Oil, Gas, Fish: Indonesia’s Arsenal in South China Sea Dispute

July 10, 2016 3:39 a.m. ET

SINGAPORE—As weak oil prices prompt countries and companies to scale back big energy projects, Indonesia is looking to ramp up production in the hope of countering a different kind of threat: Beijing's military buildup in the South China Sea.

China's assertiveness over its territorial claims in the disputed sea has stirred worries across Southeast Asia ahead of a ruling from the United Nations Permanent Court of Arbitration on the legality of the Chinese claims. The decision, due July 12, is expected to be unfavorable to Beijing, which has said it will ignore the court's judgment.

Indonesia says it doesn't have any territorial disputes with China, which hasn't challenged Indonesia's control of the Natuna Islands—a chain off the northwest coast of Borneo—but does claim the right to fish in the surrounding waters.

Like others in the region, Indonesia is building up its economic and military presence as alarm grows over what Beijing's longer-term ambitions might be. Rear Adm. Achmad Taufiqoerrochman, commander of the Indonesian navy's Western Fleet, said the number of Chinese fishing vessels has risen around the Natunas since March, and the fishing was an excuse for China to lay claim to the area ahead of the decision by the U.N. tribunal in The Hague.

To protect its own claim on the oil-and-gas fields and the rich fishing grounds around the Natuna Islands, Indonesia is aiming to develop the fields, bring more fishermen to the archipelago, and build a port and airstrip. "Out of 16 oil and gas blocks around Natuna, only five are producing, seven are under exploration, and the other four blocks are under termination stage," President Joko Widodo told cabinet members last month. "I want all to support the production process to be implemented immediately."

Stepping u p oil and gas production would help entrench Indonesia in the waters surrounding the Natunas and could raise the stakes for any country looking to challenge its control of the 200-mile exclusive economic zone around the islands, to which Jakarta says it is entitled under international law.

Ownership of economic assets in the area could also give Indonesia additional justification for patrolling the waters around the Natunas with military or coast-guard vessels, further deterring other states from entering.

Indonesia will likely find it difficult to quickly scale up production, not least because of the high cost of development. Oil producers, including ConocoPhillips COP 1.90 % and Chevron Corp. CVX 1.67 % , are looking to unload their stakes in one of the blocks in the area in part because of low oil and gas prices. Companies considering investing in the East Natuna gas field have said it could cost up to $40 billion.

But Mr. Widodo's instructions reflect a broader effort across Southeast Asian countries to strengthen their economic and military presence in the South China Sea as Beijing's influence continues to build.

China claims sovereignty over almost all the South China Sea, demarcated on maps by a nine-dash line that vaguely protrudes from its southern Hainan Island to an area near the northern coast of Indonesia more than 700 miles away. Each year more than $5 trillion worth of goods pass through the waters, which are rich in natural resources: around 11 billion barrels of oil and 190 trillion cubic feet of natural gas in proved and probable resources, according to estimates by the U.S. Energy Information Administration. That makes the South China Sea one of t he world's largest untapped gas reserves.

China's claim on the sea overlaps those of other countries such as Malaysia, Vietnam and the Philippines—a U.S. treaty ally—and it has reclaimed several islands that have been outfitted with military capabilities, including surface-to-air missiles, according to U.S. officials. The Stockholm International Peace Research Institute estimates China's annual military spending has grown nearly threefold in the past 10 years to $215 billion.

Other nations are ramping up spending in response. Indonesia recently approved raising its 2016 defense budget by about 9% above planned levels, even as other ministries had budget cuts. Malaysia has ordered new warships and plans to convert oil-drilling platforms into forward bases. Vietnam has acquired Kilo-class submarines from Russia and recently completed a redevelopment of Cam Ranh Bay, a deep-water base, which it encourages other countries' navies to use.

The U.S., meanwhile, is preparing to deploy forces to five Phili ppine military bases under a defense pact signed in 2014. In June, four U.S. Navy EA-18G Growler electronic-warfare fighters were stationed at Clark Air Base, a major facility close to the South China Sea, to support existing U.S. surveillance efforts.

In all, the administrations other than China with a direct claim on parts of the South China Sea—Vietnam, Malaysia, Brunei, the Philippines and Taiwan—nearly doubled their military spending in the decade through 2015 to a combined $30.4 billion, according to the Stockholm International Peace Research Institute.

"The military buildup in the region is an unsettling development," said Timothy Heath, senior analyst at the Rand Corp., a Santa Monica, Calif., think tank which provides research to the U.S. armed forces. "Diplomatic efforts alone could not be expected to restrain China or ensure stability," he said, adding that the military buildup is a reasonable complement to diplomatic efforts.

Among the b igger risk factors is that the busier the already-crowded waters become, the greater the danger of accidental encounter that could trigger a larger conflict, especially as Chinese fishing boats operate farther into waters claimed by Southeast Asian countries.

There is little hope for the arms buildup to ease, however. Southeast Asia's rapid economic growth in recent years has made the region's governments more able to invest in military strength, though the region is far behind China's capability, said Ian Storey, senior fellow at the Iseas Yusof Ishak Institute in Singapore.

"There is also a dynamic in Southeast Asia that is very apparent," he said: "Keeping up with the neighbors."

—Ben Otto contributed to this article.

Write to Jake Maxwell Watts at jake.watts@wsj.com

Source: Oil, Gas, Fish: Indonesia's Arsenal in South China Sea Dispute