The focus of most attention regarding the South China Sea's resources has been on hydrocarbons in general, and on oil in particular. Oil deposits have been found in most of the littoral (adjacent) countries of the South China Sea. The South China Sea region has proven oil reserves estimated at about 7.0 billion barrels, and estimated oil production of around 2.5 million barrels per day. Malaysian production accounts for almost one-half of the region's total. South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam has come online.

The fact that surrounding areas are rich in oil deposits has led to speculation that the Spratly Islands could be an untapped oil-bearing province located near some of the world's largest future energy consuming countries. Speculation that the Spratly Islands could have great strategic value has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the view that the region contains extensive oil resources. Because of a lack of exploratory drilling, there are no proven oil reserve estimates for the Spratly or Paracel Islands, and no commercial oil or gas has been discovered there.

Resource estimates for the South China Sea region that have been reported in the Chinese press or attributed to Chinese officials vary greatly. Optimistic Chinese estimates of the South China Sea region's oil potential, however, have helped encourage interest in the area, with one report suggesting that the Spratly Islands region could become another Persian Gulf. One of the more moderate Chinese estimates suggested that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and another suggested that the total for the South China Sea could be as high as 213 billion barrels. A common rule-of-thumb for such frontier areas as the Spratly Islands is that perhaps 10 percent of the potential resources can be economically recovered. Using this rule, these Chinese estimates imply potential production levels for the Spratly Islands of 1.4-1.9 million barrels per day (at reserve/production ratios of 15 and 20). The highest Chinese reserves estimate implies production levels that are twice as high as this.

China's optimistic view of the South China Sea's hydrocarbon potential is not shared by most non-Chinese analysts. A 1993/1994 estimate by the U.S. Geological Survey, for example, estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels. Using the same rule-of-thumb, these reserves could yield a peak oil production level for the Spratly Islands of 137,000-183,000 barrels per day, the same order of magnitude as current production levels in Brunei or Vietnam.