The Malacca Strait has been become an important choke point for global trade. What is the possibility that this strait will become a bargaining chip in the future? Malacca strait connects four countries in Southeast Asia: Indonesia, Malaysia, Singapore and Thailand. The majority of traffic through the strait comes from ships sailing to China.The strait also has an important role in military operations. However, the Malacca’s importance has mainly increased because of the growing numbers of commercial ships passing through the it.

Why Has the Malacca Become a Focal Point of International Trade?

The strait’s importance for international trade comes from its geographic location, and the current international trade structure. Malacca is conveniently located in Southeast Asia, on the corridor from the Indian to the Pacific Ocean. With the current world trade structure based on East-West trade, the strait’s location enables high ocean shipping traffic.

With over 80,000 vessels passing through the strait every year, the strait is the second-busiest in the world, and the first busiest in Asia. Although important for all of world’s trade, the strait holds different value for certain countries.

For Indonesia, Malaysia, Singapore, and Thailand, the strait not only brings diplomatic and economic benefits. It also brings drawbacks, such as the responsibility for protection of ships in the strait. Malacca’s management requires protection from threats of piracy and unsanctioned use of the strait.

While the strait’s countries and those nearby to it are increasingly using the strait and militarizing it, location is not all that there is to to the strait’s importance. Other factors which play a role in commercial shipping viability increase the strait’s importance to countries farther away from it. These factors are relatively better environmental conditions and the presence of foreign navies.

Future Challenges for the Malacca Strait

Malacca’s importance to the facilitation of international trade is high. However, in the future, several environmental and political challenges could negatively impact the role of the strait. The shallowness of the strait, and the fact that it is managed by four countries creates a whole new set of problems.

The shallowness of the strait can be corrected through efforts of the four countries of the strait. Yet, a rather uncomplicated issue, such as allowing patrol boats to cross marine boundaries when chasing pirates, still has not been solved. With several countries having to agree to a decision, negotiations become harder to conclude. If the same trend continues, cooperation on larger projects in Malacca could be deferred.

The location of the strait and its importance to international trade has been used by Indonesia, Malaysia, Singapore and Thailand. Either in direct benefits from other powers, or through offering better conditions in the strait in exchange for financial benefits, the Malacca is a vital chip in the hands of the four countries.

Diplomacy in Southeast Asia has long been based on emphasizing mutual benefits, rather than withholding of them. Solving issues through worsening conditions in the strait, rather than negotiations and exchanges, would also require strong diplomatic power. The four countries don’t have as much diplomatic power as the superpowers using the strait, to be able to leverage the location of Malacca for their gains without harm.

The countries whose companies use the strait are also mostly allies of Indonesia, Malaysia, Singapore and Thailand. Although this condition ensures an easy passage through the strait, it is a preventative measure against the four countries using the location advantages in negotiations. Can this state continue in the future, or will the countries of the strait will start leveraging their power?

Trade Tensions Could Soon Easily Up in the Malacca

Trade tensions, and the different points of view of the four strait countries regarding the resolution of them, are the most likely reason the strait could become a point of division between the countries.

Future trade tensions between the main users of the strait and their allies could negatively impact the operations in the Malacca. Relocation of manufacturing operations, analyzed in The Consequences of Chinese Manufacturing Migration, both from China into Southeast Asian countries, and from US to cheap manufacturing countries, is bound to become a major issue.

The race for jobs and tax income by governments against relocating manufacturers, is transitioning from being a one-region issue. It is affecting countries previously having benefited from the same issue. Using a major shipping route for the four Southeast Asian countries in order to push for different business conditions is not unimaginable.

External tensions are always a potential negative influence for easy passage through important routes. Yet, internal tensions between the four countries of the strait also can harm the operations of the strait. Tensions between Malaysia and Singapore over disputed borders are a significant issue because of their relevance to marine borders. If an escalation were to occur, it would be a direct threat to the operations in the strait of Malacca.

Proxy Trade War Location: Malacca Strait

It is not unreasonable to suggest that Malacca strait could become a proxy location for a conflict between countries. Malacca shares similarities with other straits and passages which have been used as proxy locations for conflicts (Suez Canal, Bab el-Mandeb). These similarities are an important role in oil transit, commercial shipping, and countries of the strait having smaller diplomatic power than some of the largest users. Nevertheless, cooperation between the neighbors of the strait and a united stance against any issues is a strong deterrent against any conflict.

Good relations between the four countries of the Malacca strait has been a constant since the founding of ASEAN in 1967. Even with different political systems, and external alliances, Indonesia, Malaysia, Singapore, Thailand have continued to peacefully manage the strait.

For the four countries, the peaceful and easy transition of vessels to the strait is not only a matter of political convenience. The successful passage of vessels through the Malacca brings in direct income in the form of port visits and ship repairs. Indirect income, from the jobs created to service primary income sources, also plays an important role. A blockade of the strait would also cause significant loss – totaling over $9M in just a day.

Blocking the passage through the Malacca for political gains would mean giving up the direct and indirect income from it. Not only that, the affected population could deal a blow to the politicians attempting negotiation by hostile measures. The population of the provinces of the three countries closest to the strait – Indonesia, Malaysia and Singapore, is over 45 million. While not all of the population has financial ties to the strait, any blocks of transit to the strait would impact millions of individuals and voters.

Deterrents to Conflict in the Malacca Strait

A deterrent against conflicts in the strait is its benefits to all four countries to which the strait belongs to. Even with differing sizes of maritime boundaries, all of the four countries have managed to carve out benefits from the strait.

Certain conditions and benefits would have to change, and only then the strait could become a point of division. Increasing tension over maritime boundaries, or a push from ally countries using the strait, could disrupt the flow of shipping in the strait. Even if the disruption of the shipping were to happen, increasing diversification of trade routes has enabled shipping through nearby southern straits – Sunda and Lombok.

Diversification of trade routes has been the mark of the start of the 21st century. Enabled by changing environmental conditions or funding from economic growth, this diversification has delivered plenty of economic benefits. Trade route is diversification is also often touted as a security benefit. A country with different routes for trade, should be less susceptible to a blockade of one having a large effect on it.

Without diversification initiatives, countries reliant on shipping and oil transportation through Malacca would encounter massive losses. A nearby state East Asian state, China, would see four fifths of its oil supply blocked.

Nonetheless, trade route diversification is not an end-all solution against straits becoming bargaining chips in the hands of their managing countries. Trade route diversification, and a lower reliance on world’s main straits, including Malacca, could create an illusion of security. One where more attention is paid to the fact of diversification, rather than the security of the routes.

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