The impact of oil in Sudan
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Malakal, Sudan (Photo: Sean Carberry)
Sudan began exporting oil in 1999, after it was discovered a few decades earlier. Current production is about half a million barrels per day, making Sudan the sixth biggest producer in Africa.
Control over the sudden influx of wealth was a driving force behind the country’s second civil war. It killed some two million people.
The independence referendum this week in south Sudan looks likely to result in the creation of an independent country. Sudan’s President Omar Al-Bashir has said he would recognize the result even if the south chooses to separate. Even if it means the south takes with it the wells producing some 75 percent of Sudan’s oil.
Of all the properties to be divided in Sudan’s expected divorce, one might expect oil to be the most contentious. But for this one thing, at least, the north and the south need each other.
This mutual dependence could be the best assurance against renewed fighting. Former President Jimmy Carter has been engaged in conflict resolution in Sudan for decades.
“I don’t believe that the oil production would be interrupted, even if it takes awhile, say several months, for north and south to agree on a proper division of future oil wealth,” Carter said. “Until now as you know at this moment, until July 9, the division is 50-50 between north and south.”
That’s when the 2005 peace treaty runs out. The two sides are already negotiating a new oil deal mediated by Norway.
Both north and south Sudan have strong bargaining positions: 75 percent of oil production is in the south, but pipelines, refineries and export terminals are all in the north. So President Carter says a vote for independence by the south won’t really affect Khartoum’s pocketbook all that much.
“I don’t think its assured yet that they will lose oil revenues, that depends on the division in the future,” said Carter. “In the south, I think they expect to get more than 50 percent in the future. And in the north they hope to maintain their 50 percent. I think there will be some compromise somewhere in between.”
But now instead of sharing revenues from the sale of oil, an independent South Sudan would have to work out the fees it pays the north for transit through pipelines and using refinery and port facilities. Leben Nelson Moro, from the Institute of Peace and Development Studies at Juba University, said the very concept of the north “giving up” the oil is wrong.
“Since even before the war ended it was the north taking this oil as if it belonged to the north,” Moro said. “The impact is very significant. If you go to Khartoum, Khartoum is a modern city. How did it become modern? It is the oil of the south. The north has been taking this oil while the south has been devastated for many years. The south needs the oil for its own development.”
South Sudan is one of the least developed places on the planet. Khartoum controlled the oil money until 2005 and invested little or nothing in the south’s infrastructure. Since then, the south has had control over half. A large chunk has been spent on the military.
Tensions with the north linger.
At a gas station on one of Juba’s main — and newly paved — roads, residents have differing expectations about the south taking control over its oil resources. Attendant Christine Clara expects South Sudan to get a major makeover after independence.
“We shall have better schools, better hospitals, and everything will be new,” she said.
Gordon Kong, who’s waiting at the station, says it’s time to stop arguing over what to do with the oil, and concentrate more on something that’s sustainable: farming.
He says that’s South Sudan’s real future.
“Please put more effort in agriculture, because this oil is going to finish, with duration of time of around 30-40 years,” Kong said. “So when it finishes, what are you going to do?”
But for now, oil is key. And so is trust.
Global Witness, a London-based non-profit found that South Sudan may have been cheated out of billions of dollars in oil revenue during the past five years.
A lack of transparency means that no one really knows how much is produced in Sudan’s oil fields. Global Witness investigator Rosie Sharpe says that has to stop.
“The new oil deal, if such a deal can be reached, should contain a new transparency verification mechanism so that both sides can be sure its being implemented fairly,’ said Sharpe. “It’s not an overstatement to say that nothing short of peace depends on it.”
In addition to transparency, the sector needs major investment to increase productivity. An internationally recognized independent South Sudan would certainly improve the climate for business.
With the government focused on the last days of voting in the referendum, managing expectations — globally or locally — will have to wait until later.
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