge economic weight: $5 trillion worth of trade passes through the waters annually, along with a third of the world’s crude oil and half of all natural liquefied gas. Tillerson’s experiences at Exxon – flying around the world to negotiate complex deals, working with dictators and hostile countries, absorbing massive amounts of information to make decisions – have prepared him for the office of the Secretary of State. But then again, his previous success in the South China Sea may encourage him – for better or for worse – to believe that he can best approach China through confrontation.

Tillerson’s psyche alone will not drive US foreign policy in the South China Sea. Given Trump’s penchant for directing his diplomatic relations through tweets, it is unclear how much power Tillerson actually has, or whether he will have much time to conduct his own foreign policy while he cleans up after his boss’ diplomatic messes. Nonetheless, as is evident from his Senate confirmation hearings, the idea that Tillerson’s South China Sea experience will shape his stint at Secretary of State is not idle speculation, which forecasts an increasingly hawkish approach. After all, he is used to holding a hard line on China’s sovereignty, and has already promised to directly engage with the Chinese on issues of territory.

Tillerson knows that he has inherited a greater role than CEO and a larger stage than ExxonMobil. Still, after a lifetime of playing hardball across the world, he may not relinquish his tendencies easily. In his mind, perhaps he sees in the South China Sea an opportunity to stand tall where others have crumpled.  

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