South Sudan is facing an economic meltdown that could bring not only hardship but also political turmoil to a country already wracked with both. The civil war in Sudan has severely disrupted oil exports, depriving South Sudanese coffers of petrodollars, the government’s main source of revenue. South Sudan seceded from Sudan in 2011, but the young country remains entirely dependent on its northern neighbour to get oil to international markets, using two pipelines to transport crude to Port Sudan on the Red Sea. Yet one of these pipelines, responsible for about two thirds of South Sudan’s oil exports, broke down in February and will require months of complex repairs that must be made amid active combat. Absent stopgap measures, the consequences for South Sudan will be dire: the government will run out of money and the national currency’s value will plunge. Chronic food shortages will worsen, presaging renewed instability and fighting. Regional and global partners should prepare to send emergency relief to South Sudan as they redouble efforts to end the war to the north.
A staggering 7.1 million of South Sudan’s 12 million-strong population are acutely hungry.
When the Sudanese civil war erupted in April 2023, few doubted that it would cause enormous difficulties for South Sudan. Hundreds of thousands of people have fled southward to a country that cannot feed those who already live there. A staggering 7.1 million of South Sudan’s 12 million-strong population are acutely hungry, while cross-border trade with Sudan has ground to a halt. The country’s security is at risk as it becomes embroiled in the conflict. Destitute South Sudanese are now fighting on opposite sides of Sudan’s war; some may carry their arms back home one day. South Sudan is also grappling with the difficult task of staying on good terms with both of Sudan’s main belligerents – the paramilitary Rapid Support Forces (RSF) led by Mohamed Hamdan Dagalo “Hemedti” and the army headed by Abdel Fattah al-Burhan – so that neither turns against it.
A host of critical challenges confronted the government even before the outbreak of war in its neighbourhood. Preparations are lagging for elections scheduled for December, the first since independence. Other issues bedevilling the country’s leaders range from the weak economy and rampant corruption to catastrophic floods and deadly clashes in much of the countryside. But it is the damaged pipeline and its financial effects that pose the most immediate threat to South Sudan’s peace.
Oil is the glue that holds South Sudan’s rivalrous political elites together even as it also finances much of the country’s chronic violence. As Crisis Group reported in 2021, most of the wealth accrued from oil exports does not benefit the public. Rather, the proceeds underwrite a violent patronage network that President Salva Kiir uses to maintain an uneasy overall peace in a country that descended into its own civil war only two years after independence. Before the pipeline fell into disrepair, oil accounted for at least 85 per cent of national revenue. If the government is unable to sell the affected crude, Kiir will struggle to keep the currency afloat, hold together his security forces and stave off deadly unrest.
The fighting in Sudan has its origins in the downfall of Omar al-Bashir’s 30-year dictatorship in 2019. Anger about high bread prices swelled into massive protests demanding that he resign. Top generals and security officials arrested Bashir in April of that year, seizing the reins of government and eventually signing a power-sharing agreement with civilian leaders that was to culminate in elections and restoration of constitutional rule. In 2021, the transition abruptly ended when the army dissolved the civilian cabinet and took power into its own hands. But tensions between Burhan and Hemedti mounted, with the RSF resisting coming under army command. Their respective camps came to blows in April 2023, turning Sudan’s capital Khartoum into a war zone and displacing millions. Although the pendulum has swung between the belligerents, both the army and the RSF now control vast areas encompassing crucial oil infrastructure.
War in Sudan put South Sudan’s financial lifeline at risk. Sudan has long sold South Sudanese oil from an export terminal in Port Sudan as a means of collecting fees from Juba for the use of its pipelines. Before the war, Sudan’s earnings from such fees were estimated at tens of millions of dollars a month. Separately, Juba agreed to pay Khartoum $3 billion in compensation for the oil infrastructure it inherited when it seceded in 2011, reportedly settling the last tranche in March 2022.
For some time, Sudan’s two warring parties had incentives to keep South Sudan’s oil flowing to the Red Sea terminal.
