The Two Sudans' Oil Problem

If ever a country could reach fatigue on discussing oil issues, Sudan is it. Earlier this month, a strange episode occurred within Sudan when the federal oil minister, Luol Achuek Deng, a southerner, was accused by the secretary general of his own party, Pagan Amum Akech, of giving half of South Sudan’s oil revenue to the north for the month. The minister retaliated by accusing his compatriot of embezzling millions of dollars. On the eve of South Sudan’s independence, oil revenue continues to play a dominant role in South Sudan and only by solving this issue can the South avoid renewed war with the north. 

Oil in Sudan is a large issue because of money. The South Sudan government receives 98% of its revenue from oil, while the north earns between 60%-70% of its revenue the same way. Since approximately three quarters and up to 82% of proven oil reserves are in the south, after southern independence the north is certain to take a monetary hit. The two sides were able to come to a temporary agreement on revenue sharing when the civil war ended in 2005.

In 2005, the two sides signed the Comprehensive Peace Agreement (CPA) which ended the civil war. One provision was a Government of National Unity (GONU), and explains why the federal oil minister is from the south. Another provision was a split in oil revenue, with the two sides dividing proceeds from oil 50/50 after giving oil-producing state governments 2% of net revenue. The revenue itself has very controversial, with both the south and the north claiming discrepancies in oil revenue figures. However, neither side has retreated from the agreement.

The north and the south fought a war of words over oil proceeds, with Sudanese President Omar al-Bashir of the north threatening to turn off the pipelines if a deal was not reached by July 9, and southern politicians threatening to deny the north “even a gallon of oil.”

Now that South Sudan is independent, the CPA has officially expired and the two sides must work out another agreement on revenue sharing, as both sides of the two nations are essential to the oil production process. Although most of the oil is in the south, the pipelines, refineries and export terminals are all located in the north. An alternate plan to build a pipeline to Kenya would cost billions of dollars and would take years to construct, which means for the time being the south must continue to send its oil through the north.

Both sides agreed in June that the south will now pay a usage fee to the north for transit, but as a temporary measure, the aforementioned oil minister agreed to give 48% of revenue for the month of July to the north, and claimed he had the backing and support of Southern President Salva Kiir. This deal was made without the knowledge of the United Nations Secretary General, who leads negotiations for the south over oil revenue and felt slighted for being left out of the loop.

Internal politics aside, oil still dominates in the south. While a host of issues plague north-south relations, oil revenue is an issue that must be solved before peace will reign in Sudan.

Photo Credit: L.C.Nøttaasen