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Khartoum Crisis Could Hold South Sudan Oil Hostage

A recent outbreak of war between Sudan’s government forces and a paramilitary group is now putting the region’s oil industry at serious risk. 

Two months after clashes broke out between the Sudanese Armed Forces (SAF) and the Rapid Support Forces (RSF) over demands by the army and pro-democracy groups for RSF to become integrated into the regular armed forces, experts are growing increasingly worried that East Africa's oil hub will be plunged further into chaos and leave it without its main source of livelihood.

South Sudan produces ~170,000 barrels of oil per day, out of which it gives 10,000 barrels to Sudan as transportation fees because the oil has to go through Sudan to reach Port Sudan where it is loaded into cargo ships. In effect, Sudan receives ~$18 million from South Sudan’s oil everyday. RSF has been demanding that South Sudan stop providing funds to the SAF, which might see the SAF retaliate by preventing the export of South Sudan’s oil through Port Sudan, which it controls. With the situation in a stalemate, a complete meltdown would not only destabilize the region but also potentially lead to the collapse of the volatile state.

Sudan is the latest case in a well-documented resource curse that tends to grip resource rich nations in the poorer nations of the world. The DRC and Mozambique are the other famous cases. Back in 2010, Texas-based Anadarko Corp. (now a subsidiary of Occidental Petroleum Corp.) and Italian energy giant Eni S.p.A. announced the discovery of approximately 180 trillion cubic feet of natural gas reserves, equivalent to ~29 billion barrels of oil, in Mozambique’s supergiant offshore basin of Rovuma, immediately catapulting the south African nation to a potential global LNG superpower. As you might expect, there was a stampede by oil and gas majors including ExxonMobil (NYSE: XOM), TotalEnergies, Shell (NYSE: SHEL)Eni S.p.A. and China National Petroleum Corp. (NYSE: SNP)) coming in to stake their claims.  

But it was not long before terrorism and the long tail of the “hidden loans” corruption scandal, in which senior officials had formed state-owned companies that borrowed billions of dollars off-the-books, started to cast a pall on the economy and took a toll on investor confidence. 

Luckily, Mozambique has managed to get its act together just in time and kicked off its first ever LNG exports to Europe last year.

By Alex Kimani for Oilprice.com

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