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War fears as South Sudan's oil exports cut
by Staff Writers
Juba, South Sudan (UPI) Dec 1, 2011

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Newly independent South Sudan has had its vital oil exports cut off by Sudan, undermining negotiations between the two sides on a revenue-sharing agreement to avert another conflict that could disrupt East Africa as moves toward an oil boom.

As it is, fighting has rippled along the still-undefined border between Sudan and its former southern zone since the latter became independent July 9 after decades of civil war.

Eighty percent of the former Sudan's known reserves of 6.8 billion barrels of oil lie in the new country but the only export outlet is a pipeline network that runs through the north, in what constitutes the now-shrunken state of Sudan, to the region's only refinery and export terminal at Port Sudan on the Red Sea.

"We stopped the exportation of the southern oil," Ali Ahmed Osman, the acting oil minister in the Sudanese capital of Khartoum, declared Nov. 28.

"We gave them four months, without any sort of agreement," he said of the 200,000 barrels per day exported by South Sudan since July.

Osman said the South has run up a debt of $727 million in transit fees from July 9 through the end of October.

That's according to Khartoum's calculations. Although southern oil has been exported via the northern pipeline, no official transit deal was reached.

The South offered 40 cents per barrel, while Khartoum demanded $22.60 per barrel so there seems little chance of a compromise.

South Sudan's government of former rebels of the Sudan people's Liberation Movement in their capital of Juba vowed to defend its oil wealth. This is the only source of revenue for an infant state that has virtually no infrastructure, industry or organized agriculture and is plagued by internal, largely tribal, rivalries on top of the feud with the Khartoum regime.

"We will protect the sovereignty of South Sudan and we will have complete national ownership of the oil sector in South Sudan," declared Elizabeth Bol, South Sudan's deputy oil minister.

The move by Khartoum, which had fought tooth and nail to hold onto as much of the oil reserves as it could grab, cast a pall over talks between the two sides under way in Ethiopia.

The talks are intended to resolve such issues as the border, particularly the oil-rich state of Abyei, which is claimed by both sides, and the sharing of oil revenues.

But all efforts have failed and there are few expectations that in the current climate of hostility this round will be any more productive.

The prospects for renewed conflict in a region that has rarely known peace since 1955 remain high.

The civil war between the Arab Muslim north and the Christian-animist south ended with a Comprehensive Peace Agreement in 2005. More than 2 million people, mainly southerners, died in the fighting or through the famine and disease the conflict brought in its wake.

There had been hopes that mutual self-interest would lead the former enemies toward an agreement on the oil that would cement relations between them.

The south's secession has cost the Khartoum regime at least an estimated $5.4 billion in oil revenues, the International Monetary Fund says.

Most of South Sudan's oil is produced in disputed border states. These have been the epicenter of the fighting between southern and northern forces that erupted even before a January referendum that decided the South's independence.

The South has repeatedly said it will seek alternative export routes, such as a pipeline to the Kenyan port of Mombasa on the Indian Ocean, to move its crude. But industry insiders say that's not economically viable because most estimates give South Sudan a mere decade of commercial oil production.

The IMF calculated before the South's secession that production levels will decline from the current level of around 490,000 bpd from 2012-13 onward.

Several foreign oil outfits, including OVL of India and Lundin of Sweden pulled out what were once considered to be highly prospective southern blocks in 2010 after drilling a string of dry holes.

Much will depend on whether the French giant Total strikes it big in its massive concession.

If that doesn't happen, the medium-term prospects for the landlocked South and its economic viability look dismal indeed.

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