Potential China-Philippine Joint Development of Oil and Gas Resources in the South China Sea: Prospects and Problems

Recent remarks by Philippine President Ferdinand Marcos Jr. regarding a possible resumption of negotiations with China on joint oil and gas development in the South China Sea have drawn renewed attention to the issue of energy cooperation in disputed maritime areas. While such statements may suggest a willingness to explore pragmatic solutions, a closer examination indicates that the prospects for substantive progress remain shaped by a complex interplay of economic needs, legal constraints, domestic politics, and broader strategic considerations. From an unbiased perspective, the issue is best understood not as a clear shift in the Philippines’ policy, but as part of an ongoing and often ambivalent pattern in its bilateral engagement with China.

Recent Events in the Middle East as a “Catalyst”

One key factor behind renewed discussions of cooperation is the Philippines’ structural vulnerability in the energy sector. As a state highly dependent on imported fossil fuels, particularly from the Middle East, the Philippines is highly sensitive to fluctuations in global energy markets. Periods of geopolitical instability, such as recent ongoing armed conflicts affecting the Persian Gulf oil-producing states tend to quickly transform into the Philippines’ domestic economic pressures, including rising fuel costs and potential disruptions to electricity generation and transportation systems. As a matter of fact, on March 24, 2026, President Marcos Jr. declared a state of national energy emergency. The Philippines is the first country in the world to declare an energy emergency. Against this backdrop, the idea of tapping into potential hydrocarbon reserves in the South China Sea has continued to hold appeal for policymakers in Manila.

Joint development with external partners, including China and other South China Sea littoral states, has periodically been raised as a possible means of addressing these challenges. The South China Sea is believed to contain significant reserves of oil and natural gas, particularly in the Reed Bank (Reed Tablemount) area. For states with overlapping claims, joint development has sometimes been proposed as a pragmatic approach that allows resource extraction to proceed without requiring an immediate resolution of sovereignty disputes. In principle, such arrangements can offer mutual economic benefits while reducing incentives for confrontation. However, translating this conceptual framework into practice has proven difficult in the China-Philippines bilateral context. Previous efforts to establish mechanisms for cooperation have encountered various obstacles. A typical example is the 2018 memorandum of understanding signed between the two states on oil and gas development. It was initially viewed as a constructive step, yet it did not lead to any sustained progress. Subsequent developments, including the suspension of negotiations and legal challenges to related agreements, illustrate the fragility of such initiatives.

The Philippines’ Domestic Obstacles

A key constraint lies in the domestic legal framework of the Philippines. Constitutional provisions governing the exploration and utilization of natural resources impose limits on foreign participation, often requiring majority Filipino ownership or control in relevant projects (the “60-40 rule”). These requirements complicate the structuring of joint ventures with external partners, particularly in cases involving disputed maritime areas in the South China Sea. Judicial oversight further adds to the uncertainty, as courts may review and potentially invalidate agreements deemed inconsistent with constitutional principles. The 2023 ruling by the Philippine Supreme Court that invalidated a prior joint exploration arrangement concluded by China, Vietnam and the Philippines in 2005 underscores the significance of this constraint.

In addition to the above legal considerations, domestic political dynamics also play a crucial role. Public opinion in the Philippines tends to be highly attentive to issues of sovereignty and maritime rights, particularly in relation to the South China Sea. Political leaders like current president Marcos Jr. and his predecessor president Duterte must therefore weigh the economic advantages of cooperation against the potential domestic backlash associated with perceived sovereign rights concessions. This dynamic can limit the flexibility of domestic policymakers and contribute to a gap between rhetorical openness to cooperation and actual policy implementation.

Bilateral Puzzles that Affect Substantial Cooperation Efforts

At the bilateral level, the broader security environment also affects the feasibility of joint development. The South China Sea remains an area of extremely overlapped claims and periodic tensions, with incidents and standoffs involving maritime law enforcement vessels, fishing fleets, and military assets occurring intermittently. Such developments frequently lead to mutual distrust and complicate efforts to build the level of confidence necessary for long-term cooperative projects. Even when diplomatic channels remain open, parallel developments in the maritime security domain may hinder or even deteriorate progress in potential cooperation.

Furthermore, the coexistence of cooperative initiatives and competitive interactions is a defining feature of the China-Philippines relationship in recent years. On the one hand, both sides have expressed interest in maintaining economic ties and exploring areas of mutual benefit, including infrastructure investment, trade, and energy cooperation. On the other hand, sheer differences over maritime claims and sovereignty disputes continue to generate friction. This duality reflects not only bilateral dynamics but also the influence of the broader regional and international context.

In particular, the Philippines’ security relationship with the United States is an important element shaping its policy choices. As a longstanding treaty ally, Manila has strengthened defense cooperation with Washington in recent years, including through expanded access agreements and joint military exercises. These developments are often viewed as part of a broader effort to safeguard its national interests. At the same time, the Philippines has sought to maintain economic engagement with China, recognizing its importance as a major trading partner. The resulting policy approach can be characterized as one of hedging or balancing, rather than alignment with a single external actor.

This strategic context has implications for joint development initiatives. On the one hand, cooperation with China in the energy sector could provide tangible economic benefits and contribute to energy security. On the other hand, it may be perceived as having implications for broader strategic alignments. As a result, decisions in this area are often influenced by considerations that extend beyond the immediate economic rationale.

The Looming Shadow of the 10th Anniversary of the SCS Arbitral Award

Looking forward, symbolic and temporal factors may also shape the trajectory of the issue. The year 2026 marks the tenth anniversary of the Arbitral Award issued under the United Nations Convention on the Law of the Sea (UNCLOS) in the case initiated by the Philippines back in 2013. The July 12, 2016 Award addressed several aspects of maritime entitlements and the legal status of certain features in the South China Sea, and it remains a point of contention in interpretations and positions among relevant parties. Milestones of this kind can serve as catalysts for renewed diplomatic activity, public discourse, and efforts to reinforce existing unilateral narratives. If the Philippines takes advantage of the tenth anniversary of the Award and launches a renewed “lawfare” or “war of public opinion”, it will certainly end all possibility of practical cooperation for joint development.

The Way Forward

From a pure technical standpoint, joint oil and gas development in the South China Sea between China and the Philippines is not inherently unworkable. Advances in offshore exploration technology, combined with the potential scale of resources, create a basis for mutually beneficial arrangements. Key prerequisites typically include clear legal frameworks, political will, and effective dispute management mechanisms.

In the China-Philippines case, however, these prerequisites remain only partially fulfilled. Legal ambiguities (the unpredicted ongoing negotiation of the South China Sea Code of Conduct), domestic constraints, and strategic mistrust continue to pose significant challenges. Moreover, differing interpretations of maritime entitlements and jurisdictional boundaries complicate the delineation of areas suitable for joint development. Without a shared understanding, or at least a mutually acceptable framework for setting aside differences, progress is likely to remain very limited.

In conclusion, the prospects for China-Philippine joint development of oil and gas resources in the South China Sea are shaped by a combination of opportunity and constraint. Ultimately, its advancement will depend on sustained efforts to address underlying challenges and to build the necessary conditions for trust and institutional stability.

Author: Bao Yinan, Associate Research Fellow, Huayang Center for Maritime Cooperation and Ocean Governance

Source: ICAS, April 7, 2026