THE SOUTH CHINA SEA: THE SOVIET FACTOR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP08C01297R000300180004-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 22, 2016
• Document Release Date: October 15, 2012
• Sequence Number: 4
• Publication Date: January 1, 1981
• Content Type: MEMO

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Foreign
r t TA
Assessment
Center
The South China Sea:
The Soviet Factor
An Intelligence Memorandum
Secret
GS 81-10007
January 1981
Copy 0 9 2
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The South China Sea:
The Soviet Factor F 25X1
Summary A joint offshore oil agreement signed by Vietnam and the USSR in July
1980 portends increased Soviet involvement in the strategic South China
Sea, a troublesome development for the governments of China and the
Association of Southeast Asian Nations (ASEAN). The offshore oil agree-
ment commits the USSR to assist Hanoi in exploring for and developing
potential hydrocarbon deposits on Vietnam's continental shelf. Vietnam
turned to the Soviet Union after Western oil companies, impeded by a
suspicious bureaucracy and discouraged by poor results, began to curtail
their operations. Moscow's. initial exploration will be some 100 kilometers
off southern Vietnam's Mekong Delta.
ASEAN and China have reacted with concern over both the economic and
strategic implications of the joint agreement. Their fears of an immediate oil
bonanza that would strengthen. Vietnam's economy and enhance Hanoi's
ability to continue its military activities in Southeast Asia are premature:
the Soviet Union does not possess the expertise or equipment necessary to
implement an intensive offshore program. Their concern that the joint
agreement may lead to the establishment of a permanent Soviet naval base
in Vietnam, however, has more basis. The South China Sea is a link between
the Pacific and Indian Oceans for both the Soviet and US Navies and for
merchant shipping; the opportunity to "protect" Soviet offshore oil activities
in this strategic region will undoubtedly appeal to Moscow.
The offshore agreement has, moreover, focused regional attention on
Hanoi's numerous offshore sovereignty disputes. Rival claimants-particu-
larly China, Thailand, and the Philippines-are concerned that the oil
agreement will result in Soviet backing for Vietnam's extensive claims to the
South China Sea and its islands. Preliminary indications are that the signing
of the joint agreement has stiffened the resolve of ASEAN and Chinese
leaders to resist settlement of these disputes on Vietnam's terms.
This memorandum was prepared byl I Geographic Research Division, an25X1
Social Science Research Division, Office of Geographic and Societ125X 1
Research. It was coordinated with the National Intelligence Officer for East Asia; the
Offices of Political Analysis, Strategic Research, and. Economic Research; and the Depart-
ment of St ate. Research for this report was completed on 10 December 1980. Comments and
queries are welcome and should be directed to the Chief, East Asia Branch, GRD, OGSR,
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The joint offshore oil agreement signed last July by Vietnam and the USSR
commits the Soviet Union to assist Vietnam in exploring for oil and gas on
Vietnam's continental shelf and in developing any significant finds. The
Soviet Union's involvement in offshore resource exploitation in the disputed
South China Sea is worrisome to China and the five members of the
Association of Southeast Asian Nations (ASEAN).' Leaders of all six
countries have expressed concern over the implications of Moscow's ex-
panded role. Particular concerns are that implementation of the agreement
will strengthen the Vietnamese economy, lead to the establishment of a
permanent Soviet naval base in Vietnam, and cause Moscow to back
The South China Sea:
The Soviet Factor) 25X1
Vietnam's ambitious claims to the South China Sea.
government is severely rationing electricity, gasoline, and kerosene.
The announcement of the agreement carried no details on the extent of 25X1
Soviet assistance, but a.joint Soviet-Vietnamese organization is now being
formed to implement the offshore oil program, and a group of Soviet
technicians is already supervising port improvements at Vung Tau.
Why Moscow? Hanoi has assigned a high priority to development of offshore petroleum
resources since consolidating its hold over all of Vietnam in 1975. Military
activity in Indochina, bad weather, difficulties encountered in socializing
the South, and poor planning have left Vietnam's economy in a shambles.
