Global oil and shipping markets said they did not expect an immediate impact on shipping as a result of the ruling on Tuesday by the International Arbitration Court on the South China Sea.
A tribunal in The Hague, found China had breached the sovereign rights of the Philippines and had no legal basis to its historic claims in the South China Sea, a major shipping lane in Europe, the Middle East and Africa.
Peter Hinchliffe, Secretary General of the International Chamber of Shipping in London, noted that the oil prices jumped, following the findings.
He disclosed that the Brent crude futures were up over $1, or more than 2 per cent, to $47.60 per barrel at 1110 GMT.
Hinchliffe said that what is vital to the Global oil and shipping markets is that merchant ships are allowed to go about their lawful business on the world’s oceans without diversion or delay.
“We will, of course, be monitoring for any interference in the coming weeks.
Peter said that the rout is very vital because the deep waters of the South China Basin between the Spratly and also-disputed Paracel Islands are the most direct shipping lane between northeast Asia’s industrial hubs of China, Japan and South Korea and Europe and the Middle East.
He said that the geography of the region offers few economically viable alternative routes for large oil tankers or dry-bulk ships and container ships.
Esben Poulsson, President of the Singapore Shipping Association, said any actions that restricted the right of innocent passage and freedom of safe navigation for merchant shipping would potentially drive up shipping costs.
He said this could result in a detrimental impact on maritime trade.
Ralph Leszczynski, Head of Research at Ship Broker Banchero Costa, described the judgement as pure politics.
He said China would simply ignore it, and it would not change in any way the reality on the ground.
“All there is at stake is access to offshore oil and gas deposits and perhaps fishing grounds,” he said.
The insurers said costs were unlikely to rise in the short term.
Andrew Brooker, founding partner, at Hong Kong marine marine insurance broker’s Latitude Brokers, said the insurers do not currently foresee any increase in insurance costs as a result of the ruling.
He said that they would be surprised to see operators being penalised by the insurance market for trading in the area.
Neil Roberts, manager of marine underwriting at the Lloyd’s Market Association, said the South China Sea is not listed by the LMA’s joint war committee which highlights insurance hot-spots.
He stressed that unless it is there would be no prospect of premiums rising.
Roberts explained that the shallow waters and numerous reefs in the Spratly island region showed that commercial shipping is unlikely to be sailing within the territorial waters of any of the islands.
Meanwhile, the United States (U.S.) has urged all parties to avoid provocative statements or actions after the ruling.
John Kirby, State Department spokesman, said in a statement in Washington that the decision by the Tribunal in the Philippines-China arbitration was an important contribution to the shared goal of a peaceful resolution to disputes in the South China Sea.
“The United States expresses its hope and expectation that both parties will comply with their obligations.
“In the aftermath of this important decision, we urge all claimants to avoid provocative statements or actions,’’ he said.
He said that Washington was still studying the decision and had no comment on the merits of the case but supported efforts to resolve South China territorial and maritime disputes peacefully.
The Permanent Court of Arbitration in The Hague said on Tuesday there was no legal basis for China to claim historic rights to resources within much of the South China Sea.
China, which boycotted the hearings at the court, vowed again to ignore the ruling and said its armed forces would defend its sovereignty and maritime interests.
Kirby said that the countries that joined the Law of the Sea Convention agree to its compulsory dispute settlement process and the tribunal’s decision was final and legally binding on both China and the Philippines.
China claimed most of the energy-rich waters through which about $5 trillion in ship-borne trade passes every year.
Neighbours Brunei, Malaysia, the Philippines, Taiwan and Vietnam also have claims.
The court had ruled that China has no historic title over the waters of the South China Sea and that it has breached the Philippines’ sovereign rights with its actions, infuriating Beijing which dismissed the case as a farce.
China, which boycotted the hearings at the Permanent Court of Arbitration in The Hague, vowed again to ignore the ruling and said its armed forces would defend its sovereignty and maritime interests.
The panel said there was no legal basis for China to claim historic rights to resources within its so-called nine-dash line, which covers much of the South China Sea.
It said China had interfered with traditional Philippine fishing rights at Scarborough Shoal, one of the hundreds of reefs and shoals dotting the sea, and had breached the Philippines’ sovereign rights by exploring for oil and gas near the Reed Bank, another feature in the region.
“None of China’s reefs and holdings in the Spratly Islands entitled it to a 200-mile exclusive economic zone.’’
The ruling also said China had caused permanent harm to the coral reef ecosystem in the Spratlys, charges China has always rejected.
The judges acknowledged China’s refusal to participate, but said they sought to take account of China’s position on the basis of its statements and diplomatic correspondence.
Meanwhile, China’s Foreign Ministry has comprehensively rejected the ruling, saying its people had more than 2,000 years of history in the South China Sea, that its islands did have exclusive economic zones and that it had announced to the world its “dotted line” map in 1948.
“China’s territorial sovereignty and maritime rights and interests in the South China Sea shall under no circumstances be affected by those awards.
“China opposes and will never accept any claim or action based on those awards,” it said.
The ministry, however, said that China respected and upheld the freedom of navigation and over-flight and that China was ready to keep resolving the disputes peacefully through talks with states directly concerned.
China’s Defence Ministry said in a statement shortly before the ruling was made public that the armed forces would “firmly safeguard national sovereignty, security and maritime interests and rights, firmly uphold regional peace and stability, and deal with all kinds of threats and challenges”.
Chinese Foreign Minister Wang Yi said the case had been a farce from beginning to end and put the dispute into dangerous territory of worsening tensions and confrontation.
He said the time had now come to put things back on the right track and noting the new Philippine government’s sincerity in taking steps to demonstrate its willingness to improve ties.
Paul Reichler, Lead Lawyer for the Philippines, described the judgement as a complete and total victory for the Philippines, a victory for international law and international relations.
Perfecto Yasay, Philippine Foreign Affairs Secretary, welcomed the ruling and described it as ground breaking ruling.
He said that the ruling is significant as it is the first time that a legal challenge has been brought in the dispute, which covers some of the world’s most promising oil and gas fields and vital fishing grounds.
Yasay said that it reflected shifting balance of power in the 3.5 million sq km sea, where China has been expanding its presence by building artificial islands and dispatching patrol boats that keep Philippine fishing vessels away.
“Our experts are studying the award with the care and thoroughness that this significant arbitral outcome deserves.
“We call on all those concerned to exercise restraint and sobriety,’’ he said.
Yasay reiterated that the Philippines strongly affirmed its respect for this milestone decision as an important contribution to the ongoing efforts in addressing disputes in the South China Sea.
Observers noted that oil prices jumped following the findings from The Hague, with international Brent crude futures up almost 3 percent at 47.87 dollar per barrel at 1130 GMT.
They said that the deep waters of the South China Basin between the Spratly and also-disputed Paracel Islands are the most direct shipping lane between northeast Asia’s industrial hubs of China, Japan and South Korea and Europe and the Middle East.
The observers said further that the case, brought by the Philippines in 2013, hinged on the legal status of reefs, rocks and artificial islands in the Scarborough Shoal and Spratly Island group.
“Manila’s 15-point case asked the tribunal to rule on the status of the nine-dash line, a boundary that is the basis for its claim to roughly 85 percent of the South China Sea.’’
They noted that even though the court has no power of enforcement, yet the victory for the Philippines could spur Taiwan, Vietnam, Malaysia and Brunei to file similar cases.
