How Low Oil Prices Hamstring Vietnam in the South China Sea Disputes

Falling oil prices are usually analyzed from an economic point of view; Vietnam is no exception. Myriad domestic and international articles have provided in-depth analysis of the “double-edged” effects that falling oil prices might have on Vietnam’s GDP. The Voice of Vietnam concluded that “falling oil prices’ negative effects might be offset by well-planned economic strategies, which can turn adversity into opportunities for Vietnam economy.”

However, economic impacts are not the only dangers posed by rock-bottom oil prices for Vietnam. Low oil prices also have non-negligible geopolitical implications – including on the strength of Vietnam’s position in the South China Sea.

The top geopolitical concern for the Vietnamese government is well-known to be the South China Sea dispute, and particularly China’s maneuvers in the region. As a small nation next to the great power (in terms of both population size and international influence) of China, Vietnam has little ability to balance China on its own. The ASEAN community is too fragmented and divided in its individual national interests to stay united against China. And neither the United States nor Russia is close or sincere enough for Vietnam to wholeheartedly rely upon. The old era of the Communist bloc has long since passed; the current Russian Federation greatly values its comprehensive strategic partnership with China. The United States, meanwhile, seems reluctant to take concrete steps to counter China’s rising influence. Given the reality of the current international and regional order, Vietnam’s only realistic choice is to be self-reliant and make use of the multi-polar balance in the international arena.

For the purposes of this balancing, Vietnam generally prefers a stronger Russia, a weaker China, and less anti-Russian America. That combination provides Vietnam a better negotiating position on the South China Sea disputes. The underlying logic is that the better the balance of power among the United States, Russia, and China, the less power China has, and consequently the relatively greater bargaining power Vietnam can get. Unfortunately, low oil prices have effectively driven the balance away from Vietnam’s interests; today we are seeing a weaker Russia, a stronger China, and a strongly anti-Russian America.

First of all, the falling oil prices have not only reduced Russia’s bargaining position in the international arena but also pushed Russia to depend more on Chinese cash. It’s possible weakening Russia through oil prices was intentional — a strategic move by the United States to render Russia helpless right after the economic sanctions from the West to punish Russian aggression in Crimea. “It’s time to drive Russia bankrupt – again,” read the headline for a 2014 Forbes piece by Louis Woodhill. “We should do to Russia what Ronald Reagan did to its predecessor, the old Soviet Union,” Woodhill argues. “We should drive them into bankruptcy by stabilizing the U.S. dollar” – and thereby driving down oil prices.

It is obviously not a coincidence that this history is repeating itself. In 1983, the notorious oil glut effectively pressed the oil price down from an annual average of $35 per barrel in 1980 to around $14 in 1986. One of the main causes was Reagan allowing oil prices in the United States to be decided by the free market and increasing American oil production. Again, in 2014, with Russia and the United States at odds over Crimea, Washington announced the possibility of increasing production.

Since then, oil prices have plummeted from over $100 a barrel to around $30. The decline in oil prices drove the Russian economy into the corner. According to estimates from the International Monetary Fund, Russia’s GDP shrank by 3.7 percent in 2015, and is projected to contract a further 1 percent in 2016. This constrained economic capacity has consequently harmed Moscow’s political influence.

It has also boosted China’s clout in the Sino-Russian relationship. Eager for more customers, Russia had to rush into the potentially non-profitable “Power of Siberia” pipeline with China in 2014. The gas deal with China, worth $400 billion, provides an alternative market for Russian energy exports.

Russia’s own problem with Crimea and the current economic doldrums has blocked Moscow from taking any definitive stand on the South China Sea disputes. In contrast to the tangible support given to China’s neighbor during the Sino-Soviet split — Soviet military advisers were stationed in Vietnam during the Sino-Vietnamese war, while Soviet troops massed at the Sino-Soviet border and Mongolian-Chinese border – Russia’s policy on the South China Sea disputes has been described as “non-existent.” A weakened and dependent Russia, the result of falling oil prices, is not encouraging for Vietnam’s status in South China Sea Dispute.

Furthermore, the drop in oil prices has strengthened China’s bargaining position as a regional price maker. China ranks third in global gas consumption and second in oil consumption. The falling oil prices lessen the burden on production costs and might help save China from its economic woes. The current oil surplus, and the resulting low prices, benefit China as a global producer and consumer. China stands to gain from the falling oil prices and this is against Vietnam’s geopolitical interests in the South China Sea dispute.

The United States, on the other hand, is busy designing her own game of power in the Asia-Pacific. U.S. moves to provide financial aid for the ASEAN countries in strengthening their marine defense capacity (the Southeast Asia Maritime Security Initiative, or MSI) and have American ships guarding the Asia-Pacific are welcomed by all the nations involved, including Vietnam. However, from Vietnam’s geopolitical perspective, the U.S. position has not been as beneficial as desired.

It is important to remember that Vietnam is under the leadership of the Communist Party, which has unerasable links with the Russian Federation and remains trapped in a relationship with Communist China. For this reason, while rhetorically declaring support for Vietnam, the United States has chosen the Philippines to be its strategic partner instead. The American preference is shown in numbers, with the Philippines receiving $41 million dollars while Vietnam will receive only $2 million dollars in the MSI package. Meanwhile, the absence of Russia in the South China Sea disputes, due in part to the falling oil prices, fits with the U.S. desire to exclude Russian influence, but it is contrary to Vietnam’s geopolitical interest. An anti-Russia United States is not good for Vietnam’s standing in the South China Sea disputes.

In short, the falling price of oil has more than just economic implications for Vietnam. By assessing carefully the effect of the oil surplus on the balance of power among China, Russia, and the United States, the threats for Vietnam geopolitically become more visible. Of course, a strong Russia does not automatically translate to a constraint on Chinese aggression or balance against American activeness in the South China Sea dispute. Yet a strong Russia will at least contribute to better maintaining what Henry Kissinger has called a “global equilibrium” with “a greater harmony of values” compared to the weak and dependent Russia of today. Following such logic, the falling oil prices are having a detrimental effect on Vietnam’s geopolitical interests in the increasingly intense South China Sea dispute.