IEI: The case of Sulu and Petronas

The case of Sulu and Petronas   

  In 1878, Overbeck and Dent signed the British Treaty of North Borneo with Sultan Jamal Alam, paying Sulu Sultan RM5,300 a year as cession payment. However, they stopped making payments when the Lahad Datu crisis occurred in 2013 when a group of militants from the southern Philippines invaded Sabah's eastern coast. Now, a French arbitration court has ruled that Malaysia owes RM62.5 billion to the heirs of the Sulu Sultan. Azerbaijan/Shah Deniz and Petronas South Caucasus have been seized by bailiffs. 

    The first factor contributing to the issue is the historical claims. The Malaysian government has been paying the descendants of the Sulu RM5,300 per year for the state of Sabah and  it is a "cession fee". However, the Philippine government claimed sovereignty over Sabah because the descendants of Sulu included Sabah in their sovereignty. Next, the factor is economic interest. Sabah is the main producer of oil and gas in Malaysia. Sulu wants Sabah state because oil and gas bring a lot of revenue to the country.  The next factor is Maritime boundaries. The southern Philippines and northeastern Malaysia contain oil and gas resources that lack a mutually agreed-upon maritime boundary. Malaysia has the authority to exploit natural resources located within 200 nautical miles of its shore. The Philippines argues that some of the islands in the Sulu Sea should be giving them the right to a territorial sea of 12 nautical miles. Next, the factor is political tensions. The Sulu people claim that Petronas has been producing oil and gas in the area without their permission. The conflicts between the Sulu area and Petronas are worsened by historical and political causes by disagreements over natural resources.  

    The major challenge faced by Petronas is the ongoing territorial disputes in the area. These disputes can make it difficult for Petronas to secure and operate in the area. Another challenge faced by Petronas is the harsh operating environment. The bad environment of  the Sulu Sea causes difficulty to explore oil and gas resources in the area. Furthermore, the takeover of assets globally poses a new challenge to Petronas. According to the claimants' lawyers, the judgment is still valid even outside France. Besides, Petronas would struggle to recover if the Sulu heirs continued to seize property. The present market value of the Luxembourg real estate firms owned by the Sulu ancestors is uncertain. In February, they acquired a 15.5% stake in Shah Deniz offshore gas field in Azerbaijan; the investment had been worth over $US2.3 billion at the time. Lastly, Petronas also has barriers to overcome in order to resolve the Sulu problem with the seizure of assets. The barrier in Malaysia is caused by both legislative restrictions and past colonial powers. 

    Regarding the relevant theory, a country having a comparative advantage justifies the trade-off. This suggests that the advantages of purchasing its product or service exceed the downsides. The country may not be the greatest at manufacturing anything, but the item or service is inexpensive for other countries to import. Since 1957, the country has been a signatory to the General Agreement on Tariffs and Trade (GATT) and is a founding member of the World Trade Organization (WTO). It intended to provide fair opportunities for foreign companies to participate in the domestic market. As a result, Petronas should not be treated differently from domestic enterprises, according to this argument. Second, the Heckscher-Ohlin theory explains that countries will tend to export items that employ plentiful factors of production while importing goods that require limited factors of production. For instance, Malaysia exports oil and gas while imports limited manufactured goods elements. Next, for New Trade policy, if the Philippines has no comparative advantage in oil and gas, it can still benefit from trade with Malaysia. Development of the oil and gas industry in the Philippines could lead to the creation of new jobs and businesses.

    The territorial conflicts between the Sulu government and Petronas could have a substantial economic impact on the worldwide oil and gas sector. Firstly, it will result in lost investments and resource waste. Uncertainty is caused by the continuous disagreements about who owns the resources in the Sulu Sea. Therefore, the region may become less appealing for investment. Secondly, there also have effects on the supply and export of oil and gas on the world market. It is estimated that the Sulu Sea holds 3 billion barrels of oil and 14.6 trillion cubic feet of natural gas. This would make a substantial contribution to the exportation of oil and gas worldwide. This will also cause rising prices for oil and natural gas. Thirdly, the debt of Malaysia increased. Due to the Malaysian government's ignorance of the assertion that the Sulu government has requested that they pay which is in mid-July 2020, as much as $14.92 billion was claimed by the heirs of Sulu to Malaysia. This causes the Malaysian government to bear a higher liability or debt. Lastly, the conflict also affects the security and stability of Malaysia. This is because the territory of Sabah is to be ceded to the Philippines because of diplomatic tensions between the Philippines and Malaysia. If Malaysia continues to disregard the claim of the Sultan of Sulu heirs, it is likely that further Petronas assets would be taken.

    In conclusion, the Sulu and Petronas case is a protracted territorial dispute between the Philippines and Malaysia. Malaysia claims its sovereignty on the basis of its laws and constitution, whereas the Philippines bases its claim on its historical and cultural ties to the area. The Philippines have expressed their displeasure over Petronas' alleged exploitation of natural resources in the disputed zone. Due to the involvement of other nations, most notably China, the issue has grown even more complicated. As a result, Group 8 suggested that it is crucial to carry on diplomatic engagement and negotiations in order to come to a settlement that is fair and beneficial to all sides.