Fun with China: Sanctions Against the China National Offshore Oil Corporation

Sometimes, strategy includes economic "warfare," as China well knows from its actions againts those countries that dare to criticize it - like Australia. However, China itself is subject to such strategies, which the Trump administration has been using with some effect. What follows is a look at one such move.

World Oil Report links a Bloomberg report U.S. sanctions China’s CNOOC on drilling in disputed South China Sea:

China’s third-biggest oil company faces a U.S. blacklist, which could spur major outflows from its Hong Kong-listed unit, after years of involvement in offshore drilling in disputed South China Sea waters.

China National Offshore Oil Corp., the nation’s main deepwater explorer, is among four companies to be added to a list of firms owned or controlled by the Chinese military, Reuters reported. The move comes as the Trump administration plans several new hard-line moves against Beijing in the final weeks of its term.

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CNOOC is the smallest of China’s so-called big three state-owned oil majors after China National Petroleum Corp. and China Petrochemical Corp., also known as Sinopec. CNOOC’s operations in the South China Sea have run into controversy because China claims drilling rights in waters far from its borders, and within 200 miles of countries like Vietnam and the Philippines.

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U.S. investors held 16.5% of the shares in CNOOC’s Hong Kong-listed unit as of Friday, creating potential for major outflows if they’re forced to divest, according to Henik Fung, an analyst with Bloomberg Intelligence. President Donald Trump signed an order this month barring American investments in Chinese firms owned or controlled by the military. The unit, Cnooc Ltd., fell 14% on Monday.

CNOOC also owns U.S. oil and gas fields, partners with companies like Exxon Mobil Corp. on international projects, and uses American technology and equipment. Any disruption along those lines would have a “huge impact” on the company, said Sengyick Tee, an analyst at SIA Energy in Beijing.

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CNOOC has been at the center of territorial disputes in the South China Sea since 2012, when it invited foreign drillers to explore blocks off Vietnam that Hanoi’s leaders had already awarded to companies including Exxon Mobil and OAO Gazprom. In 2014, the countries traded accusations that each other’s boats had rammed vessels, including around a CNOOC oil rig near the Paracel Islands.

About those disputes, a report from 2014 by the Peterson Institute for International Economics (PIIE) CNOOC's Offshore Energy Aspirations in the South China Sea:

However, since 2012, CNOOC’s attempts to move production further into the South China Sea have been at the center of territorial-related tensions between China and Vietnam. In 2012, CNOOC offered a series of nine oil exploration blocks to outside investors, which conflict with Vietnam’s territorial claims in the South China Sea (shown in orange below).

 

Now, with the possibility of a different administration in Washington, you can guess that the Chinese will not be idly sitting by to see whether this strategy of punishing China for its abuses of international law and its internal humanitarian abuses will continue. You can bet they'll be lobbbying hard to have these sorts of sanctions eliminated.