India is likely to withdraw from an oil block in the South China Sea after hydrocarbons did now show up in an exploratory well, said government sources. Officials here have conveyed to Vietnam plans to terminate operations on commercial considerations, said the sources who knew about the talks.

The block has been at the centre of much diplomatic bad blood among China, Vietnam and India that included demarches, summons and affirmations of sovereignty over the same patch of sea.

The sources said the move to shut operations, that should relieve Beijing which was locked in another maritime dispute in the same sea with the Philippines, had been conveyed to South Block and the Petroleum Ministry but a decision would be considered final only when the state-owned Oil and Natural Gas Commission Videsh Limited (OVL) approached PetroVietnam for permission to stop operations. That stage had not been reached, they said, while Indian officials said they were not sure whether OVL had written to the Indian mission in Hanoi and asked it to formally convey the request to Vietnam.

Vietnamese diplomats expressed disappointment considering that Hanoi had stood up to Beijing for the past six years whenever it disputed the contract given to India for oil exploration in the Phu Khanh Basin. They wondered whether this was due to pressure from China which was “always against any foreign company” conducting oil operations in the South China Sea.

Indian officials insisted block 128 had low prospects of producing hydrocarbons, as was the case with the adjacent block 127, which OVL returned to Vietnam three years ago. But the two blocks have been part of a wider conflict in the maritime domain on which India released a statement.

Commenting on the stand-off between China and the Philippines in another part of the South China Sea, a Foreign Office statement urged both countries to exercise restraint and resolve the issue diplomatically and according to the principles of international law. While the dispute over India conducting drilling operations in the South China Sea did not come to a stand-off between vessels, India and China recently exchanged sharp words on the issue. A Holland-based company surveying this area on behalf of OVL was even summoned by the Chinese Embassy in The Hague and told to stop operations. But backed by Vietnam, OVL persuaded it to complete the survey work.

Officials here said India would continue to remain engaged with Hanoi, viz. continuing operations and expansion of activity in the Nam Con Son basin that OVL was awarded as a goodwill gesture to India, which was allowed to sell part of the stake to other oil producers when it did not have enough foreign exchange to pay for all the three blocks.

Today, India and Russia are poised to join Vietnam in becoming this basin's mid and down stream segments such as oil pipelines and power plants. While India appears to have made up its mind to withdraw on “commercial considerations” from a multi-nation dispute over sovereignty issues in the South China Sea, the emerging regional hotspot is likely to be at the centre of diplomatic exchanges at next month's Shangri-La dialogue.

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