The South China Sea contains approximately 200 insular features, including islets, rocks and reefs. Most of these are only visible at low tide and many are permanently submerged and uninhabitable, rendering current regional tensions seemingly trivial and baffling at first glance. What gives the Spratly Islands dispute its geopolitical salience are the sea lanes which pass through the South China Sea and connect the Indian and Pacific Oceans, and Northeast Asia with Southeast Asia. On an annual basis, more than half the world's shipping passes through the South China Sea carrying manufactured goods and commodities such as crude oil, liquefied natural gas, coal and ore, making the sea a vital life line of energy supply for countries in the Asia-Pacific region and beyond. Below the surface, the South China Sea purportedly holds vast reserves of oil and gas.

This chapter examines Malaysia's interests and claims in the South China Sea, and offers a number of options in moving forward towards a resolution of the dispute. First, it outlines the promise of energy resources as the primary driver behind Malaysia's stake in the South China Sea. Second, it contextualizes Malaysia's claim through the lens of geography and national security. Third, it discusses developments to date with specific regard to Malaysia's claim. Fourth, it explores the possible political, legal and diplomatic options that Malaysia might pursue to resolve the dispute.

THE SOUTH CHINA SEA: WHAT IS AT STAKE FOR MALAYSIA?

With demand for hydrocarbon resources from Asia's vibrant economies projected to rise, the reserves that are reputed to lie beneath the waters of the South China Sea has become of key interest for regional states and international energy companies. Accurate assessments of those oil and natural gas reserves have been near impossible to obtain due to conflicting territorial claims which have ruled out comprehensive exploratory drilling in the area. It bears caution to note therefore that estimates of energy reserves vary wildly: between 28 to 213 billion barrels (bbl) for crude oil, and between 900 trillion cubic feet (tcf) and 2 quadrillion cubic feet for natural gas. However, as an indication of its potential, there are at least 4 to 6 tcf of proven natural gas reserves near the Spratly Islands, as uncovered by Husky Energy and the Chinese National Offshore Oil Corporation (CNOOC) in April 2006.