For some time, Sudan’s two warring parties had incentives to keep South Sudan’s oil flowing to the Red Sea terminal. When the army lost control of Khartoum, Burhan established his headquarters in Port Sudan, where his government continued selling Sudan’s allotment of South Sudan’s crude on international markets. For its part, the RSF has sought to portray itself as a protector of oil infrastructure while also quietly siphoning off crude and seeking under-the-counter payoffs from Juba as well. The RSF diverts oil from the al-Jaili refinery north of Khartoum, the country’s sole such facility, which the paramilitary force captured in the war’s early days. The army has responded by repeatedly striking the refinery, destroying its fuel depots and likely diminishing its value to the RSF.
Then, in February, part of the 1,400km pipeline that connects the Melut Basin oilfields in South Sudan’s Upper Nile state to Port Sudan and is located in RSF territory broke down. The pipeline normally transports about 60 per cent of South Sudan’s oil production. The malfunction occurred after the Sudanese company operating the pipeline – Bashayer Pipeline Company, or BAPCO – was unable to deliver diesel to a pumping station that keeps the waxy Dar blend of crude sufficiently heated to prevent it from congealing into an asphalt-like substance. This particular pumping station (one of many along the pipeline) is under RSF control, while BAPCO operates under Burhan’s energy ministry.
A pipeline rupture in Sudan blocked the bulk of South Sudan’s oil from export. The pipeline is now clogged, requiring lengthy repairs.
CRISIS GROUP / PLANET LABS
On 10 February, BAPCO discovered a clog in the pipeline north of the station, prompting it to halt work and suspend a planned shipment of 600,000 barrels due 22-23 February. Technicians managed to flush the pipeline only to discover a rupture south of the pumping station two days later. They were able to reach the site after negotiating access with the RSF, which on 24 February released a video showing them at work patching the hole. But they then found that large sections of the pipeline north of the rupture and the station were clogged. On 16 March, Burhan’s energy ministry declared force majeure on the pipeline, saying the war made it impossible for Sudan to meet its contractual obligations to South Sudan.
It is unclear why the company was unable to resupply the pumping station with diesel, but experts told Crisis Group that it was only a matter of time before pipeline maintenance became a problem. The two belligerents restrict access across the front lines, and the army does what it can to stop fuel from entering RSF-held areas. So far, attempts to flush the pipeline remotely with chemicals and pressure have only caused more ruptures and other damage. Some experts believe that parts of the pipeline will need to be replaced entirely. Many of those with direct knowledge of the situation say South Sudan’s oil exports are unlikely to resume without a months-long ceasefire that allows technicians to repair and rebuild the pipeline on site. Even so, some Sudanese and South Sudanese officials express optimism that repairs could take place even amid the war, assuming both the main protagonists cooperate. In late April, a top Sudanese official promised that the pipeline would be fixed within two months. Industry sources nevertheless told Crisis Group that this timeline is unrealistic.
The bottom line is that South Sudan may well fail to get the pipeline fixed soon.
The bottom line is that South Sudan may well fail to get the pipeline fixed soon. There is no consensus among regional officials and analysts as to whether the RSF intentionally disrupted maintenance of the pipeline, but Hemedti has been playing hardball with South Sudan when it comes to the country’s oil earnings and stance on the war. Although South Sudan professes neutrality in Sudan’s war and has maintained relations with both sides, Hemedti perceives Kiir as too cosy with his enemy Burhan. Indeed, Kiir remains on good terms with Burhan, while his relationship with Hemedti seems increasingly frosty. RSF officials say they want South Sudan to cut off payments to Burhan’s government by placing the transit-related fees in an escrow account until the war ends, a proposal that the Sudanese army would dismiss out of hand. Most observers, including informed ones, assume that Hemedti is driving up the price for his own parallel payoff, further squeezing South Sudan.
The one silver lining is that Sudan’s other pipeline, which transports crude from South Sudan’s Unity and Sudan’s Heglig’s oilfields to Port Sudan, continues operating – for now. The crude blend from these fields requires no heating and therefore less maintenance on the pumping station and related machinery. Still, many industry officials worry that this pipeline, too, will eventually malfunction given the difficulties of routine upkeep in wartime.
