China v. Japan: Pouring Salt Water into Old Wounds

September 26, 2012 09:31 AM

Japan and China are at odds over the rights to explore and develop potentially abundant oil and natural gas deposits in the East China Sea. The two nations lie second and third behind the U.S. in crude imports; Japan is the number one World importer of natural gas, and has few domestic energy resources at present.

China claims rights to the islands that dot the East China Sea based on it's use in the past of the islands as navigational aids. Japan shoots back that they laid claim to the islands as "vacant territory" in 1895 as part of the Shimonoseki Peace Treaty and heralds continuous administration of the islands as their grandfather clause.

The U.S. Energy Information Administration (EIA) estimates that the East China Sea may have 60-100 million barrels of oil and 1-2 trillion cubic feet of natural gas to offer. Both countries are desperate for new, cleaner sources of energy. Japan is anxious to distance itself from nuclear power, and China is equally frustrated with its smog belching coal fired energy industry.

EIA provides the map below:

east china sea map

Once the matter is resolved and oil and natural gas deposits are tapped, the East China Sea could help to further soften both oil and natural gas prices here in the U.S. where prices for both are already trending to the downside. Until then, as this dispute unfolds, exploration and development remain at a standstill and the precious resources beneath the East China Sea go unclaimed.

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