South Sudan: Army on Alert, Oil Flows Stopped

Wednesday, 01 February 2012

Background

Relations between Sudan and South Sudan have reached a new low. The South has cut the flow of oil through northern pipelines and placed its army on high alert, as the war of words between the two intensifies. Rebel groups within South Sudan, opposed to the government of President Salva Kiir, complicate matters further by warning oil companies to stay away from production zones and not to undertake the building of a pipeline to Kenya.

Comment

The South Sudanese Government ordered the shutdown of the fledgling country’s oil industry on 29 January, in protest over Sudan holding two ships carrying South Sudanese oil at the Red Sea terminal of Port Sudan.

At the heart of the dispute lie the transit fees charged by Khartoum for the passage of southern oil through the north’s infrastructure. At the time of the separation of the two Sudans, transit fees had not been agreed on, and the south now accuses the north of stealing its oil. Both countries are dependent on oil exports, but southern leaders now say they would rather see the oil remain underground in Southern Sudan than pay the transit fees demanded by the north. Khartoum is asking for a fee of $32 per barrel, while Juba is offering a rate of US$1 per barrel, a figure it claims is among the highest in the world.

On 25 January, South Sudan announced it had reached agreement with Kenya for the long-expected construction of new pipeline to the Indian Ocean port of Lamu. With an estimated cost of US$1.5 billion, the pipeline could transport up to 450,000 barrels per day (bbl/d), almost equal to the 470,000 bbl/d produced in 2010. China is a leading contender to build the pipeline. Khartoum detained two vessels carrying pre-loaded South Sudanese oil at Port Sudan in retaliation, but they have since been released.

According to the south, northern Sudan has appropriated some US$815 billion worth of its oil, while Khartoum is demanding US$1 billion in unpaid transit fees. South Sudan has placed its army on alert following a reported northern air raid on a refugee camp in Upper Nile state, adjacent to the north-south border.

The situation is complicated by two South Sudanese rebel groups – the South Sudan Liberation Movement and the South Sudan Democratic Army – which have jointly warned oil companies not to undertake construction of the Lamu pipeline. The two groups oppose the project on the grounds that the decision was made ‘without adherence to democratic principles’. They refer to the shutdown as ‘economic suicide’ and maintain that the Port Sudan pipeline should continue to be used. United Nations Secretary General Ban Ki-Moon has spoken of fears of an outbreak of conflict and an associated humanitarian crisis.  

The South Sudanese government is reportedly also in talks with Ethiopia and Djibouti for the construction of an additional pipeline to allow it to bypass the north. As with the Lamu pipeline, a new northbound route would cost a great deal and take some time to build. Given its near total dependence on oil exports, South Sudan may need to enter discussions with Khartoum sooner rather than later and, indeed, has said it is willing to do so. The lack of income may lead to a shorter than expected shutdown. That would come as relief to China, the largest purchaser of Sudanese oil, particularly if Iran were to attempt to close the Strait of Hormuz. According to the United States Energy Information Agency, the main customers for Sudanese oil are China (which buys 65 per cent of total exports), Malaysia (12 per cent), Japan (11 per cent) and India (six per cent).

Leighton G. Luke

Manager

Indian Ocean Research Programme

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