With oil at stake, South Sudan’s crisis matters to its customers

When South Sudan won independence from Sudan in 2011, oil was seen as a potential spark that could reignite tensions and cripple the new nation. But today, oil is motivating efforts to save it.

The precious commodity is pushing South Sudan’s neighbors and biggest foreign backers to help end a month-old conflict between the government and rebels. China has cast aside a long-standing policy of noninterference and is backing peace talks. Sudan has overlooked decades of animosity in favor of supporting the South’s government. Kenya, too, has tried to stop the bloodshed.

At stake is one of the African continent’s most lucrative deposits of oil, generating billions of dollars for the world’s youngest nation and its partners.

“The big powers, especially the Chinese, have a huge stake in this,” said Leben Moro, a professor at the Center for Peace and Development Studies at the University of Juba in South Sudan’s capital. “The oil could be a savior, but if there is more fighting over the oil, it could become a curse.”

A dispute over political power, not oil, triggered clashes in Juba last month. But the conflict quickly turned into a fight over South Sudan’s strategic oil-rich regions. The capitals of two of these areas, Bentiu and Malakal, have changed hands more than once. Battles also have been fought in Bor, the capital of a region with untapped oil reserves that are potentially lucrative.


“The opposition hopes that by capturing the oil fields, they’ll gain the upper hand in cease-fire negotiations by halting the government’s main source of income,” said Luke Patey, a senior researcher at the Danish Institute for International Studies and the author of “The New Kings of Crude,” a book about South Sudan and its oil. “Oil is the prize at the conflict’s end,” he added.

Oil output has dropped more than 20 percent since the conflict began, analysts say, as rebels have seized vital oil-producing regions. China, which has invested billions in South Sudan’s oil infrastructure, has been forced to shut down operations in some areas and evacuate scores of Chinese workers.

Sudan earns hundreds of millions of dollars in fees annually by allowing landlocked South Sudan’s oil to flow through pipelines to northern refineries and ports, according to analysts. With Sudan already suffering economically — from U.S. sanctions and a loss of oil revenue since the creation of South Sudan — further drops in oil output could prove devastating.

In 2012, a bitter dispute between Sudan and South Sudan over royalties shut down the oil supply for more than a year. Both countries are still suffering from the loss of revenue.

Kenyan officials, including President Uhuru Kenyatta, urged both sides to enter peace talks and have continued to play a key diplomatic role. The Nairobi government hopes that a planned southern oil pipeline will one day transport crude from South Sudan to the Kenyan port of Lamu, generating large fees for Kenya. The country also has discovered its own oil not far from its border with South Sudan.

“The last thing Nairobi wants is the instability to persist,” Patey said. “It would much rather partner with a peaceful South Sudan in what will be a regional oil boom in East Africa.”

Uganda, which has sent troops and air support for South Sudan’s government, has aspirations for its own oil reserves and fears that an unstable South Sudan could drive investors away from the whole region.

The economic sanctions on Sudan, imposed in 1997 over its alleged links to global terrorism, have long prevented U.S. companies from investing in the country’s oil industry. A handful have begun exploring opportunities in South Sudan, though they are not major players. But the instability threatens to make any future projects a risky venture.

South Sudan depends on oil for 98 percent of its revenue, and a prolonged conflict could bankrupt the country and bring more chaos. The United States has spent billions in an effort to make South Sudan an island of stability in a region beset by poverty and growing Islamist militancy.

“South Sudan was born as a petro state,” said Daniel Large, a South Sudan analyst at Central European University in Budapest. “Without oil, in terms of paying for the state, there will be huge repercussions.”

Poverty despite oil riches

Despite its oil, South Sudan remains one of the world’s least-developed countries, reliant on hundreds of millions of dollars in annual development aid from the United States and its allies. Much of the revenue has been squandered, and President Salva Kiir acknowledged in 2012 that corrupt officials had stolen $4 billion in oil revenue from government coffers.

