On 23 January, the South Sudanese government and dissident elements of the ruling party, the Sudan People’s Liberation Movement (SPLM) signed a ceasefire agreement in Addis Ababa to put an end to the fighting that has engulfed large parts of the country since 15 December. But there are reports of ongoing fighting, and there is little optimism that the political standoff will be resolved any time soon.

In the meantime, Khartoum is counting the economic cost of the troubles in South Sudan, which seceded from Sudan on 9 July 2011. Despite the loss of three-quarters of its oil reserves and three quarters of its production when the south became independent, Sudan’s economic fortunes remain inextricably linked to those of its new neighbour.

Sudan’s main interest at the moment is to stabilise the oil flow [from South Sudan]

Laura James, independent analyst

In August 2012, a deal was struck between Khartoum and Juba, under which South Sudan would pay to use Sudan’s pipeline network to export crude from Port Sudan. In addition, it agreed to pay $15 a barrel in compensation to Sudan up to a total of $3bn, known as the Transitional Financial Arrangement (TFA). The deal, formalised in agreements in September 2012 and March 2013, meant that at an oil price of $100 a barrel, Sudan stood to earn an estimated $2bn a year from South Sudanese crude production.

Since the beginning of the crisis, however, South Sudan’s oil output has dropped significantly. Production in Unity state has fallen from 43,401 barrels a day (b/d) in November to zero, while in Upper Nile state it has dropped from 220,000 b/d to 155,00 b/d. If the production slump continues, Sudan could lose almost half its revenues from South Sudan.

“Sudan’s main interest at the moment is to stabilise the oil flow,” says Laura James, an independent analyst from the UK specialising in Sudan.

Vital revenues

For a struggling Sudanese economy, these revenues are sorely needed. According to the latest Article IV report published by the Washington-based IMF in October 2013, non-oil growth is slowing too, from an estimated 4.6 per cent in 2012 to an estimated 2.3 per cent in 2013, and a projected 2.7 per cent in 2014.

The fiscal deficit was expected to be “contained at about 2 per cent of GDP,” but only due to “higher transit fees and the TFA inflows”. Even with this revenue, the current account deficit was expected to widen to 11.9 per cent of GDP in 2013, from 10.8 per cent in 2012. Foreign exchange reserves, meanwhile, are “on a knife edge”, says a senior diplomatic source.

In early January, Sudan’s Foreign Minister Ali Ahmed Karti was quoted as saying Khartoum and Juba were in negotiations over the creation of a joint oil field protection force. In Sudan, there would be a strong rationale for such a move. Not only would it help prevent a further deterioration in oil transit fees, but it would also give Khartoum a foothold in the country, something that could dramatically alter the dynamic of ongoing negotiations over the definition of the border, and control of oil-producing border territories such as Abyei and Heglig. After a long struggle for independence, however, such a move would be bitterly resented by South Sudan.

The two governments quickly backed away from Karti’s statement, saying no such negotiations had taken place. The 23 January ceasefire agreement includes provisions for the cessation of hostilities to be monitored by the Intergovernmental Authority on Development, but no mention is made of a troop deployment to facilitate the monitoring process. But even without a physical presence in South Sudan, there are certain political advantages for Khartoum in the disarray of its neighbour. The two countries had been involved in negotiations over the definition of the border dividing them. Now, Juba’s preoccupation with its own internal rebellion may “take the pressure off” Khartoum to resolve the border issue, says James.

The conflict in the south further complicates the fate of the northern branch of the SPLM, known as SPLM-N. Khartoum has frequently alleged that Juba was supporting an SPLM-N rebellion in the Sudanese states of Blue Nile and South Kordofan, even as it carried out a brutal military campaign against its own population there. This was difficult to prove, and it is unlikely that in the event there was support, it had any official sanction from Juba.

Intensifying attacks

But the distractions of the fighting within South Sudan’s own borders are likely to give Khartoum room to act with even greater impunity. “I think Khartoum is intensifying its attacks on Blue Nile and South Kordofan at the moment; there’s a lot of bombing,” says the senior diplomat.

Sudan is not the only regional player seeking to gain a geopolitical advantage from the fighting in Juba, however. Uganda has also sent troops to South Sudan and has provided air support to government forces, which has been crucial to swinging the balance of the conflict in the regime’s favour, according to sources in the country.

The Ethiopian government has expressed its concern about the involvement of Uganda in the conflict, and on 30 January, Norway’s foreign minister Borge Brende called for the withdrawal of Ugandan troops from South Sudan. Keen to avoid a tilt away from its own influence in the region, Khartoum too will be watching carefully.