South Sudan has said it will continue issuing new oil contracts despite concerns by a global watchdog on natural resource use that the deals could be used to aggravate the conflict that broke out in December.

Petroleum and Mining Minister Stephen Dhieu Dau said oil was the backbone of the Juba economy and suspending issuance of new contracts for prospecting and drilling activities would hamper growth.

“We do not agree that a moratorium on petroleum contracting is at this time in the best interests of the citizens of South Sudan,” said Mr Dau.

There have been fears that proceeds from oil will be used on military spending in the power struggle between President Salva Kiir and former deputy Riek Machar, who was sacked in July last year.

The fighting has escalated around settlements such as Malakal town, located north of Juba and on the fringes of the key oil-producing Upper Nile state. 

READ: South Sudan army battles rebels in key oil town

Global Witness, which investigates the role of natural resources in funding conflict and corruption, had in June asked the government to suspend new contracts and review existing ones until peace and the rule of law are restored.

Mr Dau, in a letter to the London-based non-governmental organisation dated July 8, said that South Sudan’s budget was too dependent on oil production.

“Even while we seek to diversify our economy and attract investments in new industries, we foresee the oil industry remaining a substantial, if not predominant sector of our economy for a number of years,” wrote Mr Dau.

Global Witness had recommended a halt in issuance of new exploration and production agreements (EPSAs) including in refinery and transport until the Petroleum Act 2012 and Petroleum Revenue Management Bill are enacted and operational. It said reports of human rights abuses by both sides, particularly in oil-producing areas, needed to be investigated and those found guilty held to account.

Concessions for blocks B1, B2 and B3 located mainly in Jonglei and Lakes States are believed to be under negotiation. The states are among those most affected by insecurity.

“If contracts for these concessions are granted, companies would need to employ armed security forces. In a region home to high numbers of military and militias, a further influx of armed actors could worsen the conflict,” said Global Witness.

Jonglei State has witnessed continued inter-ethnic conflict and violence between government forces and local militias since Independence. Bor was one of the initial flashpoints and parts of the state capital are currently under rebel control.

Lakes State has also witnessed sustained inter-communal violence since Independence, and has seen large-scale displacement and violence increase in the recent conflict.

Since the outbreak of conflict, oil revenues have reportedly been diverted to finance the war instead of going towards infrastructure and social programmes.

Mr Dau, however, said exploration and development activities would continue on the existing and new blocks so that the levels of oil production are maintained and even increased over time.

The country also needs funds to support the building of alternative oil pipelines to countries like Kenya for shipment.

The Petroleum Act 2012 requires that new contracts are made public and provides an opportunity for their independent verification. It will also ensure that only qualified companies bid for new EPSAs, and the bidding processes are open and competitive.

South Sudan is the world’s most oil dependent country, with 98 per cent of government revenue coming from oil sales since Independence in July 2011.