Sino-Japanese relations deteriorate over oil

Though the story has not been widely followed in the West, in Asia, the most recent fight over the Senkaku Islands/Diaoyu Islands has the potential to cause a broad list of problems in the region. There's an interesting overview of the history over at Daily Kos (h/t @MiroCollas). Until oil reserves were noticed in 1968, none of the current countries claiming ownership expressed much interest in the distant, uninhabited island.

Banging the drums of war over oil is nothing new and it's likely to be seen elsewhere in the world as easy drilling supplies become more limited. From China's perspective, it's hard to see how this is going to help them long term. The reasonably good will that they've built up in recent years can easily be washed aside. These particular islands are only one spot of many that are being contested, so other countries in the region (Vietnam, Philippines) will be watching closely.

The other aspect that should be a concern for China is the business side of this fight. China has too many mob outbursts like this against foreign nationals and businesses. As the cost of doing business in China rises, instability like this is not going to help. A few years ago it may not have mattered as much but now that the economy is softening, China ought to give it a lot more thought. Their business model is at risk when the government allows nationalistic mob violence.

From Japan's perspective, though they can share in the blame for provoking this crisis, they no longer need China the way they did ten years ago. Their businesses are being attacked and this latest violence can easily be used as an excuse to pack up and move to another location in the region.

A skirmish of some sort is a possibility as the article above suggests, though China has a lot to risk with military action. The last thing that government needs is losing factories and foreign investment. Countries have taken stupid action over oil (Iraq comes to mind) so China will have to decide between nationalism and foreign business. For a few decades, China's growth has been tied to foreign business so any change would be a radical departure for Beijing.

China may have the upper hand in this dispute for now due to its military and control over rare earth minerals but it would also come at a heavy cost. Is a long forgotten island worth disrupting the business model and damaging regional relations? Time will tell.