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Current Affairs

OIL AND SUDAN’S REFERENDUM

Making Sense of Sudan, Scenarios for 2011:

Oil and Sudan’s Coming Referendum

posted by Luke A Patey

Three months and one week remain until the people of Southern Sudan have the opportunity to vote for independence. Apprehension is growing that an oil war is in the making. But such fears should be tempered. War between northern and southern armies over the country’s oil-rich border region is unlikely. Instead, a messy mix of intraparty struggles in the South and local armed resistance in oil-bearing regions pose serious threats.

Oil had previously fuelled an over two-decade civil war between the North and South, leaving two million dead until the Comprehensive Peace Agreement was signed in 2005. Since peace was established, the North’s ruling National Congress Party and its southern counterpart, the Sudan People’s Liberation Movement have no interest in disrupting their yearly windfalls of oil revenue by returning to war. Even with southern separation almost assured, when it comes to oil, the North and South will be attached to one another for years to come.

It would be an act of economic suicide for either side to make a move to capture oil fields by force. Over 80% of Sudan’s oil production and reserves lie beneath landlocked southern soil. But the only means of exporting the crude oil, extracted from the ground by a trio of Asian national oil companies from China, India and Malaysia, is through a set of pipelines heading northeast to the Red Sea. Until the South develops its own pipeline, which would take years, it is in quite the bind. If it wants to continue to profit from essentially its only source of revenue, and it has handsomely at over $9 billion over the past five years, it will have to continue sharing oil revenues with the North. At the same time, the North’s dependency on oil, measuring in at 60% of its annual revenues, will certainly have to take a sizeable cut to please southern leaders.

Tensions have previously driven the NCP and SPLM to blows over oil. In May 2008, hundreds of civilians were killed and thousands displaced in the aftermath of a violent confrontation between northern and southern armed forces in the oil region of Abyei. Yet inevitably the NCP and SPLM managed to iron out their differences, and the oil revenues continue to flow. The Permanent Court of Arbitration ruling in July 2009 essentially stripped the Abyei of its oil-rich status, placing the key oil field of Heglig outside of the region. But the decision did not lead to armed conflict as many expected. Two years earlier in 2007, the NCP and SPLM settled a dispute that saw French oil major Total retain its rights to a massive oil block in Southern Sudan. More recently, the North has agreed to resume payment of the southern oil share in foreign currency after the South cried foul in receiving Sudanese pounds from Khartoum’s central bank, undermining its ability to purchase imported goods. But while the NCP and SPLM have continuously found a way to share the spoils, the influx of new oil wealth has caused other problems.

Southern Sudan is on a path to continue the sins of a long line of endowed yet unscrupulous African oil producers. Government salaries have made up the fair share of consecutive budgets while major towns in the South continue to lack heath, education and infrastructure investment. Southern finance ministers come and go over corruption scandals, providing political ammunition for those who would like to see the SPLM fall apart. More alarmingly, there is discontent from within.

Oil may prove to be a highly divisive factor in power struggles in an independent Southern Sudan. The forces of high-ranking SPLM members, Unity State Governor Taban Deng and General Paulino Matip, clashed last October in Bentiu. Matip has close ties with a US oil outfit, Jarch Capital, which according to its Chairman Phil Heilberg is hoping to capitalize on ‘sovereignty changes’ in Sudan. Jarch’s claim to oil concessions stand in opposition to those of other companies signed up with the southern government. The former rebels may face their own rebellion soon enough in an independent Southern Sudan.

A Niger Delta scenario of entrenched conflict between local armed groups and government security forces is brewing in Sudan’s oil regions. Four Chinese oil workers were killed in 2008 during a botched rescue attempt by Sudanese authorities after the workers were kidnapped near the oil town of Heglig. Local populations have seen little benefit come out of oil. Rather their impoverished situation has been worsened by the environmental degradation brought on by negligent oil companies operating under an utter lack of regulation. The cost-cutting discharge of contaminated water from oil reservoirs has lead to the death of livestock and serious illness among local populations.

If the northern and southern governments wish to continue to profit from oil after the referendum, they must end their bickering over oil revenues and start to tackle the negative consequences of oil development at the local level. The SPLM must get its house in order and put an end to any dealings its members might have with oil companies looking to make a quick buck. Both parties must also start to take the well-being of local populations in oil-bearing regions seriously. Ignoring the needs of those who live closest to their main source of income is simple common sense. Northern and southern armies will unlikely square off over oil heading towards the referendum. But ensuring a wider stability will only encourage future investment and growth in Sudan’s oil sector.

Luke A. Patey is a Project Researcher at the Danish Institute for International Studies.

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