The two Sudans: still stuck in oil dispute

South Sudanese President Salvar Kiir and Sudanese President Omar al-Bashir. Photo Sudan Vision

By Islam Al Tayeb, Research Analyst, IISS-Middle East

More than 18 months after South Sudan seceded from Sudan, oil remains a sticking point between the two countries. Last week, the stalemate appeared as intractable as ever, with South Sudan announcing plans to sell petroleum to Israel, and politicians in Khartoum vowing that no South Sudanese exports would reach Israel via Sudanese territory. A meeting between Sudanese President Omar al-Bashir and his southern counterpart Salva Kiir before an African Union conference in Ethiopia this weekend (above) failed to break months of deadlock. There has now been no oil production in, or exports, from South Sudan for a year, depriving the government in Juba of around 98% of its budgeted revenues.

When the south became independent from Sudan in July 2011 (in line with a 2005 peace agreement ending decades of civil war) it took the majority of Sudan’s oilfields and up to 75% of Khartoum’s oil production with it. Disputes continued between the two countries over border demarcation and security, and over the oil-rich Abyei region. South Sudan also remained entirely reliant on pipelines, refining and export infrastructure across the north to get its oil to global markets via Port Sudan on the Red Sea coast.

On 29 January 2012, South Sudan shut down its entire oil output of 350,000 barrels per day over failures to agree transit fees with Khartoum and because of the ongoing Abyei dispute. By that stage, with each side accusing the other of supporting rebels based on its soil, and with Sudanese bombing of southern locations, fears were growing of a renewed war between Khartoum and Juba. After South Sudanese troops captured the major Heglig oil field in April 2012 and fighting broke out in the region, the Egyptian foreign minister flew to Khartoum to try to initiate talks. In June, mediations continued, overseen by African Union envoy (and former South African president) Thabo Mbeki.

In September, the two countries’ presidents met in the Ethiopian capital, Addis Ababa, to sign a series of agreements designed to pave the way for the gradual resumption of oil exports. Part of this Addis Ababa accord was the creation of a demilitarised zone around their border. But although the accord was hailed at the time as a breakthrough, it still has not been implemented.

A fundamental part of the stalemate is Khartoum’s refusal to allow the south to export oil through Sudanese territory until Juba ceases support for Sudan People’s Liberations Movement–North (SPLM–N) rebels in the Sudanese states of South Kordofan and Blue Nile. The group was part of South Sudan’s army during the 21-year civil war between the two sides, but Juba denies it continues to back its former allies and says SPLM-N activities are an internal matter for Sudan.

South Sudan, for its part, blames the delays on Sudan and its concerns over issues of border security in the contested strip of land bordering the Darfur region in Sudan and the Bahr el-Ghazal region in South Sudan. Furthermore, the two countries cannot agree on who has the right to vote in a mooted referendum in Abyei in 2013.

South Sudan’s recent announcement of oil sales to Israel is hardly surprising; Tel Aviv’s bond with southern leaders dates back to the 1970s and the liberation movement headed by Joseph Lago. However, in the current climate the link is not particularly helpful. Israel has been particularly unpopular in Sudan since the bombing of the Yarmouk military complex in Khartoum in October, for which the Sudanese government holds Israel responsible. (Israel has neither confirmed nor denied this, but accuses Sudan of acting as a conduit for the supply of Iranian weapons to Islamic militant groups Hamas and Hizbullah.)

Prominent Sudanese politician Qutbi al-Mahdi said last week that Juba’s plan to sell oil to Israel was a setback to September’s Addis Ababa deal.

What’s at stake?
As US State Department spokeswoman Victoria Nuland pointed out recently, the failure to restart oil exports not only runs counter to the fundamental principles of the Addis accord, but it also ‘continues to undermine the economic and security situation in both states’.

Even though years of civil war made those living in South Sudan extremely self-sufficient, the country obviously cannot afford to maintain the status quo. The IMF estimates that South Sudan’s GDP fell by 55% in 2012 as a result of the oil shutdown. Foreign donors are helping to ease the pain; the United Nations raised its consolidated appeal for funding for South Sudan in 2012 from U$763 million to $1.15 billion. And by freezing development efforts and focusing solely on basic services, South Sudan estimates it can survive for 30 months in total. …‘We will definitely freeze our activities on development, but we’ll provide basic services: health, education, water and even some infrastructure projects will go on,’ South Sudan’s Vice-President Riek Machar told the BBC in February 2012.

Yet, despite this, and despite private-sector activity, the UN says the humanitarian situation on the ground is fragile, with more than half of the population at risk of not getting enough to eat. Trucking oil to South Sudan’s putative new customer, Israel, to increase government revenues would be a highly impractical option, with trucks having to go through either Ethiopia or Chad.

Equally, the oil ban is damaging Sudan’s economic prosperity. According to the IMF Sudan: Staff Report for the 2012 Article IV Consultation, the oil sector contributed around 12% to Sudanese GDP between 1999–2010, which translates into about $6.6bn (12.9% of GDP) of lost oil exports in 2012. In the absence of a clear economic growth policy and comprehensive economic reforms, such losses are unsustainable. This is complicated by struggles within Sudan to avoid deep political splits, alongside issues of unemployment, budget cuts, rising corruption and high levels of inflation.

Some minor progress was made at the African Union Peace and Security Council (AUPSC) meeting in Addis Ababa this weekend. Firstly, in a ‘show of good faith’, Sudanese President Bashir renounced his country’s plan to seek international arbitration against South Sudan for $1.8bn compensation for the acquisition by South Sudan’s state oil company, Nilepet, of assets owned by Sudan’s state firm, Sudapet. South Sudan had insisted on this renunciation as a condition for supporting Khartoum’s bid to have its roughly $40bn worth of external debt cancelled.

Further, according to the Communiqué of the 353rd Peace and Security Council Meeting, Sudan and South Sudan are expected to commence direct negotiations over a political solution by 15 February 2013.

But the goodwill is limited, and the two countries remain a long way from finding a solution that is in both of their interests.


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