Oil in the Imperial Periphery

The majority of the nearly two hundred sovereign states that exist today were born through decolonization following the end of the Second World War. With the colonial metropole fearing the emergence of unstable and unviable states, smaller territories were often included in larger entities through mergers of various protectorates and colonial territories. Nonetheless, several small colonies—Qatar, Bahrain, Kuwait, and Brunei, as a few examples—managed to become independent on their own, rejecting amalgamation. It was the colonial politics of oil that led to the creation of many of these “unlikely” states, whose contemporary politics continue to be shaped by resource wealth. What made these states sovereign was not the internal administrative units of larger states, culture, racial supremacy, or military power, but rather the historical contingencies conditioned by oil management in the colonies.

Colonial conquest often sought out natural resources: the Spanish and the Portuguese expanded into the “New World” in their quest for gold and silver; Britain’s expansion into the Middle East was overwhelmingly driven by its Navy’s shift from coal to oil; and after the First World War, Britain, Australia, and New Zealand clung to Nauru for decades to exploit its phosphate reserves. My recently published book, Fueling Sovereignty, demonstrates that natural resources, especially oil, also figured prominently in the process of decolonization and state formation. Unexpected oil discovery in imperial peripheries enabled local rulers to use their financial independence to resist mergers with larger formerly colonized territories.

The case of Brunei, a tiny state in Southeast Asia, reveals how the politics of oil production informed the boundaries and structure of postcolonial states. The discovery of oil remains essential to Brunei’s economy—in 2024, oil and gas made up over 90 percent of country’s exports and government revenues and the majority of the country’s national income. As a result, Brunei boasts the second-highest GDP per capita in the region, after Singapore.

Throughout the twentieth century and continuing until the present, Brunei has utilized foreign interests in its oil wealth to ensure its security and separate, independent status. In 2019, Chinese company Hengyi Industries invested $3.45 billion into an oil refinery and petrochemical site in the country, as part of a joint venture with the government. Building on this cooperation, last week, the Sultan of Brunei Haji Hassanal Bolkiah Mu’izzaddin Waddaulah visited Beijing to discuss oil and gas exploration in the disputed waters of the South China Sea. Such strategic geopolitical moves draw from a long history of Brunei’s critical alliances with more powerful actors.

The colonial politics of oil

With fewer than 500,000 residents and a land area of approximately 2,260 square miles, Brunei is among the smallest states in the world in terms of both population and size. The country is located on the island of Borneo, bordering Malaysia and Indonesia. Not coincidentally, this island is the only one in the world shared by three sovereign states. It was entirely possible that there would be just two states, with Brunei enveloped into a larger state entity. But oil, together with the protectorate system—indirect colonial administration through local rulers with internal sovereignty and protection from internal and external threats provided by the colonizer—enabled Brunei to achieve statehood.

When the Portuguese occupied Malacca in the early sixteenth century, Brunei became an alternative trading hub for Muslim merchants. This made the sultanate a major regional power, ruling over the entire Borneo and beyond. However, by the seventeenth century, its territory was reduced to the northern half of the island as Brunei declined. Colonial rule arrived in Brunei in the nineteenth century, when the British made Brunei, Sarawak, and North Borneo (present-day Sabah) their protectorates and the southern half of the island fell into the hands of the Dutch. There were, therefore, four colonial units on the island.

Of these, Brunei was the least likely to become sovereign. In the latter half of the nineteenth century, Sarawak was ruled by the Brooke family (who originally came from Britain) and North Borneo was ruled by a British company called the North Borneo Chartered Company. The two territories competed over the cession of Brunei’s territory. To this day, Brunei’s territory is divided into two non-contiguous parts because Charles Brooke of Sarawak annexed the area in between called Limbang in 1890. Because Brunei had little economic value to the metropole, Britain had little incentive to deter this aggression.

