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Daniel J. Graeber

Daniel J. Graeber

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South Sudan not Ready for Oil Prime Time

South Sudanese President Salva Kiir accused his former vice president of launching a coup earlier this week, sending the world's newest nation into political turmoil. Rocked by conflict last year over oil-rich areas along a shared border with Sudan, the latest troubles could undermine economic hopes for a troubled region.

Former Vice President Riek Machar said recent political conflicts in Juba, the nation's capital, weren't the result of a coup but part of a "misunderstanding" between presidential guards.

Machar was sidelined in a Cabinet shakeup earlier this year.

Related article: Emerging Oil Giant Kenya Gets Major Infrastructure Boost from China

More than 500 people were reported dead and hundreds more were reported injured from the fighting. The British Foreign and Commonwealth Office announced its embassy was open, though diplomats and their dependents were evacuated as a security precaution.

U.S. Ambassador to South Sudan Susan Page, for her part, met personally with President Kiir to discuss U.S. concerns about the violence and mounting death toll.  The United States helped broker the deal that secured South Sudan's independence in 2011, though border issues, ethnic fighting and disputes over oil have threatened the peace.

South Sudan, a landlocked nation, gained control over most of the region's oil through independence, though Sudan maintained control over export infrastructure. 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. In mid-2012, both sides nearly went to war over the Heglig oil field, which straddles a poorly demarcated border.

The latest conflict has the potential to engulf oil fields in an area already troubled by regional conflict. A crisis in Central African Republic, to South Sudan's east, is approaching the verge of genocide. In the Democratic Republic of Congo, U.N. peacekeepers discovered the butchered bodies of 21 civilians. The slaughter followed a truce reached between rebels and the DRC government from neighboring Uganda.

Related article: Weak Central African Republic Collapses

Energy consultant company Wood Mackenzie said a proposed $4 billion 869-mile pipeline from central Uganda to the Kenyan coast could help turn the area's oil sector around by 2019. Regional crises aside, Catriona O’Rourke, an upstream research analyst at Wood Mac, said there are a number of challenges to address in the region before a pipeline like that can be built, however.

South Sudan has pursued various pipeline proposals through neighboring countries. Last year, the government said it was open for business to U.S. oil investors, an invitation Ambassador Page said was generating a lot of interest.

South Sudan only recently turned on its oil spigots after voluntarily shutting production to protest pressure from Khartoum, however. Though potentially rich in oil, the infrastructure challenges alone mean hedging a bet in the region is the best bet to make.

By. Daniel J. Garber of Oilprice.com




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