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As Sudan-South Sudan Oil Battle Re-Ignites, South Sudan Risks Instability

Bottom Line: An oil agreement between Sudan and South Sudan is off track—again, and only Ethiopian mediation has managed to postpone for two weeks Sudan’s threat to shut down the pipeline carrying South Sudanese crude.

Analysis: In early March, Sudan and South Sudan reached an agreement for the resumption of South Sudanese oil exports through Sudanese infrastructure. There have been oil deals before and they were dead in the water because they didn’t come along with border security agreements. But in March, things looked more optimistic, with both sides agreeing on a withdrawal of troops and the creation of a demilitarized zone to facilitate the flow of oil. Oil hasn’t flowed for about a year after South Sudan blocked exports via Sudan over a tariff dispute.

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. 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, South Sudan ordered the resumption of crude oil production.

But it barely lasted a month before it started to unravel again, with Khartoum saying that Juba isn’t holding up its end of the bargain by continuing to support rebel activity against the Sudanese government. Khartoum ordered the closure of pipelines carrying South Sudan’s crude to commence on 7 August. Ethiopian mediation has convinced Khartoum to delay this for two weeks, until 22 August.

Recommendation: While the knee-jerk reaction of the Western media is to place all the blame here on Khartoum, we are concerned about Juba’s ability to uphold the deal because it does not have full control of the rebels operating from its territory. The political scene in newly independent South Sudan is at best uncertain—and getting worse. This week, Vice-President Salva Kiir fired his vice-president and sacked the entire cabinet. What will follow will be a major ethnic-tribal battle that will foster increased instability and possibly conflict.




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