Energy, particularly petroleum-based products, is in short supply, and the
25X1
Oil strikes off South Vietnam's Mekong Delta near the end of the Vietnam 25X1
war led to some optimism that the continental shelf could produce critically
needed petroleum. After the war, Hanoi contracted with experienced
European and Canadian firms to continue this exploratory drilling, but 12
wells that were drilled in Vietnamese waters over the past two years have
failed to show commercial deposits of hydrocarbons. This lack of success,
the unwillingness of Vietnam to underwrite any of the risks of exploration,
and the numerous problems encountered with the suspicious government
bureaucracy have caused some Western companies to reduce or discontinue
'Thailand, Malaysia, Singapore, Indonesia, and the Philippines
I Secret
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disputed South China Sea.
their operations in Vietnamese waters. The continuing US trade boycott of
Vietnam has also hampered the companies' operations by making it difficult
for them to purchase specialized equipment and technical services. Under
these circumstances, Hanoi may have viewed an agreement with the less
technically advanced Soviet Union as a feasible route toward a solution of its
energy problems. Hanoi also has to be aware of the potential usefulness of a
Soviet-sponsored oil exploration program in advancing its claims to the
Implications of Soviet Although the USSR may have entered into the oil agreement primarily to
Involvement help solve Vietnam's immediate energy problems, Hanoi's neighbors are
more concerned about the longer range economic and strategic implications
of Soviet involvement. Some ASEAN members fear that Soviet success in
locating and developing offshore oil and gas deposits would strengthen
Vietnam's economy and enhance its ability to continue aggressive actions in
the region. These countries, as well as China, also warn of a potential
increase in the Soviet naval presence to "protect" the offshore drilling rigs
and raise the spectre of Soviet backing of Vietnam's ambitious claims to the
South China Sea.
be obtained from Western firms.
Fears of a Vietnamese oil and gas bonanza under Soviet auspices lack
foundation in the short term. Some parts of the South China Sea, including
the offshore delta of the Mekong River, are believed to have excellent
petroleum prospects. The Soviet Union's experience in offshore drilling has
been limited to shallow waters in the Caspian Sea, however, and it will be
several years before the Soviets are able to manufacture deep-water drilling
rigs in factories recently purchased from France. In the interim, the special-
ized expertise and equipment unavailable in the Soviet Union would have to
early years, leaving little or none to generate export earnings.
into substantial production. Vietnam's economy, already consuming an
estimated 40,000 barrels per day, should use most of the oil produced in the
The worldwide boom in offshore drilling has driven up the cost of purchasing
or leasing the required equipment and technology. The high operating costs
normally associated with offshore exploration will further limit the extent of
the exploration program. Even in the unlikely event that significant oil
deposits were found soon, it would take several years to translate discoveries
Speculation in the region about the military implications of the offshore oil
agreement is widespread. Although the announcement of the agreement
made no mention of an increased Soviet naval presence, some of Vietnam's
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neighbors fear that a permanent base for.the,Soviet Navy, perhaps at Cam
Ranh Bay or Vung Tau, will be established. Such a naval base could be used
not only to protect exploration vessels and drill rigs from hostile powers, but
to provide a base for monitoring ship movements in the South China Sea and
Indian Ocean, including US and Chinese naval activity. This possibility
especially alarms the Chinese, who have already accused the Soviet Union of
sending ships temporarily based at Cam Ranh Bay to carry out recon-
naissance missions,.and the Thais, who recently protested the presence of a
Soviet naval flotilla in the Gulf of Thailand: 25X1
Regional concern over the possibility of a larger Russian naval presence may
be warranted, given the strategic importance of the South China Sea. While
attention has been focused largely on Soviet and Vietnamese activities in
Indochina, the South China Sea represents an equally significant target of
opportunity for Moscow and Hanoi. The only viable route between the
Indian and Pacific Oceans is through the South China Sea. The Soviet Navy
uses the South China Sea to enter the Indian Ocean, as do the US fleet based
in the Philippines and tankers carrying Japan's vital Middle East oil supply.
Three of ASEAN's members are island states, Malaysia is divided by the
South China Sea, and Thailand has a long coastline. China considers the
South China Sea its special preserve and still publishes maps showing a
Chinese claim as far south as the Malaysian continental shelf. F_____1 25X1
Vietnam: Sovereignty The signing of the offshore oil agreement, coupled with a keen awareness of
Disputes in the South the strategic importance of the South China Sea, has helped focus regional
China Sea attention on Hanoi's extensive offshore claims. At present, Vietnam's claims
are in conflict with those of China and every member of ASEAN with the
exception of Singapore. These states fear that Moscow's involvement in
offshore oil exploration will lead to Soviet backing of Vietnam's claims to the
South China Sea. The Soviet Union, with some of its East European allies,
has already supported Vietnam's offshore claims vis-a-vis China, although
Moscow and its supporters have yet to back Hanoi's position in disputes with
ASEAN. 25X1
Vietnam's handling to date of its offshore boundary disputes provides no
solace to neighbors concerned about the implications of the offshore oil
agreement. A serious offshore boundary conflict with Kampuchea was
settled only after the Vietnamese invasion in December 1978 and subse-
quent installation of the pro-Hanoi Heng Samrin government. On two other
occasions, Hanoi has resorted to force to settle sovereignty disputes over
offshore islands-capturing islands in the Spratly group then held by South
Vietnam and the Wai Islands occupied by Kampuchea. 25X1
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Vietnam-Philippines
Vietnam's dispute with the Philippines centers on the Spratly Islands.2
Despite their informal agreement to settle the sovereignty dispute through
diplomatic channels, the two countries are engaged in a military buildup in
the islands. Hanoi's activities in the Spratlys are documented above. Philip-
25X1
. and the potentially oil-rich Gulf of Tonkin (see foldout).
