Dispute over rock could add pressure to Malaysia PM

KUALA LUMPUR/SINGAPORE May 22 (Reuters) - A dispute between neighbours Singapore and Malaysia over a rocky outcrop near a major shipping lane will be decided by an international court on Friday, with experts pointing to risks for Malaysia's faltering government if it loses the case.

Both are confident the ruling will be in their favour for an outcrop Malaysia calls Pulau Batu Puteh and Singapore names Pedra Branca -- no larger than half a football field -- and located on the Singapore Strait, which is just off the key Malacca Strait, which carries 40 percent of the world's trade.

Analysts said a finding against Malaysia by the International Court of Justice in the Hague could put more pressure on Prime Minister Abdullah Ahmad Badawi and reopen old wounds in the often testy diplomatic ties between the two states.

"It could strain their ties if the ruling goes against Malaysia," said political analyst Yahya Ismail. "Singapore's victory means that the country will redraw its maritime boundaries and this could be at the expense of Malaysia."

Singapore briefly merged with Malaysia in the 1960s and the two have since often bickered over issues ranging from land reclamation to airspace and railway land.

Relations have improved since Abdullah came to power in late 2003, with growing trade and investment ties and a planned special economic zone in Malaysia's Johor state that borders Singapore -- and is closest to the contested island.

Johor officials said privately that the Johor state government could be forced to turn its back on Singapore if Kuala Lumpur loses the case, with the Southern state's hereditary ruler losing face.

"The Sultan may freak out and make it difficult for Johor state officials to have direct dealings with the Singapore government," said one. "There's also the possibility of ruling party politicians staging anti-Singapore demonstrations."

Johor is a key supplier of water to Singapore, which relies on Malaysia for at least half its water. Thousands of Singapore day-trippers travel to Johor daily for food and petrol, while thousands of Malaysians commute from Johor to Singapore.

Ambassador K. Kesavapany, director of Singapore's Institute of Southeast Asian Studies and a former High Commissioner to Malaysia, said Singapore would take any decision in its stride.

Abdullah briefed Malaysian MPs on Wednesday ahead of the ruling. Foreign Minister Rais Yatim, who will be in the Hague for the verdict, said Kuala Lumpur would accept the outcome and hoped it would not derail bilateral relations.

He also advised Malaysians against holding demonstrations or making statements that could harm bilateral ties, though a resurgent opposition -- led by Anwar Ibrahim -- aims to take power by September by wooing defectors from the ruling party.

"Right now Badawi is in a very weak position, he is getting challenges from everywhere. If Malaysia loses, this would be a setback for his leadership," said Ho Khai Leong, professor of political science at Nanyang Technological University in Singapore.

PRECEDENT FOR OIL DISPUTES

The case, one of the few occasions Southeast Asian nations have gone to third-party arbitration, is also important because it could help lead the way for other Asian governments to resolve decades-old maritime disputes in oil-rich waters [ID:nSP129985].

"Previous international law cases are usually persuasive in deciding future cases," said Chris Flynn, a senior associate at law firm Ashurst.

"Given the increasingly important role that shipping lanes, choke points and small islands are playing in Asian energy security, it is not surprising and very encouraging that Malaysia and Singapore opted for a more formal approach to resolution."

A flaw was the two sides only asked the court who owns the island, not where the maritime boundary is, so there could still be a prolonged dispute -- but nothing likely to threaten a shipping lane carrying 80 percent of Japan's energy supplies. "I think the islands have little intrinsic value and while they have some strategic importance -- proximity to busy shipping lanes -- it's really a political issue...Someone is going to be disappointed," said Clive Schofield of the Australian National Centre for Ocean Resources and Security. (Additional reporting by Melanie Lee in SINGAPORE; Editing by Valerie Lee)