Oil Struggles and Pipeline Threats in the Sudans

This post is partly an excuse for me to promote Luke Patey’s excellent essay “Pipe-dreaming in South Sudan,” but first a little context, and a few additions in light of news from yesterday.

South Sudan officially attained independence from Sudan last July, but the two countries’ economic interdependence remains in effect. In particular, the oil-rich South still relies on the pipeline running through (North) Sudan to get its oil to port. The last eight months have seen stalemate over issues that were supposed to find resolution at independence, especially oil transit fees.

In late January, South Sudan moved to shut down its oil production, accusing the North of stealing its oil. The North has apparently “already sold at least one cargo of crude oil seized from South Sudan at a discount of millions of dollars, and is offering more.”

The oil shutdown, meant to pressure the North, poses a number of problems for South Sudan itself: a negative impact on local businesses, a shortage of dollar reserves, inflation, difficulty paying government salaries and administrative costs, etc. These problems could in turn provoke social unrest. Coming amid violence in different parts of the new country, such difficulties spell real trouble for the government in Juba.

In addition to the shutdown, Juba is looking into more long-term solutions for its problematic dependence on North Sudan. Namely, alternative pipeline routes. In late January, South Sudan signed a pipeline deal with Kenya, and yesterday South Sudan signed a deal for a pipeline that would run through Ethiopia to Djibouti.

A new pipeline would certainly pose an economic threat to Khartoum, but talk of pipelines will be difficult to translate into reality. As Patey explains, politics and regional trends (especially South Sudanese frustration with the North and Kenyan ambitions for its port at Lamu) work in favor of the alternative pipeline plans, but economics work against them. The proposed Kenyan pipeline would be over 400 kilometers longer than the existing pipeline, and would cross rough terrain, both political and topographically. Additionally, the cost of a new pipeline might not make sense given current projections that South Sudanese production will decline in the coming years. Patey concludes, “the longer it takes to foster stable relations over oil, the more likely the people of South Sudan will one day hit the streets in celebration of a new pipeline,” but suggests that that day still lies far off.

Logistical difficulties also dog the proposed Ethiopia/Djibouti pipeline, though it would be shorter than both the existing pipeline and the Kenyan one:

Industry experts have said that building a pipeline could take three years or more and be extremely costly…Djibouti, on the Gulf of Aden at entrance to the Red Sea, lies at least a thousand kilometres from South Sudan’s oil fields, and crosses remote areas rife with rebel forces.

Rumor says pipeline construction could begin as soon as six months from now, but the consensus from analysts seems to be that completion lies a long ways off (I’ve read three years, at minimum), and that South Sudan will want – nay, need – a settlement with North Sudan sooner than that. There will be no easy way out for either party to the conflict, it seems.

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