In late October, as the world was transfixed by the final U.S. Presidential debate, U.S. authorities removed Sudan from the list of state sponsors of terrorism. With Sudan removed, the list has been reduced to just three countries, Iran, Syria, and North Korea. While it was on that list, all forms of cooperation between U.S. and Sudanese entities were banned. The delisting is the result of 4 years of negotiations endorsed by President Trump and by Prime Minister Abdalla Hamdok, trying to overcome a legacy spat that has soured bilateral relations despite the 2011 death of Osama bin Laden. The crux matter of the matter lies in U.S. claims that Sudan had sheltered bin Laden in 1998/1999, at the time when al-Qaeda carried out its bombings of U.S. embassies in Kenya and Tanzania as well as the 2000 missile attack on the USS Cole. There is no direct and verifiable evidence implicating Sudan in the above-mentioned claims, but it is a fact that the Bashir regime did shelter bin Laden for some time in the 1990s (although Khartoum expelled him shortly afterward). But lots has changed since in the country recently – Sudan’s longtime dictator Omar Bashir was ousted in April 2019 and the power vacuum that his deposition has created was temporarily filled with a military-backed Transitional Civilian Authority, led by a former UN official Abdalla Hamdok. The transitional authorities’ main objective is to pacify discontent across the country and do the groundwork required for Sudan to hold its first genuinely democratic election in the 21st century, supposedly in 2022. As constrained as a transitional government can be in terms of its legitimacy, the Hamdok administration has tried hard to get Sudan back on the international business scene.
Related: Venezuela Arrests Oil Workers To Cover Up Bad Press About PDVSA The transitional government led by Hamdok has already agreed to pay $475 million to U.S. victims of the terrorist attacks and Sudan has formally recognized Israel. Previously, Sudanese top officials had been reluctant to recognize Israel due to the reputational damage it might cause in the Muslim community of Middle Eastern nations. It is now clear, however, that Sudan is determined to ensure a strong relationship with the United States, hence its relative ease of renegotiating pipeline tariffs with South Sudan and its willingness to take brave political steps that might be used against it by domestic opposition.
Graph 1. Sudan’s GDP Change in 1990-2020.
Source: World Bank.
Reforming Sudan might be one of the most difficult jobs on the world stage – the country has been using almost 80% of its government revenues on its military, a military that is now in power following the ouster of Bashir. The transitional government has already repealed a public order that enforced sharia law as it attempts to dismantle Bashir's legacy. Hamdok himself survived an assassination attempt in March 2020 and has been living with the constant threat of an Islamist coup taking place in the country. The new Prime Minister also has to survive a horrendous 2020 where national GDP has dropped a further 8% year-on-year, all the while Khartoum’s budget deficit ballooned to 20% of GDP. Add to this his pledge to eliminate fuel subsidies worth $2 billion and the threat of unrest in Sudan is very real.
Graph 2. Sudan’s Crude Production in 1990-2019 (‘000 barrels per day).
Source: BP Statistical Survey 2020.
Sudan has seen its crude production gradually decline in recent years, following a big drop off in 2011 due to the secession of South Sudan. From an output level of roughly 110kbpd, the annual production average has decreased to a mere 60kbpd in 2020. Now, with heavily constrained by U.S. sanctions and further aggravated by the post-Bashir-era capital expenditure cuts and the coronavirus pandemic, the current Sudanese crude output is has fallen to 55kbpd. GNPOC, the joint venture of CNPC, Petronas, ONGC, and the Sudanese NOC Sudapet that is developing Blocks 2A and 04, has been producing a mere 15kbpd as the stakeholders struggle to overcome financial and logistical issues. Leading the national production tally is Block 06 with an output of some 20kbpd, operated by the Chinese CNPC (which also owns 95% of the project company).
The main far-reaching consequence of the U.S. lifting its terrorism-related sanctions on Sudan would be the de-risking of investments going into the African country’s upstream. Crudely put, the now heavily China-leaning sector of Sudan’s upstream might become more diversified as Sudan can now seek international partners other than Chinese. However, while the U.S. authorities may be entertaining hopes that Western majors will vie for a place in the Sudanese sun, under the current circumstances when most market-driven oil companies have been forced to drastically reduce capital and operational expenditures, only large state-backed entities are likely to pursue such risky acquisitions. Rather than increasing U.S. investment in Sudan, the lifting of sanctions will likely make Chinese and other companies feel much better about investing in Sudan’s upstream.
Stuck between a rock and a hard place, pummeled by the manifold consequences of the COVID-induced market slump, Sudan’s oil industry remains in a dire situation. Money, as has been the case for several decades, is sorely lacking and authorities have to cut down on all fronts. For instance, the new Sudanese government fired 300 employees from the Oil & Gas Ministry in August 2020 and has converted the salaries of those remaining from U.S. dollars to Sudanese pounds. Much of the country’s oil infrastructure is dilapidated (pipeline leakages and cracks are frequent, putting an extra layer of pressure on the producers who, in their turn, have been turning a blind eye to rig workovers). All in all, Sudan is moving in the right direction, but there are plenty more hurdles for the country and its oil industry to overcome.
By Vanand Meliksetian for Oilprice.com
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