Quotes of the Day

If Australia and East Timor were at war over territory, the conflict would be called asymmetric. East Timor (pop. 800,000) is one of the world's poorest countries; its neighbor Australia (pop. 20 million) is among the richest. In their efforts to negotiate a permanent legal fence in the Timor Sea, the difference in firepower and tactics could hardly be greater. It is as if a small guerrilla force was facing an opponent that could call in air strikes at any moment. So far, the engagement has produced only bad blood and rancor.

East Timor is pressing for a maritime boundary equidistant between the countries. Current arrangements for sharing a sea zone known as the Joint Petroleum Development Area—which give 90% of taxes and royalties to East Timor—bring it about $4 billion. Over the coming decades, an extra $8 billion could go to Dili if it can capture the oil and gas fields to the east and west of the JPDA. But first it must persuade Australia, and then the Indonesians (who occupied the territory between 1975-99), with whom sea-boundary talks are imminent. "The petroleum resources are utterly essential to East Timor," says President Xanana Gusmão. "We desperately need funds to fix roads, to build up our schools and health system. Our international donors say ‘But you have all this oil and gas. So don't ask us for more money.'"

Countries are entitled to claim an exclusive zone extending 200 nautical mi. (370 km) from their coast. "When countries have overlapping claims," says Nuno Antunes, East Timor's legal adviser, "the best settlement is to be found in international law." Citing 75 precedents, he says equidistance is the key principle. But a median line would put all the petroleum reserves on Timor's side. Australia argues that the contours of the seabed are unique. "We have successfully established that the natural promulgation of the continent extends to the Timor Trough," says an Australian official involved in the talks last month in Dili. In Canberra's view, that trough should be the dividing line.

Despite the risk of alienating its closest international friend, Dili has waged a global propaganda blitz. "We slowly came to realize the bad faith Australia was showing," says Gusmão of Australia's 2002 withdrawal from the International Court of Justice on maritime boundary disputes. "‘Be realistic, it's only a dream,' Australia said about our claims. They wanted to preserve what they had secured from Indonesia when we were occupied. As if we were blind!"

Foreign Minister Alexander Downer says Australia has been extremely generous. "We agreed to give East Timor 90% [of the JPDA] … and now we are told that we are thieves and cheats," he says. "They obviously don't regard the relationship with Australia as highly as I thought." In the past four years, the country has spent $170 million on aid and development; Canberra sent 5,700 troops and led the U.N.'s INTERFET force in 1999 after East Timor's vote for nationhood triggered a killing spree by pro-Indonesian militias.

But the tiny country, where life expectancy is just 57 years, is still on economic life-support. Aid group Oxfam last week warned it would become a failed state unless it could negotiate a bigger share of petroleum revenues. Prime Minister Mari Alkatiri says his country intends to save most of the oil income for future generations and will not follow the example of resource-rich neighbors that have squandered their wealth or been strangled by corruption: "Without a strong institutional footing, high levels of public investment would be dangerous." Idleness will not be tolerated either, he says. "We need to push the people to work for their livelihood, not to depend on social spending."

Or aid. While the country's annual budget of $80 million ($100 per person) relies heavily on donors, that's slowly changing. In February, operator ConocoPhillips reported a regular flow of "wet gas" from the JPDA's Bayu-Undan field, which is expected to bring East Timor $100 million a year for 20 years. But outside the current boundaries, Australia is issuing new exploration licenses and receiving revenue from the Laminaria fields. "Australia is continuing to take oil from the area in dispute at a rate of $1 million a day," says Peter Galbraith, a former U.S. diplomat who leads Dili's negotiators. "Because Australia is depleting the resource, the negotiations are a matter of great urgency." Moreover, discussions on the division of petroleum taxes from the $25 billion Greater Sunrise project—also in the disputed area—have stalled.

The boundary talks will resume in Canberra in September. "Australia is refusing to negotiate on the main issue—the location of the lateral boundaries," says Galbraith. "There's a significant gap at the moment, and closing that gap will take a long time," counters Australia's Downer. East Timor's Alkatiri says his country is open to a "creative solution" but would call on "mutual friends" if the talks fail. Downer says Australia is open to fresh ideas: "We have heard a lot of abuse and criticism, but in terms of constructive solutions, let's see them."

• Tom Dusevic | Dili
• Australia and East Timor fight it out for a multibillion-dollar oil and gas field