A 14-year old border conflict between Timor-Leste, also known as East Timor, and Australia was revived by The Hague's Permanent Court of Arbitration (PCA) on Monday.
Around 3,000 nautical miles separate Australia and Timor-Leste, an island in the Indonesian archipelago. Between the two countries lie the Timor Sea, home to the Joint Petroleum Development Area (JPDA) that is rich in oil and natural gas deposits. Next to the JPDA are the Sunrise and Troubadour gas fields, collectively known as Greater Sunrise, that are worth an estimated $40 billion.
These fields are at the heart of the maritime dispute that has weighed on bilateral relations and holds the potential to accelerate the nascent Timorese economy.
Background
Under the 2002 Timor Sea Treaty, the Southeast Asian island receives 90 percent of revenues from the JPDA's energy resources, with the remainder going to Australia.
However, only 20 percent of the Greater Sunrise fields lies inside the JPDA, according to the 2006 International Unitization Agreement on Sunrise (IUA), which allotted the remaining 80 percent to Australia.
Subsequently, a separate 2006 agreement [the Treaty on Certain Maritime Arrangements in the Timor Sea, or CMATS] was signed to divide revenues from the Sunrise fields 50-50. CMATs also stipulated a 50-year freeze on both countries from negotiating a permanent maritime boundary.
In 2013, the Timorese government accused Canberra of espionage to gain commercial advantage during CMAT's negotiations, claiming that such a move invalidated the agreement.
In April this year, Timorese Prime Minister Rui Maria de Araujo initiated formal conciliation proceedings by invoking the United Nations Convention on the Law of the Sea. He aims to establish an exclusive economic zone, including a permanent boundary, one that will allow the island to gain control of the entire lucrative Greater Sunrise fields.
Australia has argued that the Hague's international arbitration court does not have jurisdiction over the dispute as per CMATs—a response that bears striking similarities to China's viewpoint when the same court ruled on the South China Sea dispute. In an effort to appeal to the U.S. for help earlier this year, PM Araujo also accused Australia of behaving like Beijing.
On Monday this week, the court refuted Canberra's claims, announcing that it was indeed competent to hold a conciliation. Talks between the two countries will now continue over the next year.
Implications
Home to a population of 1.2 million, Timor-Leste relies on oil and gas revenues from the JPDA for the majority of its state budget, and the World Bank has long warned the middle-income country to diversify its economy away from energy.
The country was a Portuguese colony until pro-independence fighters declared victory in 1975. Shortly thereafter, Indonesia claimed the region as its 27th province, paving the way for a violent conflict between the Indonesian military and separatist forces. It was only in 2002 that East Timor became a sovereign state once Jakarta relinquished control.
"Development of the Greater Sunrise gas field is the key to the economic future of Timor-Leste," Rebecca Strating, lecturer at Melbourne's La Trobe University, argued in a note last week.
PM Araujo is using the conciliation as part of a broader diplomacy strategy to pressure the Turnbull government, using activist-style rhetoric that positions the dispute as the final stage of Timor-Leste's sovereignty, Strating explained.
But the island is running out of time.
It's estimated that the Bayu-Undan oil field, one of the government's biggest income generators located in the JPDA, will stop producing in 2022, Strating flagged. Moreover, the country's $16 billion sovereign wealth fund—known as the Timor-Leste Petroleum Fund—could be depleted by 2025, she noted.
The fund was among the top five best performers in the 2013 Resource Governance Index, a ranking developed by the non-profit Natural Resource Governance Institute.
"Even if Timor-Leste wins the conciliation, it will mean going back to square one with Greater Sunrise negotiations. It is difficult to see how this presents a practical, long-term solution for resolving the dispute," said Strating.
On Monday, Australian Foreign Minister Julie Bishop noted the current arrangements were hugely beneficial to the former Portuguese colony but said her government would engage in good faith during the conciliation process.
"There is an inescapable perception that Australia is denying its tiny, impoverished neighbor its sovereign birthright to determine its boundaries, control its own resources, and shape its own destiny," Ben Saul, Challis chair of international law at the University of Sydney, wrote in an August note. "Australia should stop obstructing Timor and help it to secure its borders and its future. This week's conciliation gives Australia a new chance to do the right thing."
Legal experts say July's South China Sea ruling could offer insight into the final verdict on the Timor Sea matter.
By denying China's territorial claims, the tribunal raises the prospect that Timor-Leste might successfully initiate an arbitration against Australia, corporate law firm Gilbert + Tobin explained in a report.