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Palau, a small island state in the Indo-Pacific, holds a significant position in the region due to its alliance with the USA under the Compact of Free Association. In the context of rising tensions in the region, this essay aims to provide further understanding of how small states navigate great power rivalry through alliances. While small states are often excluded in studies of great power rivalry, this study will analyse a small-state alliance within this context. As Neorealism has proven effective in offering insight into the geopolitics of this region, it will be used in this study alongside Shelter Theory, which seeks to offer deeper understanding of small states perspective.

The analysis reveals that the alliance can be understood as a combination of both a sheltering strategy and a response to shared threats. While emphasizing the importance of understanding the motives of both states, this study also demonstrates how the partnership intensifies as perceived threats grows. Furthermore, the study shows the breadth of the alliance, as the cooperation between the USA and Palau extends beyond the context of traditional security threats.