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South Sudan Oil Under Fire as Rebels Take Capital

After two months of violence, South Sudanese rebels have largely seized control of the capital city, Malakal, threatening to upset the oil production in the newly independent state’s only remaining producing region.

South Sudanese government officials on Tuesday confirmed that the rebels had reached the town and could have taken control over more than half of Malakal.

South Sudan seceded from Sudan in July 2011. Along with this South Sudanese independence came 75% of Sudan’s oil resources—minus the infrastructure (pipelines and ports) which remains in Sudan. So South Sudan is now rich in oil, but it’s land-locked.

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The climax came in December 2011, just a few months after South Sudan seceded, when Sudan started diverting South Sudanese oil to its own refineries and selling it illegally on international markets. South Sudan lashed back by shutting off the pumps in January 2012. Neither could maintain this absence of oil revenues for much longer. (About 98% of South Sudan’s state revenue comes from the production of about 350,000 barrels of oil per day).

The stickler during negotiations was Khartoum’s (Sudan) insistence on guarantees that South Sudan would cease backing rebels fighting in the South Kordofan and Blue Nile states—oil-producing regions that haven’t been fully demarcated. Sudan softened its stance to allow for the creation of a buffer zone instead.

In mid-March 2013, South Sudan ordered the resumption of crude oil production, but these nascent agreements soon fell apart as well, leading up to the current situation, which escalated once again two months ago.

In mid-2012, both sides nearly went to war over the Heglig oil field, which straddles a poorly demarcated border.

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The latest conflict has the potential to engulf oil fields in an area already troubled by regional conflict.

Combined, the two countries produced around 115,000 barrels of oil per day last year, less than half the volume produced in the years before South Sudan's independence.

At independence, South Sudan's oil production was around 350,000 bpd, before Juba ordered the China National Petroleum Corp, India's ONGC Videsh and Malaysia's Petronas to halt production.

Work in some fields has been suspended due to lack of staff to run the facilities, with many foreign nationals evacuated and most South Sudanese having to flee for security reasons.

By Charles Kennedy of Oilprice.com




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