Alan Boyd, Sydney – Benefactor or bully? Australia has been portrayed as both in its protracted standoff with tiny East Timor over US$30 billion worth of deep-sea oil and gas reserves. So uneven is the contest, between the richest and poorest nations on the southern rim of the Pacific, that Canberra was always going to come off worse in the public relations battle.

"It is, quite literally, a matter of life and death," Timorese Prime Minister Mari Alkatiri declared in one of the more excitable quotations to come from the latest negotiations, which ended inconclusively in Dili on Thursday. "Timor-Leste loses $1 million a day due to Australia's unlawful exploitation of resources in the disputed area. That is too many lost and wasted lives," he said.

Five years ago, Australia was hell-bent on saving those same lives when it intervened in the militia war between Indonesian special forces and Timorese guerrillas, using hard cash and military firepower to eventually secure independence for the eastern half of the island of Timor.

It later conceded 90 percent of royalties from the most accessible of two continental fields that contain an estimated 20 trillion cubic feet of gas in the Timor Sea, the narrow shipping lane separating East Timor from Australian's northern outpost of Darwin. Each country has taken up its entitlement under the United Nations Convention on the Law of the Sea to claim a sea boundary of 200 nautical miles off its coastline. But at the closest point between the land masses, the sea is only 230 nautical miles wide, resulting in overlapping claims.

The agreed solution was to share the proceeds. Millions of dollars are already being funneled from a Joint Petroleum Development Area (JPDA) operated by the $3.3 billion ConocoPhillips consortium in the Bayu-Undan field. But Alkatiri said this week that Dili would not ratify an International Unitization Agreement (IUA) confirming the arrangement because it would in effect be shut out of a second drilling field, known as Greater Sunrise, that is believed to have far better prospects.

The sticking point is a 1975 agreement Australia initialed with Indonesia after Jakarta's bloody takeover of the former Portuguese colony that delineated the maritime border as a step toward the eventual recovery of seabed resources. Under the treaty, Australia's border extends to the edge of the continental shelf, maintaining a policy, widely accepted internationally at the time, that Canberra had pursued since 1953.

Indonesia's own boundaries with Australia were delineated on the same basis.

A December 1989 deal, which became known as the Timor Gap Treaty, provided for joint administration of the overlapping territory and divided all revenues 50:50, though in practice, the exploitation of resources was hampered by a host of investment issues tied to Timor's oblique diplomatic status.

Former colonial master Portugal, which never accepted Indonesian sovereignty of East Timor, challenged the 1989 treaty in the International Court of Justice in 1995. The court decided Lisbon had a case, but concluded it had no jurisdiction over the issue.

Significantly, the court suggested that Portugal should have been negotiating directly with Indonesia, thus implying that there were doubts over the legitimacy of the 1975 invasion – and by implication, the 1989 treaty with Australia.

Undeterred, Canberra has continued to recognize the jurisdiction of the 1975 border delineation that provides the basis for the treaty. This is not surprising, as the agreement cedes 82 percent of the Greater Sunrise field to Australia, while the remaining 18 percent of the field lies in uncontested Timorese waters.

East Timor maintains that neither agreement is viable because Indonesia's occupation was illegal and wants the border to be repositioned at the midway-point line to comply with the International Law of the Sea.

Accepting the jurisdiction of the United Nations maritime-resources law would mean that about two-thirds of the gas deposits would come under Timorese sovereignty, leaving Australia as the poorer partner. By some estimates, East Timor would gain another $10 billion.

Dili undoubtedly has won the sympathy vote, but its options for recourse are limited. Failure to ratify the JPDA will merely play into Australian hands, as there is less urgency in Canberra to start drilling in the contested fields.

Greater Sunrise is not due to enter the production phase until 2009, leaving Australia with ample time to build a case internationally with the help of the oil industry as reserves dwindle elsewhere on the globe.

And Australia, unlike East Timor, does have other energy sources. There are even doubts in some circles that Greater Sunrise will live up its billing, as most recent drillings in the North West Shelf, Australia's existing continental reservoir, have not met expectations.