If the war continues, South Sudan could join the ranks of other oil-rich African nations — from Angola to Chad, Nigeria to Equatorial Guinea — where oil and other natural resources have triggered conflicts and corruption while millions languish in poverty.

The United Nations says hundreds have died in the fighting in South Sudan. The International Crisis Group says the death toll is closer to 10,000. More than 400,000 people have fled their homes, and an additional 73,000 are refugees in neighboring countries. Diplomatic efforts in the Ethiopian capital, Addis Ababa, appear to be delayed, if not stalled.

Before the crisis, South Sudan was producing about 220,000 to 240,000 barrels of oil per day, with roughly two-thirds heading to China. For the Chinese, the conflict has evoked memories of Libya. During the Arab Spring revolts, the fighting to overthrow Moammar Gaddafi all but destroyed China’s investments in Libya’s oil sector. Today, many projects remain unoperational.

So Beijing sent its foreign minister, Wang Yi, to Ethiopia to attend the talks. He urged both sides to cease hostilities and reportedly even offered to help mediate. China played a similar role during the 2012 oil shutdown, and both sides eventually agreed to a deal.

Analysts caution that China could have little influence in what is largely a domestic tussle between Kiir and his former deputy, Riek Machar. “Looking for a magic cure in the form of China to break a deadlock is profoundly misplaced,” Large said. “There are limits over what China can do.”

‘Collaborating’ for survival

Sudan’s government fought two long and brutal civil wars with the rebels of the Sudan People’s Liberation Movement, who now make up South Sudan’s ruling party. In the 1990s, Machar aligned himself with the north after a split in the rebel movement, then later rejoined the SPLM before a 2005 peace deal ended the civil war. Kiir and other SPLM leaders always viewed Machar’s alliance with Khartoum as a betrayal of their cause.

When the current crisis began, many South Sudanese officials and analysts thought Sudan might intervene on Machar’s side. Instead, a high-level Sudanese delegation, including President Omar Hassan al-Bashir, flew to Juba to show support for Kiir and the peace process.

Sudan’s government believes it is crucial to preserve its economic alliance with South Sudan. It has faced intense criticism from hard-liners for giving up billions of dollars in oil revenue by agreeing to South Sudan’s independence. In September, protests erupted over the government’s decision to stop subsidizing gasoline, which almost doubled in price. The price is expected to rise further if the crisis shuts down more oil exports from South Sudan.

“The elite in Khartoum and the elite in Juba learned a lesson from the one-year shutdown of the oil,” said Moro, the professor in Juba, who has written about oil’s impact on South Sudan. “For a while, they were working on the idea that the other one would collapse first, but they realized that both could collapse at the same time. Now, it seems they are more interested in collaborating for their joint survival.”

“Bashir came to Juba to ensure that the oil can continue to flow,” Moro said.

After the visit, Sudan’s foreign minister said both countries had agreed to a joint force to protect the oil fields. But South Sudanese officials later denied that such an agreement was reached.

In an interview, a spokesman for the rebels said their strategy is to take over the key oil-producing areas. The rebels control parts of Unity and Jonglei states and have vowed to reclaim Upper Nile state.

“These regions are the backbone of South Sudan’s economic survival,” said Gideon Gatpan Thoar, the rebel spokesman. “If we get control of all of them, we want the oil to flow. But we want to make sure the money from oil is not used to fuel this conflict. The money should be placed in a reserve account until the crisis is finished, so it can be used for the people of South Sudan.”

Even if the crisis ends soon, South Sudan could face a “huge reputational shock,” Large said. The violence and instability could discourage investors in the industry for years or even decades.

“This isn’t the best attraction for huge investments in South Sudan’s oil industry,” Large said.

Sudarsan Raghavan has been The Post's Kabul bureau chief since 2014. He was previously based in Nairobi and Baghdad for the Post.
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