Vietnam-China
Vietnam's most serious sovereignty disputes are with China. The two former
allies are currently quarreling over the Paracel Islands, the Spratly Islands,
Vietnamese claim.
China, which occupies the Paracels, continues to consolidate its position
there. The defensive capabilities of Chinese forces on the islands have been
improved over the past year, and steps such as the opening of air and
shipping services have been taken to further incorporate the islands into
China. For its part, Hanoi has improved its defensive posture on its seven
garrisoned islands in the Spratly group, adding helipads, a short airstrip, and
antiaircraft artillery. China has yet to establish a foothold in the Spratlys,.
but has recently stepped up air and naval activity near the islands. Hanoi is
still attempting to gain control over two-thirds of the Gulf of Tonkin, basing
its claim on an unusual interpretation of a 19th century treaty between the
colonial French rulers of Annam and the Qing Dynasty. China has re-
sponded with a growing naval presence in the Gulf and increased security
precautions in US and French oil companies' concession zones east of the
The offshore oil agreement, binding Hanoi even closer to Moscow, further
reduces the chances of an amicable settlement of these disputes. Vietnam
dared to challenge China's offshore claims even before the US-Vietnamese
war was over, when Hanoi was beset with economic and military problems
and dependent on Chinese aid. As ties with Moscow have grown closer,
Vietnam has taken a steadily hardening line on the offshore boundary
problems. While expressing in 1974 a willingness to negotiate the complex
issues of sovereignty over the Spratlys and Paracels, Hanoi now claims them
as "sacred and inviolable" parts of Vietnam's territory. Vietnam also has
begun to protest Chinese oil exploration and fishing activities in the Gulf,
writing protests and warnings to foreign oil companies working there.
Moscow's signature on the offshore agreement is likely to strengthen Ha-
noi's resolve to make no significant concessions on these territorial disputes.
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Island.
pine forces now occupy eight islands and are improving naval and air
capabilities, including construction of a 1,300-meter runway on Thitu
The Philippine Government has not publicly protested the Vietnam-USSR
oil agreement, but is concerned about its potential impact on the contentious
sovereignty issues in the South China Sea. President Marcos views the
Spratly area as a potential oil source and seems intent upon asserting a
Philippine claim to most of the islands. He is suspicious of Vietnamese and
Soviet motives and, since Hanoi's turn to the USSR, has taken several steps
to buttress. the Philippine claim to the Spratlys. Philippine marines have
been sent to occupy the seventh and eighth islands-Lankiam Cay and
Commodore Reef-during the past two years. In 1979, Marcos issued 25X1
decrees officially incorporating the islands into the Philippines and estab-
lishing a 200-mile exclusive economic zone extending into the Spratlys. F_~
Although there is little chance of Vietnamese-sponsored oil and gas explora-
tion in the Spratlys in the foreseeable future, the agreement with the USSR
has probably heightened Marcos's well-known fears of a Soviet naval
presence in the islands. His likely reaction to the agreement will be to
accelerate the upgrading of Philippine military facilities and capabilities in
the islands. The agreement also gives Marcos new leverage to use in his
attempt to have the Spratlys included under the terms of the US-Philippine
Mutual Defense Treaty, which pledges American assistance in the event of
an attack on Philippine territory. 25X1
Vietnam-Indonesia
Vietnam's dispute with Indonesia is centered on an area of 12,000 square
nautical miles in the South China Sea north of Pulau Natuna Besar
(Greater. Natuna Island). Eight years of negotiations, begun in 1972 with
the South Vietnamese Government and continued since 1975 with the
Hanoi regime,.have failed to produce an agreement. One reason is the area's
petroleum and gas potential. In early 1974, a large gas deposit, yet to be
exploited, was discovered in -the disputed area. Recent oil strikes by
Conoco/Marathon in an-adjacent area and Exxon successes in nearby
Malaysian waters have raised expectations that this area will be an impor-
tant oil and gas producer in the near future. 25X1
Indonesia has thus far shown less concern about the implications of the
Soviet-Vietnamese offshore agreement than have the other ASEAN coun-
tries. Indonesian leaders view an expansionist China fomenting unrest
through overseas Chinese communities as their chief security threat and, so
far, are less concerned about the growing Soviet and Vietnamese presence in
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state.
the region. Despite Beijing's warnings about Moscow's and Hanoi's in-
tentions, Jakarta still values a Vietnam hostile to China as a useful buffer
The Indonesian Government nonetheless appears determined to uphold its
claim to the area in dispute with Vietnam. Jakarta granted foreign oil
companies exploration concessions encompassing the entire disputed area,
and seismic surveys have already been completed. Drilling is due to start
within the next few months with protection provided by Indonesian naval
patrol ships. Plans to upgrade the airfield on Greater Natuna Island,
allowing it to handle jet fighters and heavy cargo aircraft, are also being
boundary line shown on the map.
