Murky Waters: South China Sea and its Illicit Oil Trade

A map drawn as far back as 1947 in Pre-Communist China has, today, become the source of global concerns that are only increasing as China establishes itself close to the helm of contemporary geopolitics.

Illustration by The Geostrata

Such is the story of origins of the 9-dash line which initially started out with 11 dashes, only for China to give the Gulf of Tonkin to Vietnam hence, forfeiting two dashes. The South China Sea is visualised by China such that it asserts “historical claims” over 80% of the maritime territory becoming the source of confrontations between itself and other nations in the region - Thailand, Cambodia, Vietnam, Taiwan, the Philippines, Singapore, Malaysia, Brunei, and Indonesia. 

THE SOUTH CHINA SEA 

One of the most convoluted yet important regions in the world, the South China Sea is no stranger to maritime issues and conflicts.

Having one-third of the world trade passing through it along with 11 billion barrels of oil deposits in the underwater surface, this water body is a pie everyone wants a slice of.

Along with China's nine-dash-line claim, many other countries are also in conflict regarding their exclusive economic zones in their maritime boundaries. However, behind the boundary disputes, there is a dark and illegal practice, often unspoken about by the International community, operating in this part of the world, the workings of the dark fleet.

MARITIME MISCONDUCT AND STRATEGIC SILENCE

“With great power comes great responsibility”, said Ben Parker, a fictional character, yet this quote resonates equally, if not more with the the non-fictional world than the fictional one China, in this regard wielding great power, has significantly faltered its responsibility arising from its self-asserted authority over the South China Sea region. 

With its militarisation of artificial islands in the sea and the grey zone activities involving shadowing operations in a country’s special exclusive economic zone and airspace intrusions, China has intentionally overlooked the surveillance and regulatory deliberations in the region. 

Undetected by Automatic Identification System (AIS), a maritime safety and navigation technology, in the midst of the South China Sea, East of the Malaysian peninsula, sits an armada of tankers which engages in billions of dollars worth of illicit oil trade between China and Iran. 

Strategically and economically, the shadow fleet or the dark fleet is ideally placed in the region catering to converging interests of oil consumers such as China who seek to reduce their costs and oil producers of the likes of Iran who grasp the straws of sustenance amid US trade embargos. The trade pursued in this region has only been subject to steady growth since 2022 owing to US sanctions. 

Curbs on Russian fuel exports along with restrictions on Iranian oil reimposed as of 2018 catalysed the exchange of over 350 million barrels of oil in the first three quarters of 2024, amounting to over $20 billion. While not the entirety of oil traded illicitly in the region emerges out of Iran, a vast majority of it does. 

Chinese refiners, in the hopes of remaining competitive in an ever-growing domestic market, endeavour to procure their raw material at the cheapest cost possible, which becomes a reality by virtue of the oil tankers actively functioning in the sea in realisation of the fact that very often, the cheapest crude is that which is restricted. The mechanics of this “dark fleet” are all but rudimentary in nature. 

Tankers deliberately disable their AIS transponders that are otherwise mandated under international maritime laws for the sake of safety and tracking, in order to avoid detection by authorities. In blackout zones near the Paracel and Spratly Islands, ship-to-ship transfers take place with crude oil being actively pumped from one tanker to another thereby disguising its origin and rerouting under fabricated documentation. The technical sleight of hand has come to shape a new form of geopolitical maneuovering, where the battle for energy security is waged not in the OPEC summits or diplomatic discourses but in the murky waves of international waters. 

LEGAL, ENVIRONMENTAL, AND ECONOMIC FALLOUT

Such practices have implications not just in terms of the environment but also for international norms and regional stability. The International Maritime Organisation (IMO) along with the United Nations Convention on the Law of the Sea (UNCLOS) has long sought to establish a rules-based order in global waters.

However, when a country like China assumes self-proclaimed responsibility over a region with geopolitical sensitivity as the South China Sea, a rupture occurs in global norms, maritime standardisation and in ground realities of the implementation of sophisticated laws. 

China’s notion of owning the area curtailed by the nine-dash line completely violates the mandate of Exclusive Economic Zones (EEZs) set by UNCLOS. Moreover, China has not only over-exaggerated its own mandated zone but also laid claims on the EEZs of other sovereign countries like Malaysia, Philippines, Brunei, and Vietnam and at the same time has engaged in military operations in these disputed areas. In 2013, Beijing and Manila took the matter of their dispute to the Permanent Court of Arbitration, but China opted out of the proceedings in the same year, before the judgement, which 3 years later declared China’s claims to be ultra vires.

Beijing’s duplicitous maritime conduct exemplifies a selective approach to international law professing adherence to global regulations at the face value while simultaneously enabling and benefitting from a massive illicit oil operation. Equally concerning is the environmental fallout of these clandestine operations. 

Due to lack of oversight and usage of aging vessels, the activities of the dark fleet risk catastrophic oil spills in one of the world’s richest marine ecosystems. Coral reefs, mangroves and endangered species face constant threat. Yet, with transponders turned off and locations untraceable, accountability remains absent. Environmental degradation hereby becomes invisible collateral damage. 

Beyond the ecology of the matter, the fleet distorts global energy markets from a macroeconomic perspective.

Illicit oil circumvents sanctions, floods markets and creates unfair pricing advantages for those willing to flout the rules. Sanctions lose credibility not by virtue of overt disobedience but through quiet dismissal and intended ignorance. The South China Sea, under China’s informal regional hegemony becomes a theatre of economic exception bending laws in favour of strategic necessity. 

CONCLUSION: STRATEGIC INSURANCE AND GLOBAL CONTRADICTION

For China this presents both an opportunity and insurance. Covert oil procurement secures cheap energy, insulates its economy from Western pressures and uncertainty while also maintaining plausible deniability. Such backdoor access becomes more a geopolitical shield than an economic calculus. 

The irony lies in the contrast wherein while Beijing postures as a responsible international actor, its silence on illicit trade reverberates. The shadow trade represents the darker reality of China’s rise exemplifying the pursuit of power unbounded by norms that it otherwise claims to uphold and safeguard. The agendum of the illicit oil trade in the South China Sea often remains the topic not talked about by the international community, mainly due to the geopolitical sensitivity of the area.

However, the dragon cannot be simply left in its lair and the need for condemnation and action becomes pertinent.

Both ASEAN and QUAD’s role will be utmost as it requires maritime collaboration of all regional players in ensuring diligence and transparency to uncover the secret of the dark fleet and effectively cease its operations.

---

BY DIA ATAL AND AMEYA GUPTA

TEAM GEOSTRATA

info@thegeostrata.com