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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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South Sudan - The World's Newest, Fragile, Oil-Rich Petrostate

South Sudan - The World's Newest, Fragile, Oil-Rich Petrostate

Saturday, 9 July saw an event unusual in global politics - the emergence of a large Christan black petrostate, 90 percent of whose inhabitants live below the poverty line on less than a dollar a day.

Like many developments in Africa, this one comes soaked in blood, the result of a 2005 peace deal that ended a half a century of civil war which left two million dead.

The largely Christian people of southern Sudan voted last January almost unanimously to split from the Arab-Muslim-dominated north.

The festivities tomorrow in Juba should prove quite interesting, as Government of South Sudan (GoSS) officials have made careful arrangements so that Western officials can avoid contact with President Omer Hassan al-Bashir during the ceremonies marking the birth of the new state. Al-Bashir has the dolorous distinction of being the first serving head of state to be charged by the International Criminal Court on ten counts of war crimes, crimes against humanity and genocide he allegedly oversaw in Sudan’s western Darfur region since civil war broke out there in 2003.

Among those studiously avoiding the Sudanese President will be a massive U.S. delegation consisting of the U.S. Ambassador to the United Nations Susan Rice, former Secretary of State and Chairman of the Joint Chiefs of Staff Colin Powell, U.S. House of Representatives member from New Jersey and Ranking Member of House Foreign Affairs Subcommittee on Africa, Global Health, and Human Rights Donald Payne, Assistant Secretary of State for the Bureau of African Affairs Johnnie Carson,  the U.S. Special Envoy to Sudan Princeton Lyman, along with Brooke Anderson, Deputy National Security Advisor, Chief of Staff and Counselor for the National Security Staff; Donald Steinberg, Deputy Administrator, USAID; and General Carter Ham, Commander, U.S. Africa Command (AFRICOM.)

Why does the world care?

The short answer – oil, lots of it, with Sudan’s daily output now approximately 500,000 barrels per day (bpd.) And, of course, in any divorce the fiercest wrangling comes over dividing up the matrimonial assets, in this case the hydrocarbons.

The 2005 Comprehensive Peace Agreement (CPA) stated that northern and southern Sudan would equally split the revenue from oil exports.

While most of Sudan’s 500,000 bpd is extracted from oilfields in the south, the pipelines infrastructure and refineries are based in the north, so the CPA stipulated that the South would pay transit fees to transport its oil and ship it abroad from Port Sudan terminal.

Underlining the lopsided nature of Allah’s distribution of Sudan’s hydrocarbons, Sudanese Minister of Finance and National Economy Ali Mahmood Hassanein told the National Assembly that 73 percent of the country’s oil was in the south, 26 percent in the north and the remaining one percent in the contested region of Abyei.

Since the signing of the CPA in January 2005, the Sudanese peace partners, the National Congress Party (NCP) and the Sudan People's Liberation Movement (SPLM), have failed to reach a comprehensive peaceful settlement to end the dispute of oil-rich area of Abyei.

Other potential fissure lines include the border line between the two states, Sudan’s longest, over 1,200 miles, compared to that with Sudan's other neighbors, and there are five border points still under dispute.

Sudan is set to lose as much as 37 percent after Saturday, a huge concern for Khartoum that will compound existing woes including a $38 billion debt burden, soaring inflation and U.S. sanctions.

How to read the tea leaves? On 8 July, a day ahead of the independence ceremonies, Sudanese Minister of Presidential Affairs Bakri Hassan Saleh said in a statement broadcast on state television, "The Republic of Sudan announces that it recognises the Republic of South Sudan as an independent state, according to the borders existing on January 1, 1956."

However, in a potential sign of darker things to come al-Bashir also said recently that he gave the south his blessing but warned the new country, “We will not interfere in your internal affairs. Likewise, we will not allow you to interfere in our internal affairs. We are capable of responding but we do not want to.”

Al-Bashir is not bereft of buddies in the international community however, having made an official state visit to China on 28-30 June, where he received the red-carpet treatment and met President Hu Jintao, strengthening ties with its most important trading partner. While China has been studiously silent on recent events in Sudan, in just over a decade Beijing has invested $20 billion in Sudan, nearly all in its petrochemical industry and China is now estimated to import 55 - 60 percent of Sudan's oil.

So, what next? There is little doubt that al-Bashir believes that he is being extraordinarily magnanimous in granting the south its independence. Doubtless Khartoum will expect concessions in return, undoubtedly including foreign investment to ramp up the north’s oil production, debt relief assistance and most probably a lifting both of sanctions and the ICC criminal indictment. Khartoum believes that with sufficient foreign investment it could soon raise its oil production to 1,000,000 barrels a day.

As for South Sudan, its immediate work is already cut out for it, as relief agencies estimate that up to 90 percent of its population lives on less than 50¢ a day. As if grinding poverty is not enough, at least seven rebel militias are at war with the Juba government, charging that it is corrupt and autocratic.

The two terms are synonymous with many governments across Africa. The question is whether foreign, in particular Western, governments are willing to hold their noses and deal with the new East African political reality or whether they will largely turn away and retain their high moral opprobrium, in which case the 7,000 peacekeepers currently being discussed by the UN Security Council for deployment to South Sudan could find themselves in the midst of a reignited civil war.

It’s all about the money – and the oil.

By. John C.K. Daly of OilPrice.com

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