Twice before, oil has fuelled conflict in South Sudan. It was a vital prize during the long war waged for independence from Sudan between 1983 and 2005. It triggered disputes between North and South Sudan after separation that brought both countries’ economies near collapse. Now it is already a target in the confused crisis that has enveloped the new country in the past week.
Two Sundays ago, fighting broke out between supporters of president Salva Kiir and the former vice-president Riek Machar in the capital Juba, with at least 500 people killed.
Though apparently a power struggle, the conflict has taken on ethnic dimensions, with complaints of the monopolisation of government by Mr Kiir and his Dinka tribe. Last Thursday, 16 people were killed in fighting between the Dinka and Mr Machar’s Nuer community at the important Unity and Thar Jath oilfields. The oil in Unity State, on the border with Sudan, is largely in Nuer areas.
On Saturday, James Koang, the commander of the army in Unity State, declared himself governor and renounced his loyalty to Juba, potentially cutting off the central government’s revenues. And Jonglei state, one of the most promising new oil exploration areas, has fallen to General Peter Gadet, a Machar supporter.
The country already faced a difficult birth. South Sudan holds some three-quarters of the former Sudan’s oil, but it relies on pipelines through the north to export it. The independence agreement did not conclude the terms for using these pipelines, nor the status of the disputed oil-producing Abyei region. And despite much talk, South Sudan was not able to start construction of an alternative southern pipeline – most likely through Kenya, and connecting to new fields both there and from Uganda.
Khartoum began confiscating oil sent through the pipeline in lieu of the transit fees it claimed. Sudan wanted an exorbitant US$36 per barrel; South Sudan offered less than $1. In March last year, fighting started in Abyei and around the important oil-producing area of Heglig.
Throughout 2012 and the first quarter of this year, South Sudanese production was almost entirely halted, taking some 300,000 barrels per day off world markets. This was one of five largely unrelated but coincident crises – with Iran, Libya, Syria and Yemen – that disrupted at times 2.7 million barrels per day of production, supporting oil prices and allowing the Arabian Gulf countries to produce at record levels.
With South Sudan relying on oil for 98 per cent of government revenues, Juba had little choice but to concede finally to fees of $24 to $26 per barrel, close to Khartoum’s original demand. Oil exports finally resumed in April, possibly giving Mr Kiir the political confidence to remove his rival, Mr Machar, who had become increasingly critical of him, from his vice-presidential post in July. But the country was still struggling under some $5 billion of debt incurred during the shutdown.
What are the possible outcomes of the latest crisis? International pressure may bring a shaky reconciliation between the factions. Widespread fighting with some areas slipping out of Juba’s control is possible – as in the 1991 “civil war within a civil war”, when Mr Machar split from John Garang’s Sudan People’s Liberation Army, then fighting Khartoum.
And indeed Sudan may intervene again, backing either government or rebel factions, and seeking to secure the oil-producing border regions in Abyei and Unity and Upper Nile states to guaranteeing its continuing revenues.
An important non-Opec producer may again fall out of the market, facilities may be damaged and workers evacuated. Even a resolution to the crisis will not encourage investors, already deterred by the pipeline shutdown and the fighting last year. So the long-suffering South Sudanese will have to wait yet longer for stability and the rewards of their oil resources.
Robin Mills is Manaar Energy’s head of consulting and the author of The Myth of the Oil Crisis