Prospects for outside arbitration, the course now favored by Dili, are equally dim. Canberra announced in 2002 that it would no longer submit to rulings by the International Court of Justice on maritime boundaries.

"Australia is not the only country to avoid international jurisdiction when it feels the law is against it. The rule of law is not only for weakest and the poorest. The powerful nation should be the example," Alkatiri said of the treaty pullout.

However, there are doubts in some legal circles that East Timor would win even if it did secure an arbitration hearing, as the physical characteristics of the shallow Timor Sea appear to offer Australia a potential let-out. The requirement under the Law of the Sea for equal boundaries is only applied when the two countries concerned share a continental shelf. In this instance they don't: only Australia is actually on the shelf. Hence bilateral treaties would probably take precedence, shifting the legal focus back to the contested 1975 accord, and Canberra's apparent stalling tactics.

Dili charged during the latest talks that Australia was deliberately stringing the negotiations out as long as possible by insisting that the two sides meet only twice a year. East Timor asked for monthly negotiations, but was rebuffed.

Brinkmanship or not, the failure to resolve an issue that is arguably impeding East Timor's economic development has attracted the attention of the international community, handing Dili another sympathy vote.

Last month 53 US congressmen petitioned Canberra to move the talks forward "fairly and expeditiously". European legislators have been vocal in their criticism of Canberra, as have religious and aid groups within Australia.

Australian Foreign Affairs Minister Alexander Downer is undaunted. "They see it as a useful way of strengthening their negotiating hand by accusing us of bullying and being aggressive," Downer said dismissively of the Timorese publicity offensive.

Yet for all of its apparent complacency, Canberra is also playing a high-stakes economic game. If realized, the Timor Gap windfall will be big enough to supply Darwin with gas for 1,000 years.

While Australia has unilaterally awarded exploration licenses in Greater Sunrise, there are few prospects for actual production until the legal uncertainties have been removed. One lingering problem is a leftover from the Portuguese era: US-based PetroTimor contends that it was granted exploration licenses by Lisbon in 1974 and is prepared to defend these rights in court. Last month the company filed a lawsuit in the United States against an East Timorese politician who, it alleged, had been paid $2 million to advance the cause of an energy multinational in potential licensing blocks in the Gap. Alkatiri warned this week that East Timor would prosecute any oil companies operating within the joint exploration field without Dili's authority if it were later awarded sovereignty under a boundaries review. The oil industry appears to have gotten the message, with Australian energy group Woodside Petroleum declaring it will scrap its $5 billion oil and gas development in the Timor Sea unless the IUA is ratified by Dili's parliament.

Canberra's motives in recognizing Indonesian sovereignty over East Timor in 1975 against the flow of international opinion and securing the boundaries treaty, were undoubtedly self-serving. But there is more to its stance than a simple desire to safeguard commercial interests.

Australian foreign policies have historically been driven by the need for a stable neighbor to help protect the thinly populated northern coastline, especially as the demise of the Suharto regime and spreading secession struggles have created doubts over the long-term cohesion of the Indonesian archipelago.

For reasons of geography, East Timor will remain firmly within the Australian sphere of interest. Canberra has pledged almost $100 million worth of development aid in the next three years to hammer this message home.

There is little room for flexibility in Australia's territorial policies, as a midway split in the Timor Gap would inevitably force the renegotiation of adjoining agreements with Indonesia and Papua New Guinea that also carry economic implications.

Australia will still have to make the first move, as East Timor is very much the minor partner. But despite the rhetoric, there is growing confidence that a solution will be found, reflecting a belief in some quarters that the real Timor gap is a communication one.

"Good diplomacy depends on each side making an appreciable effort to understand the parameters of the argument. In my view, the Timorese set themselves an unrealistic target at the outset, perhaps as a consequence of flawed legal advice, that will be impossible to attain," said a diplomat.

"I believe it would be churlish to expect Australia to make further territorial concessions. [But] this doesn't preclude an economic solution from a development standpoint ... offering some more economic incentives in return for a signed IUA."