China's Ministry of Defense on November 30th at 10 AM local time began enforcing an expanded Air Defense Identification Zone, which now covers a huge off-shore expanse that includes the disputed oil-rich Diaoyu/ Senkaku Islands in the East China Sea. Forced to rely the Middle East oil for electrical production, Asian energy costs are surging and supply has become unstable due to continuing Arab Spring turmoil. With American domestic energy costs falling as supplies surge due to the boom in fracking for shale oil and gas, Chinese manufacturers are becoming economically uncompetitive on a cost basis compared to the U.S. producers. With China, Japan, Taiwan, and South Korea equally desperate to save jobs by exploiting potentially cheap and abundant off-shore oil, energy economics will drive military confrontations in Asia.

The Chinese claim the discovery and control of the Diaoyu Islands from the 14th Century, but Japan took control of the islands from 1895 until its surrender to the U.S. at the end of World War II. During the United States Civil Administration of the Ryukyu Islands after 1945, it was discovered that oil reserves might be found under the sea near the islands. In anticipation of the turnover of the Senkaku Islands, Japan declared a 100 mile ADIZ around the islands in 1969. Since reverting back to Japanese control under the 1971 Okinawa Reversion Agreement, sovereignty around the islands has been disputed by the People's Republic of China, Taiwan, and South Korea.

The new Chinese rules require that aircraft must ask for permission to fly in the ADIZ, aircraft in the zone must identify and keep in communication with Chinese authorities, all aircraft must "follow the instructions of the administrative organ of the East China Sea Air Defense Identification Zone", and warn that "China's armed forces will adopt defensive emergency measures to respond to aircraft that do not cooperate in the identification or refuse to follow the instructions." In response to thesenew Chinese edits, the U.S. flew two unarmed B-52 bombers from Guam on November 25th without notification. Then on 29th, the People's Liberation Army Air Force scrambled Su-30 and J-11 warplanes in response to 10 flights of Japanese F-15s, E-767s and P-3s; U.S. P-3s and EP-3s; and South Korean fighter jets flying through the ADIZ.

The 1919 Paris Convention for the Regulation of Aerial Navigation recognized the principal of freedom of the skies as an extension of "freedom of the high seas" that limited territorial sea claims of coastal nations to 12 nautical miles off their shores. The Convention on International Civil Aviation of 1944 updated air rights, but it was the 1982 United Nations Convention on the Law of the Sea (UNCLOS) created the framework for exclusive economic zone (EEZ) in waters previously regarded as high seas. The three basic obligations of the treaty: (1) the duty to refrain from the unlawful threat or use of force; (2) the duty to have "due regard" to the rights of others to use the sea; and (3) the duty to observe applicable obligations under other treaties or rules of international law.

The United States extended what had been its 12 nautical mile territorial sea into a "high seas" Air Defense Identification Zone in response to heightened tensions with the Soviet Union caused by the outbreak of the Korean War in 1950. America claims continental ADIZs extending 300 nautical miles in some Atlantic areas and more than 400 nautical miles in Southern California.The United States also maintains ADIZs off the coast of Alaska extending out at least 350 nautical miles into the Bering Sea, similar distance into the Arctic Sea off Alaska's northern coast, 250 nautical miles around Guam and up to 250 nautical miles north of the Hawaiian Islands.

The U.S. from 1870 to 1970 dominated manufacturing and won two wars on the back of oil and gas prices that averaged a third of the world's price. But shrinking domestic production after 1972 destroyed America's energy-cost advantage by the 1980s. Once expanded Middle East oil production equalized energy costs for the world, American manufacturers began relocating jobs to Asia to stay competitively in lower labor costs.

But U.S. natural gas prices have fallen from $15 per thousand cubic feet (mcf) in 2000 to about $3.50 mcf today. This compares to rising natural gas prices that are $10mcf in Europe, $12 mcf in China and $17 mcf in Japan. If this cost advantage holds or widens as America exploits its spectacular abundance of shale to frack for oil and gas, Asian employment will fall as huge amounts of manufacturing relocates to the United States.

No country has more risk from high energy prices than China, which passed the U.S. in 2010 as the world's largest manufacturer. China passed Russia to grab the number two spot behind the U.S. in defense spending. Fearing the Peoples' Liberation Army would become the dominant military power in East Asia, Japan has launched a crash rearmament drive that by next year will have ballooned defense outlays past France and U.K. to the number four spot, just behind Russia.

The width of China's new ADIZ does not extend beyond the international EEZ standard. But according to Stratfor Reports: "Beijing is testing U.S. responses in the Western Pacific, as China attempts to shape a new maritime balance in the area. All sides will use the current standoff to recalibrate the balance of power over energy and maritime geopolitics that, much like during the Cold War."

Japan retaliated early this year to China's growing military assertiveness by extending its ADIZ around the Senkaku Iislands by another 15 miles. The current western border of the zone extends at its closest point to just 81 miles off the Chinese mainland. In this escalating tit for tat, between July and September the Japanese military was forced to scramble fighter jets 80 times in response to Chinese warplane and drone intrusions.

Beijing seems distressed enough about the potential loss of millions of manufacturing jobs that they are willing to threaten the use of military force to assert a sphere of influence that will capture most of the offshore oil and gas drilling rights in the East and South China seas. Facing U.S.-Japan and U.S.-South Korea security agreements, China is employing tools like the ADIZ to force regional competitors to readjust their behavior in light of China's ambitions and naval heft. China's confrontations may not be intended to lead to a clash, but when armed and dangerous nations play chicken with modern weapons, the risk of a military miscalculation and accidental war accelerates.