What changed Brunei’s fate was the discovery of oil in 1903. In 1929, the further discovery of a major oil field in Seria made Brunei became the third largest oil producer in the Commonwealth by the mid-1930s. By 1950, Seria was the largest field in the Commonwealth. Within just a few decades, Brunei made a transition from a negligible peripheral colony to an important asset to the British Empire. Because of its economic value, the British quickly became more committed to Brunei’s security and survival. Three years after the initial oil discovery, Britain and Brunei signed a treaty ensuring that there would be no further cession of Bruneian territory to Sarawak and North Borneo. This secured the survival of Brunei as a separate entity throughout the rest of the colonial period. It also augmented the Sultan’s authority, because all policies made under British guidance were announced under the Sultan’s name. The regime became increasingly secure, as the British reassured the Sultan’s status and the right of succession of his descendants. The discovery of oil also heightened the Sultan’s leverage in future negotiations with the British.

Brunei’s rejection

The biggest challenge to Brunei’s existence as a separate entity ironically came with the wave of decolonization. In the early 1960s, the British began considering their withdrawal from British Borneo and pursued a merger of Brunei, Sarawak, and North Borneo, as they regarded the three territories as too small to become individual sovereign states. Such a decision was nothing extraordinary for the metropole. In fact, merging small colonies was Britain’s method of choice when it came to decolonization. Small states, Britain believed, were less stable and more prone to communist influence. As a result, the rollback of the British Empire came with the proliferation of federated states in different parts of the world, including the West Indies Federation, the United Arab Emirates, and the Federation of South Arabia.

A concrete proposal for a merger was presented in May 1961 by the Malayan prime minister, Tunku Abdul Rahman. Malaya, which itself was a federation, invited Brunei, Sarawak, and North Borneo to join it to create a new federation called Malaysia. This proposal gained full British support. The Sultan of Brunei, Omar Ali Saifuddin III, initially welcomed this proposal because of British encouragement and security concerns. The British particularly emphasized that a small and rich state like Brunei could easily fall prey to stronger and belligerent neighbors, which convinced the Sultan to view Malaysia positively. It would have been, therefore, entirely possible at this point that the Bruneian Sultan made a decision to merge his territory into Malaysia.

However, repeated negotiations in the following two years revealed serious disagreements between Brunei and Malaya. The first, and less controversial, concerned the representation of Brunei in the new federation. Far more divisive was the distribution of Brunei’s oil wealth. While Brunei wanted to retain its control over its oil revenues, Malaya maintained that a significant part of Brunei’s oil should belong to the federal government. This issue first emerged as a disagreement over Brunei’s annual contribution to the federal budget. Both governments agreed that there should be an annual financial contribution, but they disagreed on the exact amount—with Malaya requesting $70 million and Brunei offering $30 million. Even after agreement was reached at $40 million, treatment of future oil discoveries remained controversial. Malaya pursued tight control of Brunei’s oil fields, while Brunei asserted its sovereignty over them.

Unable to find a solution, the Malayan side sent Brunei an ultimatum. On June 21, 1963, Abdul Razak, the Deputy Prime Minister of Malaysia, sent the Sultan of Brunei a letter listing “outstanding issues” that Brunei needed to agree to in order to join Malaysia, all of which were related to the distribution of Brunei’s oil wealth. The Sultan, however, did not see any room for compromise. As a result, Malaysia was established without Brunei on September 16, 1963.

After rejecting Malaysia’s proposal, Brunei ultimately turned back to Britain for its security needs. The shift was prompted by a series of unforeseen events. In December 1962, a large-scale rebellion by the Brunei People’s Party (Parti Rakyat Brunei, PRB) seized most of the state, including the capital and the Seria oilfield. Sultan requested Britain’s assistance, and British troops suppressed the revolt and continued to station Gurkha regiments in the sultanate. Following the intervention, the Sultan was convinced that the British would offer security to Brunei regardless of whether it joined Malaysia. Vital British oil interests—including Brunei Shell—remained in the territory. Brunei Shell’s discovery of a new oil field in June 1963 heightened Brunei’s perceived importance to the metropole. The Sultan believed that Brunei’s oil would be too valuable for Britain to give up.

