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South Sudan: “The Oil is Now Flowing”

South Sudan is to resume oil production – a positive move for the new country, but uncertainty remains.
This article appeared in Vol. 10, No. 3 - 2013

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South Sudan is landlocked and consequently reliant on the infrastructure of its neighbour Sudan to sell the oil on international markets. Source: © Micka/Dreamstime.com After a 15-month stalemate, South Sudan has announced it is to resume oil production, ending a bitter row with former civil war foe and neighbour Sudan and marking a major political and economic breakthrough for the world’s newest nation. The Republic of South Sudan officially came into being on 9 July 2011, when over 98% of the population voted for independence from Sudan in the historic referendum of January that year, set up under the 2005 Comprehensive Peace Agreement (CPA). The civil wars between North and South Sudan have spanned the last five decades, the most recent one claiming nearly two million lives and leaving four million others homeless.

South Sudan won control of approximately 75% of the 470 Mbpd of low sulphur crude produced by the formerly unified country. The oil exports went almost exclusively to Asian markets, particularly China, the biggest buyer of South Sudanese oil before the shutdown. However, CPA negotiators were not able to reach an arrangement on how to divide the revenue from the southern oilfields and collaboration between the two countries broke down in January 2012 when they failed to agree over oil transportation fees. President Salva Kiir of South Sudan accused the Sudan government of illegally siphoning off $815m of its crude oil, which the government in Khartoum said provided compensation for unpaid transit fees.

“The oil is now flowing,” said South Sudan oil minister Stephen Dhieu Dau on 20 April this year, as he flicked a switch to restart production at a ceremony in the Thar Jath field in Unity State, an oil-producing region of South Sudan on the contested border with Sudan. He was received by crowds dancing in celebration as he declared, “This is a sign of peace.”

During the oil shutdown, Information Minister Barnaba Marial Benjamin said South Sudan was exploring the feasibility of building a new 2,000 km pipeline, either south to the Indian Ocean through Lamu, Kenya or east to the Gulf of Aden through Ethiopia and Djibouti. It remains unclear if this was a negotiation tactic by the landlocked country, or whether this development remains a possibility.

Economy and Development

Combined, the two countries account for only 0.6% of global oil production, but oil is integral to the economy of them both, accounting for 98% of South Sudan’s government revenues and 82% of its GDP, which is a high degree of dependency even compared to most OPEC countries. The closure has devastated both economies, costing billions of dollars and sending people onto the streets in protest at the inflation incurred. President Kiir said he will run the country on an austerity budget at least for the next fiscal year beginning in June, despite the resumption of crucial oil flow.

Development experts have urged the government to use oil proceeds to begin investing in the country and its people, ensuring sustainable economic growth. According to the World Bank, South Sudan may have received slightly more than $10bn in oil revenue from 2005 to January 2012, when production shut down. However, basic social services remain scarce as these revenues are not yet being poured into schools, hospitals, roads and agriculture, possibly because they prefer to spend the money on security. Dr Leben Nelson Moro of Juba University’s Faculty of Peace and Development Studies said, “The oil money must be used in a manner that will be beneficial to the whole country and not the few people who are close to the treasury.”

South Sudan has some of the worst health and education indicators globally. In 2011, the adult literacy rate was 27% and according to the UNDP the maternal mortality rate is 2,054 per 100,000 live births, the highest rate in the world, giving a woman a 1 in 7 chance of dying during her lifetime from pregnancy-related causes.

Investment Needed

According to most analyses, South Sudan has just 10 years of extraction remaining, a limited amount of time for the world’s youngest country to become self-reliant. South Sudan cultivates just 5% of its arable land, constituting less that 1% of its GDP from agricultural exports, which illustrates the economic potential the country can harvest from farming. Before this potential can be garnered there is a large need for capital investments, especially roads, as the country, the size of France, has just 100 km of tarmac roads – low even by African standards.

It took less than a month to shut down extraction but analysts at PFC Energy said it may take a year to reach pre-shutdown production levels due to damaged equipment. This resumption offers the impoverished nation a chance to rebuild, but as the oil flows again, strict accountability will be needed to prevent potential corruption. Despite the projected positive images, uncertainty still remains about this period of respite.

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