KUALA LUMPUR (BLOOMBERG) – Malaysia’s push to explore energy blocks off its coast has turned into a five-nation face off involving US and Chinese warships, raising the risk of a direct confrontation as broader tensions grow between the world’s biggest economies.

The episode began in December, when Malaysia’s state-run energy giant Petroliam Nasional Bhd contracted a vessel to explore two areas in the South China Sea in its extended continental shelf.

Those waters are also claimed by Vietnam and China, which immediately sent ships to shadow the boat.

The situation took a turn for the worse on April 16 with the arrival of a Chinese surveyor known as the Haiyang Dizhi 8, which last year was engaged in a standoff with Vietnam over offshore energy blocks.

The US this week sent at least two warships within some 50 nautical miles of the Malaysian ship, according to defence analysts privy to the information who asked not to be identified.

US Secretary of State Michael Pompeo on Thursday (April 24) accused China of “exploiting” the world’s focus on the Covid-19 pandemic with provocations in the South China Sea.

In a statement issued on the same day he held a video call with 10 South-east Asian foreign ministers, he said China “dispatched a flotilla that included an energy survey vessel for the sole purpose of intimidating other claimants from engaging in offshore hydrocarbon development”.

“The US strongly opposes China’s bullying and we hope other nations will hold them to account too,” Mr Pompeo said.

TERRITORIAL DISPUTES

The US doesn’t take a position on territorial disputes in the region even while staking a national interest in freedom of navigation, which involves challenging any claims that aren’t consistent with international laws.

As China gets more assertive in enforcing its claims, it’s increased the risk of a potential confrontation with the US that could quickly escalate.

The US Indo-Pacific Command confirmed on Wednesday that three ships – the USS America, an amphibious assault ship; the USS Bunker Hill, a guided missile cruiser; and the USS Barry, an Arleigh Burke-class guided missile destroyer – were operating in the South China Sea, without giving a precise location.

They were joined by an Australian Anzac-class frigate on April 18, according to the US 7th Fleet.

“The risk of a new incident is rising, as tension elsewhere in the relationship could inflame the situation on the ground, or rather, in the water,” New York-based risk consultancy Eurasia Group said in an analysis on Wednesday.

“Growing animosity between the two sides would it make it difficult to prevent an accidental collision from becoming a full-blown crisis.”

Without a direct threat from the US, China has increasingly disrupted the efforts of Vietnam, the Philippines – and increasingly Malaysia – to exploit oil, gas and fishing resources off their shores.

China claims about 80 per cent of the South China Sea through its so-called “nine-dash line,” and its increasing economic might has allowed it to invest in bigger ships that can operate ever-further from its shores.

It’s unknown how much recoverable oil and gas is in the disputed Malaysian blocks at the centre of the standoff.

But if China blocks all future exploration activities within the nine-dash line, the Malaysian company known as Petronas would be robbed of domestic drilling opportunities at a time when it’s trying to boost spending at home amid an economic slump.

‘OVERT CHALLENGE’

This is “by far the biggest and most overt challenge yet to Malaysia’s South China Sea energy interests,” said Dr Collin Koh Swee Lean, research fellow at Singapore’s S. Rajaratnam School of International Studies.

Malaysia sought to tamp down tensions on Thursday, with Minister of Foreign Affairs Hishammuddin Hussein calling for all parties to work together to maintain peace.

“We must avoid unintended, accidental incidents in these waters,” he said.

“While international law guarantees the freedom of navigation, the presence of warships and vessels in the South China Sea has the potential to increase tensions that in turn may result in miscalculations which may affect peace, security and stability in the region.”

Chinese Foreign Ministry spokesman Geng Shuang this week said its survey ship was “conducting normal activities in waters under Chinese jurisdiction” and called the situation “basically stable”.

At least half a dozen armed Chinese coast guard ships and several militia were involved, according to Mr Greg Poling, director of the Asia Maritime Transparency Initiative in Washington.

Mr Poling said China last year took similar actions against Petronas and Royal Dutch Shell Plc in Malaysian waters as they conducted at least two other surveys of its continental shelf.

That was similar to China’s actions against Vietnam, when it repeatedly sent coast guard ships and the Haiyang Dizhi 8 to an energy block operated by Russia’s state-owned Rosneft Oil Co PJSC.

The situation drew criticism from the US and the European Union.

“It’s the exact same operation we saw conducted against Vietnam when Rosneft was drilling a new well last year,” Mr Poling said by email.

“But this is more problematic because it has become so public, and because Petronas has invested so much time and expense in exploring fields this far out. I have no idea whether they’re likely to be commercially viable, but I do know that there’s no chance of Petronas actually producing hydrocarbons from them in the current environment.”

Petronas did not immediately reply to a request to comment.

Other incidents are occurring elsewhere in the South China Sea. Earlier this month, US State Department spokeswoman Morgan Ortagus condemned China for reportedly sinking a Vietnamese fishing vessel on April 2.

China on Saturday announced the establishment of districts on the disputed Paracel and Spratly islands, drawing protests from both the Philippines and Vietnam.

Philippine Foreign Affairs Secretary Teodoro Locsin also accused China of pointing a radar gun at a Philippine Navy ship in the country’s waters.

China and South-east Asian claimants have sparred over which claims are valid under the United Nations Convention for the Law of the Sea, known as Unclos.

Both sides have also been working on a code of conduct meant to resolve these types of confrontations in the South China Sea, though talks have dragged on for more than a decade.

“China is pushing the South-east Asian countries to give up their Unclos rights and share their ‘exclusive’ economic zones with it,” said Mr Bill Hayton, author of The South China Sea: The Struggle for Power in Asia.

“If they try to develop their resources on their own, as is their right, China punishes them.”

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