Vietnam -Malaysia
Malaysia's dispute with Vietnam is presently limited to the matter of
sovereignty over Amboyna, a small, barren sand cay in the southern' part of
the Spratlys. Vietnam quietly occupied Amboyna Cay in 1977 and now has
built artillery positions and support and storage facilities on the island.
Vietnamese troops have fired at a Malaysian naval expedition near the
island and driven off other foreign ships and fishing boats. Malaysia's claim
to Amboyna Cay did not become official until January 1980 when Kuala
Lumpur published a map outlining its continental shelf claim in the South
China Sea. Amboyna Cay and other small islets and reefs are within the
resource extraction and a potential Soviet naval buildup.
voiced specific fears about Moscow's involvement in South China Sea
Along with Indonesia, Malaysia has sought good relations with Vietnam as a
counter to the perceived threat of China. In keeping with this policy, Kuala
Lumpur has handled the Amboyna Cay sovereignty issue in a low-key
manner. Hanoi has responded by not publishing an official claim or publicly
admitting that its troops occupy the island. The Vietnam-USSR offshore oil
agreement, however, has drawn the Malaysian Government's attention to
the potential dangers posed by an increased Soviet presence. Since the
signing of the agreement, Prime Minister Hussein has advocated the forma-
tion of an ASEAN defense organization and resumed the defense portfolio,
both actions at least partially attributable to his growing concern about
Vietnamese and Soviet activities in Southeast Asia. Malaysian officials have
Vietnam-Thailand
Thailand, with Vietnamese troops poised along its border with Kampuchea,
views itself as the frontline of defense against Vietnam. It considers the
signing of the offshore oil agreement as further evidence of the dangers
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The intentions of a key player in this unfolding drama, the Soviet Union, are
not yet clear. The offshore oil agreement may result in a gradual Soviet
naval buildup in the South China Sea, thus realizing China's and ASEAN's
worst fears. A naval buildup, however, would damage the Soviet Union's
relationship with ASEAN and add yet another area where direct confronta-
tion with Beijing is possible. Alternatively, Soviet leaders may be trying
merely to reduce the burdensome economic aid now required by Vietnam. If
such is the case', 'a skeptical China and ASEAN remain to be convinced.F_
posed by the Moscow-Hanoi alliance. Although there has been no official
reaction to the'oil agreement, Thai authorities have privately expressed their
concern to US officials and have proclaimed a 200-mile exclusive economic
zone to protect Bangkok's economic and strategic interests in the Gulf of
Thailand. 25X1
Thailand has long been involved in jurisdictional disputes in the Gulf, where
its continental shelf (and presumably its new 200-mile economic zone)
overlaps those of Malaysia and Kampuchea as well as Vietnam. In 1979,
Bangkok temporarily settled an offshore boundry dispute with Malaysia,
but it is unlikely that the Thais will even consider offshore boundary
negotiations with Vietnam or Kampuchea before the Kampuchean conflict
is resolved. 25X1
South China Sea sovereignty problems between Vietnam and ASEAN, the
ultimate goal being an agreement among the littoral Southeast Asian
countries that would ignore China's sweeping claims in the area. The
ASEAN nations, however, are beginning to view the Moscow-Hanoi alli-
ance as a serious long-term security threat. They see the Vietnam-USSR oil
agreement resulting in wider and more direct Soviet involvement in the hotly
contested South China Sea, and are unlikely to accept any settlement
There are some indications that Vietnam would like to settle its offshore
disputes with the ASEAN nations. Hanoi has surfaced a plan to resolve
even less pressure to settle its sovereignty disputes with China.
over Indochina and now firmly allied with the Soviet Union, Vietnam feels
Prospects Vietnam's neighbors see the joint offshore oil agreement between the USSR
and Vietnam as an ominous development in their disputes with Hanoi. The
sweeping nature of Vietnam's claims and its military occupation of islands
hundreds of miles from its shores are a clear indication of Hanoi's intention
to control as much of the South China Sea as possible. This is but one
manifestation of Vietnam's drive to be the predominant Southeast Asian
power-to the exclusion of China. Having taken steps to consolidate its hold
designed to enhance Vietnam's position there.
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