Juba fears oil exports will halt as fighting in Sudan goes on
Sunday May 07 2023
As fighting continues in Sudan amid a shaky ceasefire, the neighbouring South Sudan faces economic ruin due to the threat the conflict in the north poses to its mainstay – oil exports.
The fighting in Sudan erupted on April 15 between forces loyal to Sudan's military leader Abdel Fattah al-Burhan and the paramilitary Rapid Support Forces under his deputy Mohamed Hamdan Daglo 'Hemedti'.
South Sudanese and government officials say the fighting risks damage to the pipeline that transports crude from the oilfields to Port Sudan in the Red Sea.
For Juba, oil accounts for over 90 percent of the government budget and 70 percent of the GDP. Any disruption spells doom to an already ailing economy, with an inflation rate of 27.8 percent, according to the IMF, and a high risk of debt distress.
Pipeline could be damaged
Peter Biar Ajak, a South Sudanese scholar in the Belfer Centre's International Security Programme in the US this week told Al Jazeera that the country is concerned that if the fighting continues the pipeline could be damaged.
Akol Miyen Kuol, a South Sudanese commentator, echoed the sentiments, noting that there is no guarantee that the Sudan route will continue to be viable. He said the country must seek multiple routes for the export of oil.
According to the Transitional Financial Arrangement signed after South Sudan achieved independence in 2011, Juba pays Khartoum fees and a non-commercial tariff to ship its crude to international markets. The country produces 156,700 barrels per day.
In 2022, South Sudan paid Khartoum $148 million as a cost for oil processing, transportation, and transit fees. The country earned $1.4 billion in oil revenues, compared with $135 million in non-oil revenues.
Buyers taking advantage
And now the government says that buyers of its oil are taking advantage of the conflict in Sudan to negotiate lower prices.
Information minister Michael Makuei, who is also the Government Spokesperson, said oil prices have been hovering around$70 per barrel, and even lower.
At the same time, oil production has been affected because some contractors have ceased operations and foreign workers are leaving the oilfields due to fears of insecurity.
Mr Kuol notes that the country should stop depending on oil as the only main source of income and start diversifying its economy, “with the most reliable and fastest source of income being gold.”
Mr Makuei said the government is looking at an alternative oil export route through Ethiopia to Djibouti. In September 2022, Juba bought land in Djibouti to build a new export terminal.
Construction of roads
As a contingency measure, Mr Makuei said the government would embark on construction of the road from the Bentiu oil refinery in the north to Gogrial in the west to transport the refined oil and make space for storage. The government also plans to revive the Bentiu Refinery and increase its storage capacity. He said South Sudan is also thinking of the Mombasa or Lamu route because it is shorter and more secure, as there is still no guarantee of security in Djibouti via Ethiopia. The Lamu route is part of a Lamu Port-South Sudan-Ethiopia Transport (Lapsset) corridor.
The nearly 1,100km Djibouti oil export/import route plan has been in the pipeline for a while. The proposed route should start from Paloch in the Northern Upper Nile state and terminating at Djibouti port via Ethiopia.
The route would significantly reduce the distance to the sea port, as well as the cost of transporting oil and supplies. From the oilfields to Port Sudan, the distance varies between 1,540km and 1,610km, depending on location.
A government source in Juba said bureaucracy at Port Sudan has been a major challenge as authorities there tend to delay clearing South Sudan-bound supplies, thereby affecting their delivery on time. In 2018, Juba signed a memorandum with South Africa, in which Pretoria would invest up to $1 billion in South Sudan’s oil sector, including the construction of a 60,000 barrels-per-day refinery at Paloich.
This is part of a $9 billion plan that the Juba government has had on the table since 2017, to build new road infrastructure to transport oil, linking the country to Ethiopia and Central Africa Republic, as well as Sudan, Kenya and Uganda.
President Salva Kiir directed that the government sign agreements with China for this purpose, using oil to finance this infrastructure. Juba would offer a sixth of its oil output to China to fund infrastructure development, primarily road projects.
The war further threatens South Sudan’s food security, as it disrupts the flow of food imports from the North.
“South Sudan has enormous agricultural potential, but because of conflict and years of lack of investment, we rely on food that comes from Sudan,” he said, noting that conflict would impact productivity,” said Dr Ajak.
He also raised concerns about the mass movement of refugees into South Sudan, which already has its own refugee crisis.
“When the war was going on in South Sudan a lot of South Sudanese migrated to the North. Now these people are coming back in addition to people from North Sudan. South Sudan is dealing with a lot of humanitarian crises so this additional crisis will make it difficult for South Sudan to handle the pressure,” he said.
Reporting by Fred Oluoch and Julius Barigaba