South Sudan is planning to resume oil production in September, after a transit deal was reached with Sudan in early August, according to Pagan Amum, the country’s lead negotiator with Sudan at the African Union.
It shut down exports of oil through two main pipelines to Port Sudan at the end of January after Sudan began to confiscate oil in lieu of transit fees for the use of its export infrastructure.
South Sudan has agreed to pay Sudan transit fees approaching $10 a barrel, in addition to a little over $3bn over the next three years, in compensation for the loss of its oil resources. An estimated 75 per cent of oil reserves and production in the formerly united Sudan lie south of the new border.
The loss of oil revenues over the past seven months has been crippling for both countries. Prior to the south’s secession in July 2011, Sudan generated more than 60 per cent of government income from hydrocarbons. After the split, oil accounted for about a third of government revenue in the rump state of Sudan and 98 per cent of that in South Sudan.
Without oil income, the two states face an impossible struggle to finance their budgets and have lost a vital source of US dollars. Either side of the border, the currencies have rapidly lost value this year. Annual inflation in Sudan was 41.6 per cent in July; in South Sudan it was more than 60 per cent. In recent months, thousands have taken to the streets in Sudan to protest rising food prices and demand an end to the 23-year rule of President Omar Bashir.
The recent oil deal is vital to the economic future of both countries, but to have any value it must also be implemented. This could yet prove problematic.
When the oil deal was reached, Sudan’s government news agency announced it would only be implemented once border security arrangements have been agreed.
There is no issue more internecine than the dispute over the 1,800-kilometre border. Sudan dragged its feet when pressed to agree its delineation prior to South Sudan’s independence, and has recently rejected Juba’s offer to take the matter to international arbitration.
Khartoum claims that South Sudan is supporting armed rebel groups north of the border, while Juba alleges that Sudan continues to carry out bombing raids south of the border and is illegally occupying the border state of Abyei.
If Sudan continues to insist on tying the oil deal to a border agreement that it shows little intention of reaching, at best it will delay implementation. At worst, it will scupper the deal completely.