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The tiny island nation Timor-Leste is fighting its large southern neighbour Australia over rights to an offshore oil and gas field. Adrees Latif/Reuters

What you need to know about Timor-Leste and Australia’s sea border fight

With tensions in the East and South China Seas dominating security concerns in the Asia-Pacific region, little attention has been paid to the simmering maritime dispute between the tiny Southeast Asian state of Timor-Leste, also known as East Timor, and its much larger and wealthier southern neighbour, Australia.

The conflict – over the maritime border between the two countries across the Timor Sea – has considerable implications for Timor-Leste’s future security, and its viability as an independent sovereign state.

The resource-rich Timor Sea was thought to hold the key to the country’s economic development even before it became independent in 2002. During its 1976-1999 occupation of the island nation, Indonesia negotiated with Australia to exploit Timor Sea resources. But they disagreed on where the sea border should be set between Timor-Leste and Australia.

In 1989, the two countries signed the Timor Gap Treaty, which established a joint development zone and deferred the question of establishing a permanent maritime border. But Timor-Leste’s separation from Indonesia in October 1999 invalidated that treaty, and forced Australia to negotiate new arrangements with the country’s representatives.

On the very day of Timor-Leste’s independence on May 20 2002, Australian and Timorese representatives signed the Timor Sea Treaty. This too deferred demarcating a permanent sea border. But, in recent years, Timor-Leste has sought to re-open negotiations with Australia.

The dispute

The Timor Sea is located between Australia’s northwest coast and the south coast of the island of Timor, a distance of less than 400 nautical miles. At the heart of the dispute is a contest over its oil and gas resources.

Both Australia and Timor-Leste claim an interest in the lucrative Greater Sunrise gas field, estimated to be worth US$40 billion.

The many possible and negotiated sea border options between Timor-Leste and Australia. DFAT, Author provided

The legal dimensions of the dispute concern where the countries’ sea borders should be drawn. Under international law, the United Nations Convention on the Law of the Sea (UNCLOS) sets out principles for maritime boundary delimitation and dispute resolution.

But Timor-Leste cannot take its legal claims to an independent third-party arbitrator. Three months before the country became independent, Australia withdrew from compulsory jurisdictions of international courts and tribunals on issues pertaining to maritime boundary delimitation.

Any permanent sea boundary would need to be negotiated between the two states.

Competing claims

Australia argues that the Timor Trough – a 3,500-metre trench 40 nautical miles from the coastline of Timor-Leste – divides two continent shelves. It claims that under principle of “natural prolongation”, it possesses the seabed territory that extends to the edge of its continental shelf.

Delimitation drawn according to this principle would see the sea border drawn significantly closer to Timor-Leste than Australia.

But contemporary international law tends to support Timor-Leste’s claims that the boundary should be drawn in the middle of the sea between the two states. These claims rest on the principle of “equidistance” under which a median border should be drawn between nations. If this boundary were adopted, the Joint Petroleum Development Area (JPDA) created by the Timor Sea Treaty would belong to Timor-Leste.

While the median line argument appears quite straightforward, the delimitation of the border is complicated by legally ambiguous lateral boundaries.

The eastern side of the boundary is integral to determining ownership of Sunrise. And an interim line, agreed to by Australia and Timor-Leste in a 2003 agreement, was drawn according to legal principles of equidistance.

If the matter were brought before an international court, Timor-Leste would need to prove why the line should be shifted east (“adjusted equidistance”) in order for it to gain possession of Sunrise.

Failing treaty arrangements

In 2006, Australia and Timor-Leste signed the Certain Treaty on Maritime Arrangements in the Timor Sea (CMATS), which was designed to expedite the development of Sunrise. It too placed a moratorium on marking out a permanent sea border to get around the impasse in negotiations arising from overlapping territorial claims and differing interpretations of maritime law.

The CMATS also sought to put aside disagreements about how the gas would be processed. Timor-Leste favours an export pipeline to its south coast to enable its ambitious petroleum industrialisation plans. But Australia supports the decision of the licensee consortium, headed by Woodside, that the export pipeline is not the best commercial option.

Timor-Leste is now seeking to extricate itself from CMATS. And an ongoing International Court of Justice proceeding initiated by the country seeks to invalidate the treaty by arguing that Australia spied during CMATS negotiations in 2004, violating the Treaty of Vienna requirement that such agreements be negotiated “in good faith”.

Timor-Leste’s oil dependence

Timor-Leste has the option to withdraw from the CMATS, according to its provisions. But there are fears this would jeopardise the Timor Sea Treaty and petroleum revenue from the JPDA.

This revenue provides over 90% of the country’s budget and nearly 80% of its total GDP. But these fields are only expected to last until 2021.

Without an agreement on Sunrise, Timor-Leste will be left with very few sources of revenue outside of the petroleum sovereign wealth fund, which is worth US$16 billion but projected to run out in 2025.

Even with oil and gas exports, Timor-Leste runs a significant current account deficit. Coffee, its next biggest export, comprises 90% of non-oil merchandise exports but yields only US$16 million a year.

After oil and gas, coffee is Timor-Leste’s next biggest export. Jim Watson/Reuters

The country is also vulnerable to volatility in the global petroleum market: since 2014, revenue has decreased due to a plunge in world oil prices.

In an effort to get a better deal on Sunrise, earlier this year Timor-Leste initiated Compulsory Conciliation proceedings under annex V of UNCLOS. The conciliation is designed to assist states resolve maritime disputes in bilateral negotiations by providing a report from a panel of experts with recommendations on how to proceed.

But this process doesn’t get around Timor-Leste’s problem that it cannot take Australia to court to set the sea border between the two countries.

A security risk?

While commentary in Australia has tended to describe this as a court or arbitration, in reality the Commission can only provide non-binding recommendations. They are due in October 2017 – but the dispute doesn’t look like it will be resolved anytime soon.

A protracted fight with Australia over Sunrise runs counter to Timor-Leste’s security interests. The “security-development nexus” suggests that the best way of enabling domestic security is to ensure development.

For around a decade, Timor-Leste has experienced a fragile peace. Much progress has been made in its economic, social and political spheres toward development. But all this could be threatened if an agreement on Sunrise is not reached soon.

Without an alternative source of revenue, Timor-Leste could find itself reliant on foreign aid or international loans. Aid and loan conditions could undermine the capacity of Timorese governments to fulfil promises of political independence and implement long-term economic development ambitions, including increasing job opportunities for young people and developing an educated and trained workforce.

Even over the long term, gaining control of Sunrise will not deal with the country’s fundamental economic problem of oil dependence. This also constitutes a long-term security risk as Timor-Leste struggles to diversify its economy.

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