x Abu Dhabi, UAEMonday 24 July 2017

Messy Sudan divorce is not pouring oil on troubled waters

Divorce is never an easy process, particularly where financial matters are concerned. When divorce involves one of Africa's largest countries and 6.7 billion barrels of oil, following 20 years of war, it is not surprising neither side is adapting well to a new life, writes Robin Mills.

A soldier maintains vigil near an oil reservoir in South Sudan in 2010. Sudan lost three-quarters of its oil production after its separation.Roberto Schmidt / AF
A soldier maintains vigil near an oil reservoir in South Sudan in 2010. Sudan lost three-quarters of its oil production after its separation.Roberto Schmidt / AF

Divorce is never an easy process, particularly where financial matters are concerned.

When divorce involves one of Africa's largest countries and 6.7 billion barrels of oil, following 20 years of war, it is not surprising neither side is adapting well to a new life.

Protests are rocking Sudan, from the wealthy district of Khartoum Two, to neighbouring Omdurman and El Obeid in the central Kordofan province. Triggered by discontent over rising food and fuel prices, demonstrators challenge president Omar Al Bashir's 23-year rule. But South Sudan, which celebrates the first anniversary of its separation on July 9, has not fared any better.

The pattern of protests in Sudan is similar to several other Arab countries. It has its roots in years of oppression and misrule and long, unpopular wars not only in the south but also Darfur in the west, Kordofan and the Nuba Mountains on the new border with South Sudan.

With the separation, Sudan lost three-quarters of its oil production, bringing an abrupt end to a decade's economic boom that started with oil exports in 1999. The first response was to attempt extortion: Khartoum demanded a transit fee of US$32 per barrel for oil sent through the only two pipelines from landlocked South Sudan. Juba, the South Sudanese capital, countered with $1 per barrel, based on the similar Chad-Cameroon pipeline.

With allegations Sudan was simply taking oil in lieu of its fee claims, supplies were shut down from January, depriving both countries of vital revenue.

South Sudan is now studying a proposals for a pipeline through Kenya to link up with new fields in Uganda, or more speculatively through the war-torn Democratic Republic of Congo, or the imposing mountains of Ethiopia to Djibouti.

But in a catch-22 situation, potential funders are worried South Sudan may not have enough reserves to support a new pipeline, while explorers will not look for more oil if they cannot be assured of an export route. Kenya's Lamu port, the pipeline's terminus, has not even been built.

In March, these tensions flared up into renewed fighting over the disputed area of Abyei. South Sudan occupied the Heglig oilfield, the north's largest, before withdrawing. With 98 per cent of its budget coming from oil, the cut-off threatens Juba with collapse.

Yet even before the split, the north, too, suffered economically: high youth unemployment; an overvalued exchange rate; and a large budget deficit.

Last Wednesday, the finance minister Ali Mahmud Al Rasul announced subsidies on food and fuel were being scrapped. Inflation last month was already running at 30.4 per cent as the government printed money to cover its budget deficit.

This led quickly to protests by female students at the University of Khartoum on June 17, much bigger demonstrations followed in the capital last Friday and they then spread across the country.

The struggles of Sudan and South Sudan are not just about oil. But the immediate trigger lies in the failure of the peace accord to settle obvious questions over pipelines and disputed regions, in the hardline mindset of both leadership and on the failure to develop economies that can function, even briefly, without oil revenues.

And so a difficult divorce has become the oil version of mutually assured destruction. South Sudan, a country not yet a year old and hampered by geographic vulnerability from birth, has more excuses for its problems. It has international goodwill and domestic legitimacy from its successful independence struggle.

President Al Bashir can still survive, unless splits in the ruling party bring him down.

But might his long reign, as with Libya's late dictator Qaddafi and Yemen's Ali Abdullah Saleh, finally be undermined by the inability to transmute oil revenues into a successful economy?

Robin Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon