Philippines President Duterte to strike cautious tone with China on South China Sea ruling

Nearly two weeks after China rejected The Hague's ruling on the South China Sea, the ball is now in the Philippine's court to resolve the matter. And despite having previously threatened to jet-ski to the disputed islands to stake his country's claim, Philippine President Rodrigo Duterte is widely expected to adopt a cautious attitude.

Duterte holds his first National Security Council meeting, a key government forum for foreign policy issues, on Monday and the South China Sea is widely expected to feature prominently on the agenda.

Manila has long contested China's territorial claims in the resource-rich zone, home to the world's busiest shipping lanes, and its argument now has validation from international courts. On July 12, a tribunal at the Permanent Court of Arbitration in The Hague ruled that some of China's expansionary tactics in the South China Sea were illegal, leading Chinese President Xi Jinping's administration to declare the ruling "null and void."

China's adamant refusal to acknowledge The Hague's decision introduces a dilemma for 71-year-old Duterte.

Fresh off a landslide election victory, it's unlikely he wishes to risk economic ties with the world's number two economy, but his nationalist pride is at stake, especially after he ran a campaign that promoted his ability to preserve Philippine national interests against both Washington and Beijing. Such a tough-talking image has earned him the nickname of "The Punisher" and "Duterte Harry."

But strategists told CNBC that Duterte will likely push for bilateral talks with Beijing in favor of a peaceful settlement, instead of escalating tensions by riding jet skis to Chinese-owned reefs, as he's previously threatened to do.

"President Duterte is likely to choose negotiations with China, including the possibility of a resources-sharing arrangement for the disputed territorial claims, rather than triggering a confrontation with Asia's military superpower," explained Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.

Washington, which has expressed its desire for a multilateral solution, will be closely watching these talks. President Barack Obama's economic and military pivot to Asia is set to become one of his legacy policies and there's a chance Duterte could undermine that.

"When Duterte went into office, Washington's main worry was that when Duterte said he wasn't afraid to talk with China, they were really worried he was this demagogue with no grasp of foreign policy who would easily give up Philippine interests in the South China Sea in exchange for a couple of economic concessions," Stratfor's East Asia analyst Thomas Vien said in an e-mail.

Ultimately, however, those fears may be overblown.

Duterte is shrewder than he is given credit for and his administration would likely require China to first accept the Hague ruling before making any deals, according to Vien.

"At the end of the day, what he really wants is for both China and the U.S to be forced to take the Philippines and its interests seriously, and to this end he will avoid both unconditional support for Washington's agenda and acceptance of China's conditions."

If Duterte can negotiate a fishing deal at the Scarborough Shoal - a major flash point in the territorial dispute - or another resource sharing agreement in areas disputed bilaterally by China and the Philippines, he would gain U.S. support, Gregory Poling, director of the Asia Maritime Transparency Initiative at the Center for Strategic and International Studies (CSIS), said.

Uncertainty about future U.S. foreign policy in the case of a Donald Trump victory could also favor a prudent approach by Duterte, according to Biswas.

Coinciding with Monday's National Security Council meeting is a summit of foreign ministers from the Association of Southeast Asian Nations (ASEAN) in Laos.

The Philippines and Vietnam, which also has claims to parts of the South China Sea, wanted the official ASEAN communiqué to refer to The Hague's decision but Cambodia, an ally of China, wished to block any reference of it, Reuters reported over the weekend. Indeed, Monday saw the ministers release a statement that made no mention of the July 12 arbitration ruling.

—Follow CNBC International on Twitter and Facebook.