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The Sudans' Oil Agreement: An Important Step on a Long Road Ahead

The deal over oil transit fees marks a significant breakthrough, but the challenges of resolving border disputes remain.
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A bomb crater by an oil well in South Sudan. Photograph by Amanda Hsiao/ Enough Project.

After an unsettling year of failed negotiations, heated disputes, and cross-border violence, Sudan and South Sudan this month came to a landmark agreement over the transit of oil.

Failure between the neighbouring governments to agree on a price for the transport of South Sudanese oil through Sudan eventually led to shutdown of production in January. For two economies heavily dependent on oil, the consequences have been dire. The negotiated breakthrough could therefore have monumental significance for both populations, although there is still far to go and numerous highly contentious issues between Sudan and South Sudan remain unresolved.

Coming to an agreement

Upon independence in July 2011, South Sudan secured three-quarters of the oil held by the once unified nation. Oil production was responsible for approximately 98% of South Sudan’s governmental revenue. Oil from the south, however, has to go through oil refineries in Khartoum state and then port terminals in Port Sudan.

The price of transportation should have been settled before separation, but no agreement could be met. The Sudanese government demanded $36 per barrel while the South Sudanese government offered between 70 cents to $1, arguing this was in line with international prices.

Then, in January 2012, as the dispute escalated with Khartoum claiming it was owed $1 billion in unpaid fees and Juba accusing its northern neighbours of illegally siphoning of $815 million dollars’ worth of oil, South Sudan stopped oil production altogether. South Sudan denied it owed any payments while Sudan claimed it siphoned oil as compensation for unpaid fees.

The shutdown of oil for six months has led disastrous consequences for both countries and had a crippling effect on their oil-reliant economies. In June, protests began in Sudan against austerity measures implemented due to $2.4 billion budget deficit. The protests, joined in by youth activists and opposition parties, developed into broader calls for the removal of President Omar Al-Bashir and his National Congress Party (NCP) government.

The deal, made this August at the African Union Summit in Addis Ababa, could not have come soon enough. It sets terms for three and a half years with the fee for oil transportation believed to have been agreed at $9.48 per barrel. In addition, Juba consented to making a one-off payment of around $3 billion to Khartoum as compensation for the fact it lost 75% of its oil resources in 2011 when South Sudan seceded, although South Sudan’s vice-president Riek Machar complained that this would make South Sudan “the biggest donor on earth to a single country”.

Unresolved issues

In the immediate aftermath of the deal, confidence in the Sudanese economy has increased, and for the first time in several months the Sudanese pound rose against the dollar. The agreement also marks a step in the direction of greater cooperation. However, many other outstanding issues which could yet decide the fate of relations and the possibility of peaceful co-existence remain unresolved.

The main problem lies with the demarcation of borders and maintaining security along them. Since South Sudan gained independence, conflict has re-emerged in disputed regions such as Abyei, South Kordofan and the Blue Nile. Rebels with alleged government support have conducted destabilising attacks while state armies on both sides have also been mobilised and engaged in fighting.

Both sides eagerly wish to ensure border security. For Sudan, this means getting South Sudan to end rebel activity in Sudanese territory. For South Sudan, this means getting Khartoum to accept possible referendums in the future.

Abyei

The disputed region of Abyei was supposed to have a separate referendum before the South’s secession to determine whether it would join Sudan or South Sudan, but plans for the vote fell apart due to disagreements over voting eligibility. The issue was therefore taken to the International Court Tribunal which decided to reduce the size of Abyei, grant most of the oil fields to Sudan and one to South Sudan.

However, the court failed to define who was a resident and could therefore vote in any future referendum. The US special envoy to Sudan has sent a letter to Sudan’s Minister of Finance Ali Mahmoud asking that the delayed referendum be held in August when Misseriya nomads return to the area – whether Sudan and South Sudan accept this remains another decisive factor in the future of the talks and Sudanese relations.

According to the International Crisis Group, “What happens in Abyei is likely to determine whether Sudan consolidates the peace or returns to war”. Indeed, there was an early threat of war in May 2011 as South Sudan geared up for secession, when both sides accused the other of launching attacks in the contested area. At one point southern forces reportedly ambushed and killed 22 of the Sudanese soldiers who had seized the region.

South Kordofan and Blue Nile

The border states of South Kordofan and Blue Nile provide another point of friction. Sudan accuses South Sudan’s SPLM (Sudanese People’s Liberation Movement) government of supporting the rebel activity of SPLM-N, the northern branch of the former rebel movement, which has been launching attacks in the area.

Despite South Sudan denying the allegations, American intelligence has also found evidence against Juba and US President Barack Obama made his position clear, stating that “the government of South Sudan must end its support for armed groups inside Sudan”.

The two states, not clearly defined by the British colonial administration, are located in Sudan although a considerable proportion of their populations, particularly around the Nuba mountains, identify with South Sudan. Many also previously fought alongside the SPLM which now governs South Sudan. These states were supposed to have popular consultations under the 2005 Comprehensive Peace Agreement between the two countries but the issue remained unresolved.

The SPLM-N started fighting against the Sudanese goverment on the June 6 2011, claiming pre-existing and forthcoming persecution by Khartoum. It now argues that it is defending itself against what human rights organisations claim is a campaign of ethnic cleansing against the Nuba people in and around the Nuba mountains.

It has been contested by international observers that the conflict was a proxy war. South Sudan initially had no major urge to be involved in border state conflicts. It became involved following greater intensification of the war and due to what leading expert on Sudan, Alex De Waal states was an 'essential solidarity with the SPLA soldiers in Southern Kordofan and Blue Nile, who continue to fight under the insignia of South Sudan'.

In November 2011, the SPLM-N joined with the Justice Equality Movement (JEM) rebels from Darfur to form the Sudanese Liberation Front, a united force attempting to depose the central Sudanese government. This caused the Sudanese air force this March and April to launch aerial bombardments into South Sudanese territory culminating in a 10-day invasion by South Sudan into the oil field of Heglig in South Kordofan, before the Sudanese army recaptured it.

What next?

Thabo Mbeki, former South African president and chief mediator of the African Union High-Level Implementation Panel, is currently preparing a draft agreement regarding these issues which, it is hoped, will be resolved next month.

But whether a final concluding agreement between the two Sudans will go through remains to be seen. The agreed price on oil transits was a major start but the keystone issue remains border security and contested territories.

As Sabir Hassan chief economic negotiator for Sudan stated, “The whole thing hinges on a security agreement”. Both nations have no desire to return to war, the future of both neighbours rests with the other, but disputes around border territories continue to risk the escalation of long-held tensions.

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