Energy:  Oil in Sudan and South Sudan

History | The current situation

Oil has been a key driver of the conflict between Sudan and South Sudan, all the way up to South Sudan’s independence in 2011 and beyond. The geography of the two countries complicates matters because while South Sudan may now have its own designated oil rich areas, the nearest coastline and port from which the oil can be exported is in northern Sudan.

History

At the end of the First Sudanese Civil War in 1972, a Comprehensive Peace Agreement was signed, granting the south administrative autonomy. However over the next decade the increasing Islamisation of the state under President Nimeiri undermined the agreement’s effectiveness. Further tensions arose because of the attempted construction of the Jonglei Canal. The canal was supposed to divert water from the Sudd Wetlands in South Sudan into northern Sudan and Egypt. In 1974 Chevron Corporation acquired exploration rights in the Red Sea and Sudan, and made its first discoveries of oil in 1978, in Bentiu and Heglig provinces. Heglig was north of the southern border, but Bentiu was just to the south. In 1980 Nimeiri attempted to divide the south from one autonomous unit into three states, and under these plans Bentiu would have been absorbed into northern Sudan. A partnership between the government and Chevron resulted in the creation of the White Nile Petroleum Company in 1981, which had no southern Sudanese on the board.

This succession of disputes is generally attributed to the creation of the Sudanese Peoples’ Liberation Army (SPLA) in 1983. John Garang, a former commander in the Sudanese Army (and a Dinka originally from the south), mutinied and took charge of the southern rebels he was sent to defeat. Nimeiri dissolved the south’s constitutional rights and imposed Sharia law in response. The SPLA also began attacking oil installations, and in 1984 Chevron’s operations ended when three of its workers were killed. During the stall in its operations, the National Islamic Front staged a military coup in 1989 and Omar al-Bashir took power. The new regime spurred a fresh wave of attacks from the SPLA. However it was also suffering internal divisions along largely ethnic lines. The Dinka made up the largest proportion, and tensions arose with the Nuer. In 1991, a breakaway Nuer faction, led by Dr Riek Machar, was offered assistance by al Bashir in return for serving as a proxy force against the SPLA.

Having invested over $1 billion in the region, Chevron began selling off its concessions, and by 1992 most had been acquired by Canadian energy company Arakis. Escalating violence caused some companies to close operations, such as Total. Arakis may have been operating with less competition, but there was increased international pressure surrounding deals with Sudan. In 1997 President Clinton blocked all Sudanese assets in the USA in response to al-Bashir’s fuelling of the violence against the south, by means of proxy forces and attacks on civilians living on the oilfields. Arakis made severe losses that year, partly as a result of having their operations hindered by fighting, but also because of falling share prices and a lack of investment. As a result of Clinton’s block on Sudanese assets in the USA, Arakis couldn’t gain financial support there, but was unable to fund both drilling and a pipeline. Despite entering a consortium with a number of Chinese companies, Arakis was short of money again by 1998, and it was eventually bought by Talisman, another Canadian company.

Talisman’s involvement in Sudan lasted until 2003, by which time the situation had attracted a great deal of controversy. Their involvement with the government resulted in accusations that Talisman’s equipment and infrastructure was being used in attacks against South Sudan. Talisman sold their concessions to an Indian national company called ONGC Videsh. That same year, another oil company called Lundin, which had been exploring in Sudan since 1994, also ceased operations. In their report describing their operations there, Lundin noted that they had hired only a small number of local people because of a “lack of required skills”, and acknowledged that this may have affected the population’s amelioration to the developments.

The current situation

There are still a number of oil companies working in Sudan and what is now the independent nation of South Sudan; however conflict continues. Since the 2011 independence referendum, the region of Abyei has been a particular source of tension. It is currently granted a special administrative status; the region straddles the north-south border and has been fought over since the first civil war. A referendum to decide Abyei’s future is problematic because of the ethnic diversity of the region, and disagreement as to who should be allowed to vote in it. Al-Bashir and President Salva Kiir of South Sudan are meeting on September 22nd 2012 in Addis Ababa to negotiate.

In the meantime, while South Sudan may have obtained up to 80% of the oil in the referendum, it does not have the capacity to refine or export it; those facilities remain firmly in the north. The terms of transporting the oil from South Sudan up to Port of Sudan are being negotiated; the understanding is that Sudan would have a share of South Sudan’s earnings. However the SPLM recently protested the latest version of the deal, saying Khartoum is taking too large a share. South Sudan depends on oil for 90% of its GDP.