Over the past few days, reports have surfaced suggesting a new spat between Malaysia and Brunei over cross-border projects in their shared maritime boundary. While there have been no official public confirmations of the argument, the development nonetheless bears careful watching given the relationship between the two Southeast Asian states and the significance of these projects for wider economic and political dynamics in these countries.
Malaysia and Brunei, two Southeast Asian states and members of the Association of Southeast Asian Nations (ASEAN), have a contemporary bilateral relationship that dates back to 1984 when Brunei got its full independence from Britain. The two states share a land border and cultural, linguistic and historical similarities that date back far beyond their current diplomatic relationship, and have attempted to forge greater cooperation over the years in spite of some differences over boundaries and borders.
One of the key developments in bilateral ties over the past decade or so was the negotiation of an agreement over their maritime boundaries. While details have never been released publicly, the two countries reportedly reached agreement on a wide array of issues in March 2009 after multiple rounds of talks, including the contours of their maritime boundaries and the terms for joint development of offshore energy resources which had paved the way for projects to take place thereafter.
Last week, we saw a focus on this aspect of the bilateral relationship with reports surfacing about a hold placed on existing projects that lie within the shared maritime boundary. The news, first reported exclusively by Energy Voice on February 28 and then subsequently appearing in other industry publications as well, suggested that Malaysia had revoked a cross-border agreement with Brunei to jointly develop fields along the Malaysia-Brunei maritime boundary.
Energy Voice cited anonymous industry sources in Malaysia as confirming that Petronas had halted discussions in early February regarding unitization and joint collaboration on several upstream projects straddling the maritime boundary, specifically those located in Blocks CA-1 and CA-2 in the demarcated Malaysia-Brunei Commercial Arrangement Area (CAA). The publication said that it was believed that the issue was rooted in the fact that the Malaysian government had been unhappy with the proposed revenue sharing split which was agreed to before the Pakatan Harapan government had come to power in May 2018 elections, with the then returning premier Mahathir Mohamad looking to renegotiate a better deal.
As of the time of writing, there has been no official confirmation or announcement from either side, and no follow up reporting from media publications in either of the two countries. But, if true, this would constitute a significant development for both countries and for the bilateral relationship. Beyond the state of Malaysia-Brunei relationship more generally, disagreement between the two countries could jeopardize previously agreed deals between both sides as well as prospective offshore production-sharing contracts. While both countries are dependent on energy, Brunei’s reliance is much greater, with hydrocarbons accounting for about two thirds of its GDP and almost all of its exports, diversification efforts proving difficult to take off thus far, and the country now with Southeast Asia’s highest unemployment rate at over nine percent, leading the government to consider a range of alternatives including encouraging the localization of jobs (or “Bruneianization”).
To be sure, it is difficult to assess exactly what the status of this issue is as well as its future prospects based on the little that we know publicly. While disagreements on proposed revenue sharing are not in and of themselves surprising, the key issue is whether any differences are still bridgeable. Furthermore, given wider political realignments in Malaysia which have resulted in a change of government whose future is uncertain, it remains to be seen how this might affect aspects of bilateral ties including on this one as well.