The regional context was also crucial to the British security commitment. At the time, Malaya–Indonesia relations had worsened after the revelation of Indonesia’s involvement in the Brunei Revolt. The Sukarno administration declared a policy of confrontation (Konfrontasi) against Malaya in January 1963, and Malaysia severed its diplomatic relations with Indonesia immediately after its independence. The hostility between the two countries led to a militarized conflict without the declaration of war. There were military skirmishes near the border in Sarawak and Sabah, making these regions the frontiers of combat. Although Brunei itself did not share borders with Indonesia, the British augmented its commitment to Borneo, making its desired disengagement from Brunei nearly impossible. In a way, Konfrontasi was a blessing to Brunei.

Waiting for the right moment

As Brunei become increasingly convinced that its future lay outside Malaysia, Britain faced a dilemma. Its basic position regarding the decolonization of Brunei was unchanged; Britain hoped that Brunei would join Malaysia, enabling it to withdraw. However, because of existing security arrangements and oil interests, Britain could not unilaterally withdraw, nor force Brunei to join Malaysia, which would give evidence to the “neocolonialism” critique from Indonesia and the Philippines. Brunei was not a colony, but a protectorate with internal sovereignty. Thus, the Sultan of Brunei had the right to determine the decolonization outcome of his state.

After a few years, Britain gave up on the idea of Brunei in Malaysia; its new goal was Brunei’s separate independence. Though the Sultan favored this outcome, he was not ready for British departure due to security concerns. At the time, Malaysia had been supporting former PRB members in their campaign against the status quo in Brunei, and when Indonesia forcefully annexed East Timor in 1975, Brunei feared a similar fate. Only after Malaysia terminated its support of the PRB and relations with Indonesia improved in the late 1970s did Brunei agree to its independence. Announced on June 29, 1978, Brunei would achieve formal independence in 1984. Even after independence, British Gurkha regiments remained in Brunei to offer security. For Brunei, independence was achieved strategically, under the security umbrella of Britain.

The Sultan was the major beneficiary of this arrangement, as he held significant control over the fate of his state. When Britain strongly pressed for withdrawal and constitutional reform, the Sultan expressed dissatisfaction by suddenly announcing his abdication on October 4, 1967, in favor of his son, Hassanal Bolkiah. He also threatened to withdraw his enormous wealth held in British banks. As a result, the British were forced to agree to postpone their withdrawal. The negotiations revealed the power of oil wealth, which Brunei’s ruler used as leverage against a much stronger state.

Colonial oil and separate independence

The production of oil alongside distinctive structure of colonial governance enabled separate independence. In local monarchies with little economic appeal to the metropole, the discovery of oil granted newfound economic significance and political strength. As a result, the colonizers became more invested in safeguarding these regions.  

For Brunei, these two factors—oil control and the status of a British protectorate—incentivized the Sultan to seek independence strategically. The Sultan was reluctant to share Brunei’s wealth with its poorer neighbors, losing his singular authority in the territory and becoming one of many rulers in Malaysia. Oil and British protection also ensured financial stability and security. While there was little doubt that Brunei could be financially independent, there were concerns about its security. It was Britain that removed Brunei’s internal and external security threats. In the relationship between the metropole and the protectorate, oil granted Brunei significant bargaining power. British oil interests deterred the metropole from withdrawing unilaterally from Brunei or forcing it to join Malaysia.

Brunei’s state formation process continues to define politics in the sultanate today. Since the British suppression of the revolt in 1962, there has been no political force able to counter the sultan’s power. The Sultan, with the backing of the British, serves as the head of state, prime minister, minister of finance and economy, minister of defense, minister of foreign affairs, and the commander-in-chief of the armed forces. While separate independence benefitted the Sultan, it perhaps reduced the possibility for a more democratic state.

Brunei is not an isolated case. A similar process involving oil-rich protectorates was seen in the Persian Gulf. Qatar and Bahrain, along with seven other sheikhdoms, were expected to become part of a new federation called the United Arab Emirates but refused. These colonial territories were characterized by significant internal sovereignty, and thus local rulers were able to shape the process, timing, and, outcomes of decolonization.