The Western efforts to maintain a regional coalition and counter China in the Western Pacific face a significant setback. This is the simmering feud between Malaysia and the Philippines over disputed territory in Borneo and its maritime environs. The United States will need to help address this matter if it will succeed in creating a robust security architecture in the South China Sea. This will entail balancing its commitment to the Philippines with the need to engage with Malaysia. Otherwise, Beijing will be able to leverage this dispute to its advantage and project power in the Pacific basin. 

Last month, France’s highest civil court rejected an appeal by the Filipino heirs of a former sultan who have demanded some $15 billion from Malaysia. This is a major victory for Kuala Lumpur in a lengthy legal battle stemming from an 1878 land deal. Following the ruling, however, the heirs’ lawyer asserted that Sabah, the oil and gas-rich region of eastern Malaysia, could now be unilaterally leased out to the Philippines or others—which would amount to an illegal annexation.

Earlier in October, Manila called for the establishment of a “bilateral mechanism” with Kuala Lumpur that would provide social services for nearly half a million undocumented Filipinos residing in the Malaysian state of Sabah. The Filipino national security advisor Eduardo Año has told his Malaysian counterpart Nushirwan Zainal Abidin that Manila wants all undocumented Filipino nationals registered to secure their welfare. While there was no immediate response from the Malaysian government, Manila’s Foreign Secretary Manalo said earlier in August that his department regularly sent consular missions to Sabah to negotiate a suitable deal.

Approximately 800,000 Filipinos live in Sabah, situated on the island of Borneo, just northeast of the southwestern Philippines. Many of them migrated there during the 1970s to escape a secessionist insurgency in the southern Philippines. While both Malaysia and the Philippines are founding members of the Association for Southeast Asian Nations (ASEAN), they share a difficult history of sparring over Sabah. 

Manila bases its claim to Sabah on an 1878 treaty between a Sultanate of the Sulu Islands and British colonists. The Sultanate of Sulu ruled parts of Mindanao in the southern Philippines and parts of Borneo for some 400 years until the early 19th century. However, historians agree that the Sabah region was not controlled by either the Sulu or the other rival Sultanate of Brunei laying claim to the territory. Sabah was formally incorporated into Malaysia in 1963, and Kuala Lumpur continued payments to the Sulu heirs previously made by the British. Five years later, President Ferdinand Marcos Sr. signed a law declaring Sabah Filipino territory. 

In June, the historical dispute flared up suddenly when the Philippines filed a shock petition with the United Nations to extend its continental shelf 350 nautical miles. The move was part of Manila’s efforts to counter growing Chinese aggressiveness in the South China Sea, where Beijing's coast guard force has been engaged in hostile moves, including the use of water cannons and ramming against Filipino vessels. This triggered a backlash from Malaysia, which saw it as a threat to the Sabah region and said it would fight any such moves. Kuala Lumpur is due to assume the chairmanship of ASEAN in 2025 and seeks diplomacy over confrontation to resolve the disputes in the South China Sea, where Beijing claims sovereignty over nearly all of the maritime space, including areas claimed by Vietnam, Brunei, Indonesia, Taiwan, Malaysia and the Philippines.

Therefore, the United States must balance its strong support for the Philippines, its former colony, under a mutual defense pact that fortifies Manila’s position in the South China Sea. However, this alignment has fueled concerns in Kuala Lumpur that Washington’s backing might embolden Manila’s territorial ambitions, potentially at Malaysia's expense. China could also leverage these tensions within ASEAN to further its regional aims. This situation exposes a critical vulnerability in U.S. foreign policy: prioritizing Manila without addressing Malaysia’s concerns could weaken this carefully assembled alliance against Chinese influence.

In the intricate web of international diplomacy, perceptions often weigh as heavily as actions. The dispute over Sabah is not merely a bilateral issue between the Philippines and Malaysia; it is also deeply tied to ongoing legal challenges with potentially broad implications for regional relations. A key complicating factor is the Malaysia-Sulu arbitration case, where descendants of the Sulu Sultanate have sought to enforce dubious historical claims, bringing attention to the sovereignty issue in Sabah. Third-party litigation funder Therium supports this case, which demands $15 billion in damages from Malaysia after Kuala Lumpur halted payments to the heirs in 2013 following an attempted invasion of Sabah by Sulu rebels that claimed seventy lives. Although Malaysia successfully challenged parts of the case in various jurisdictions, including a decisive Dutch court ruling, the litigation continues, keeping the issue of Sabah sovereignty in the international spotlight.

Adding to the controversy is the fact that the Sulu heirs’ chief counsel, Paul Cohen, once served as a speechwriter for former President Bill Clinton and Vice President Al Gore. For Washington, this association risks compromising its image as an impartial mediator in the region, especially in Malaysia, potentially undermining its influence and destabilizing alliances within ASEAN. Cohen’s declaration after losing his appeal in Paris—that China or the Philippines could, in effect, take over this crucial part of Malaysian territory—only exacerbates this risk.

If Malaysia perceives the U.S. stance on Sabah as too favorable to the Philippines, it may respond by strengthening its diplomatic and economic ties with China. Beijing recently extended overtures to Kuala Lumpur and other Southeast Asian nations to join its anti-Western BRICS coalition.

The Philippines-Malaysia dispute is pivotal for America’s regional strategy. For this strategy to succeed, the United States must navigate carefully, balancing the interests of each ASEAN member concerned about China’s behavior. To do so, it should advocate a more inclusive approach that genuinely addresses Malaysia’s interests, especially as the country’s economy is expanding at an impressive rate.

A promising path forward lies in the proposed Philippine-Malaysian bilateral mechanism, which, if effectively managed, could address the migrant issue and foster a stronger, cooperative bond between Kuala Lumpur and Manila. The incoming Trump administration can play a crucial role by supporting dialogue and mediating solutions, thus strengthening ties between these ASEAN members and bolstering the coalition against China. However, this cooperation will remain fragile until the sovereignty dispute over Sabah is conclusively resolved. As long as the Sabah issue remains contentious, the risk of discord will linger, threatening U.S. efforts to uphold unity within its regional partnerships.

The United States needs a cohesive regional alliance in order to prevent a Chinese breakout in the Western Pacific. Ultimately, Washington’s South China Sea strategy depends on fostering stability within ASEAN. Though the Philippines is a historical ally, overprioritizing Manila risks fragmenting the coalition. Addressing Malaysia’s concerns will prove vital to its longevity. By supporting constructive dialogue and compromise, the Trump White House can help forge a resilient, cooperative alliance that effectively counters China’s influence in Southeast Asia, securing American global naval dominance for years to come.

Kamran Bokhari, PhD, is the Senior Director for Eurasian Security and Prosperity at the New Lines Institute for Strategy & Policy in Washington. Bokhari is also a national security and foreign policy specialist at the University of Ottawa’s Professional Development Institute. He has served as the coordinator for Central Asia Studies at the U.S. Department of State’s Foreign Service Institute. Follow him on X at @KamranBokhari.

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