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February 04, 2012
Growing Sudan, South Sudan Oil Impasse Has High Stakes
Nico Colombant | Washington




Photo: AFP
Drilling tubing is piled next to the drilling site number 102 in the Unity oil field, South Sudan (2010 file photo).
African Union mediation to end an oil standoff between Sudan and South Sudan is expected to resume this week. Analysts say the stakes are high for the governments in Khartoum and Juba, both of which rely heavily on oil revenue to maintain themselves.

Jimmy Mulla, from the Washington-based Voices for Sudan advocacy group, is one of many analysts pessimistic about the current oil impasse. “I think as of now it is nearly impossible because the two parties are completely on different platforms," he said.

Disagreements on oil transfer fees and accusations by South Sudan that Sudan was stealing southern oil coming through its pipeline led to Juba’s recent decision to shut down oil production.

Mulla puts most of the blame on Sudan. “For the most part, I would still go back and say the government in Khartoum has not been forthcoming in terms of making sure this agreement goes forward. There are international standards, there are international agreements on oil revenues, whether it is a transit fee, all these things are in place, and these are references that have been tabled both by the government of South Sudan and also by the African Union mediating body, so it should have been easier to resolve but the lack of political will to address this issue has been a major problem," he said.

The exact terms of oil revenue sharing were not agreed to before South Sudan became independent last year, following decades of civil war.

A Washington-based international relations expert Walid Phares accuses Sudan of doing whatever it can to muddle the post-breakup phase. “Keep in mind that the northern regime did not really let go of South Sudan. They want to try to control it. They want to try to instigate trouble within the Southern Sudanese regions," he said.

Both countries accuse each other of backing cross-border rebellions, as the exact border and some regions remain in dispute. Sudan’s President Omar al-Bashir recently said his country was closer to war with South Sudan than peace.

After the breakup, Sudan started by asking $32 in transit fees for each barrel of South Sudanese oil shipped through its pipeline and then upped the request to $36. Those two figures are more than ten times standard rates.

Analysts say the government in Khartoum has been very nervous with the loss of oil revenue as it has also been struggling with a lack of foreign currency, high inflation, civil society discontent and $38 billion in external debt.

Eric Reeves, a Sudan researcher at Smith College, believes Sudan’s government also wants to use the oil impasse as leverage to ease its debt. “Now, there have been discussions in the UK, in Germany and France that suggests it might be the case that these countries anyway are contemplating debt relief. I think that is a terrible signal to be sending Khartoum. It only encourages them to be more intransigent, more ruthless in expropriating revenues from southern oil," he said.

Other analysts interviewed for this report said Asian countries which have been the main consumers of South Sudanese oil, especially the biggest buyer China, should try harder to help find a solution.

They warn South Sudan, which depends nearly entirely on oil revenues for state income, could easily become a failed state with escalating sectarian violence and angry unpaid soldiers if the oil shutdown persists.

South Sudanese officials have talked about building an alternative pipeline to the Kenyan port of Lamu, but most analysts say this seems unrealistic at this point, because of cost and security issues.

The only hope they say would be for a major deal which addresses other current concerns such as ending the cross-border violence and finding long-term solutions for the remaining regions in dispute.