Global Policy Forum

World's Newest Country: South Sudan's Oil Remains a Sticking Point

The Republic of South Sudan will become independent from north Sudan on Saturday July 9, 2011, but, their immediate future will remain inextricably linked through the oil industry.  Hopes for longer term security and peace between the two states depends on how the two governments manage their interactions over oil, which is the lifeblood of both economies. The majority of oil revenues come from oil drilled in the south but oil pipelines are controlled in the north. South Sudan will be born as one of the poorest, most underdeveloped countries and will need to put oil revenues towards insecurity alleviation, education, health, infrastructural development and building participatory institutions.

By Maggie Fick

July 8, 2011

When Africa's largest country splits in two on Saturday, the two new states would prefer to go their separate ways – if it wasn't for their pesky oil problem.

As much as the governments of Sudan and the Republic of South Sudan would like to bid adieu for good on July 9, in the immediate future their oil industries will remain inextricably linked, and the hope of security and working relations between the two states will rest largely on how the two governments manage their interactions over the resource that is currently the lifeblood of both of their economies.

The basic calculus is simple. For the solely oil-driven southern economy to survive, the region's significant oil largesse must continue to find a way out of its soil. For the moment, the only option is through pipelines controlled by the northern government that lead to refineries in the northern city of Port Sudan, on the Red Sea.

Insiders to the north-south talks over the past five months say that negotiating the future of the north's and south's shared oil industries has been one of the most contentious aspects of the African Union-mediated and US-supported talks.

Cutting a new deal

This comes as no surprise given the stakes of the talks. They were intended to result in a "deal" for wealth-sharing beyond July 9, a replacement for the current 50-50 split which has evenly divided Sudan's oil revenues between the northern and southern governments for the past six years of fragile peace.

A sticking point for the southern government is that the majority of the revenues that both sides current accrue comes from oil drilled in the south – oil that Juba feels it should be able to exploit exclusively after independence. For its part, Khartoum has the "hardware" needed to extract southern oil, and given its own economic challenges, needs to use its advantage to keep its oil revenues as high as possible in the months and years to come, if only through expensive pipeline fees charged to the southern government.

After months of tense negotiations and reportedly numerous attempts by oil experts from the Norwegian government and elsewhere to provide viable proposals for the two sides, it is now certain that there will be no deal on oil before the north and south become separate states on Saturday. But not reaching a deal soon could be dangerous, warns US Ambassador Princeton Lyman, President Barack Obama's Special Envoy to Sudan.

By the end of July they are going to have to decide how to manage the oil sector," Mr. Lyman says. "They can't just let it slide because that could lead to a conflict by the end of the month."

Although it appears that both sides want to keep the oil flowing after July 9 under the current arrangement, the resource watchdog group Global Witness has expressed its concern that the north-south relationship could be too fragile and mistrusting for the two sides to reach a deal. But an agreement that includes transparency mechanisms could go a long way toward improving north-south relations, the group says.

"A fair and mutually beneficial north-south oil deal could provide a powerful incentive for peace between the two parties," Dana Wilkins of Global Witness told the Monitor this week.

Internal issues over oil

As a new-born state, the southern government will have a significant share of petro-dollars to assist in building the Republic of South Sudan from scratch. The new country will be among Africa's most-oil rich from day one, an advantage other devastated, post-conflict nations like Liberia did not enjoy as they began their state-buidling processes.

Whether this wealth will be a blessing or a curse will depend on the choices of southern leaders, many of whom are former military commanders with little relevant experience in managing a complex oil industry, diversifying economic markets, and equitably distributing resources. While the international community is already providing support to assist the young southern government in the economic aspects of statebuilding, it will be up to the leaders themselves to make strategic and responsible decisions about its oil industry in the years to come.

This will not be an easy task for the southern government, who has proven itself incapable of speaking with one voice about its plans for its oil industry. In recent months, various southern ministers, government spokespeople, and ruling party leaders have issued conflicting statements about the government's plans.

This week in Juba, the roads and transport minister said the government was in talks with companies to build a pipeline from the south to existing pipelines in Kenya, chalking up the cost to a mere "few million dollars" – an absurdly low figure that raises questions over whether the southern government's blustering is actually posturing to attempt to force Khartoum's hand on a better wealth-sharing deal.

The UN's top humanitarian official in the south says that South Sudan will be born as one of the poorest, most underdeveloped countries on the planet, with a terrible dearth of institutions and basic infrastructure and a profound lack of educated citizens to propell the new Republic forward.

South Sudan's ability to transform itself from a resource-rich but skills-poor region into a prosperous self-sustaining nation state will not depend entirely on the fate and management of its oil industry. But the way in which this key sector is managed by Juba will indeed contribute to this transformation (or lack there of). And like it or not, the south's chances of using oil to power its future progress will also depend in part on its relations with Khartoum in the months and years ahead.


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