If South Sudan is unable to restore oil exports from the Upper Nile field soon, the currency will decline ever faster against the dollar while elite squabbling over the shrinking pot of oil money intensifies. In 2020, a slump in global crude prices triggered an economic crisis that prompted the government to secure a $550 million loan from the International Monetary Fund (IMF) in return for financial reforms. Against the IMF’s advice, Juba began channelling the proceeds from the Unity fields to an off-budget slush fund known as the Oil for Roads project, controlled directly by Kiir. Ostensibly earmarked for infrastructure, this fund sucks up nearly a third of South Sudan’s income. It is widely believed to supply much of the money Kiir doles out to keep South Sudan’s rivalrous generals and warlords on his side.
Civil servants and soldiers, meanwhile, routinely go months without pay. At the time of publishing, most South Sudanese public employees had not received a salary since October 2023, after the government quadrupled public-sector wages to adjust for inflation. Even after the adjustment, a regular soldier now earns only $15 a month if he actually gets paid. Even South Sudan’s political class, once flush with petrodollar largesse, admits adapting to a new era of austerity. Governance outside Juba is largely absent.
[A] major concern is that the slide of the South Sudanese pound will worsen the humanitarian crisis, given that the population largely survives on imported food.
A first major concern is that the slide of the South Sudanese pound will worsen the humanitarian crisis, given that the population largely survives on imported food. The head of South Sudan’s central bank said in May that its hard currency reserves are now at an “historic low”. Without petrodollars, the central bank is unable to support the currency, driving up the cost of food and fuel imports. Since February, the South Sudanese pound has lost almost half its value against the dollar. On top of that, getting aid deliveries into South Sudan risks becoming more complex as the government tries to levy new fees on relief supplies in order to fill state coffers, a measure that has angered the country’s major humanitarian donors.
The second concern is political. If South Sudan cannot resume the bulk of its oil exports and proves unable to find an alternative source of income, Kiir will likely struggle to keep South Sudan’s factious security elites in check. Without patronage, Kiir’s allies could turn on him or on one another. Since South Sudan’s political class has grown so weak, Kiir’s survival now largely rests on the loyalty of power brokers within South Sudan’s main security institutions, namely the presidential guard, the security service, the army and the police. Any sign of weakness in Kiir’s camp could also tempt outsiders, including Sudan’s main belligerents, to destabilise his government. Quiet jockeying to succeed Kiir, who is reportedly in poor health, has already begun. Even for Kiir, who over the years has proven adept at staving off challengers and managing dramatic oil price fluctuations, such meddling could prove overwhelming. It could also ratchet up violence in South Sudan’s hinterland, given how much of that unrest stems from intra-elite quarrels in Juba.
Political disputes about South Sudan’s first-ever elections slated for December muddy the picture further. Many South Sudanese expect the vote, promised as the final chapter of the country’s 2018 peace deal, to be delayed due to a lack of preparations for the poll and disputes between politicians about the path forward. Indeed, South Sudan’s recent history gives cause for concern. Many blame the elite divisions sown by South Sudan’s sudden loss of oil revenue in 2012 (amid a standoff with Sudan over transit fees) for the civil war that erupted just over a year later as elections neared.
Ending the war in Sudan is the best way to prevent instability from rippling across its borders, and as Crisis Group has argued, will require unwavering diplomatic efforts from a number of countries. Meanwhile, the human cost of an economic catastrophe in South Sudan and the region’s inability to handle another major crisis makes it vital that regional and international partners also turn their attention to South Sudan’s worsening plight. They should stress the need to restore South Sudan’s oil exports with those who have influence, such as the United Arab Emirates (UAE), which could encourage the RSF to cooperate toward that end, and also work to prevent more violence from breaking out in South Sudan. South Africa, an influential broker in South Sudan, should continue to mediate among the South Sudanese elite, as should neighbours Kenya, which launched its own mediation initiative in May between the South Sudanese government and exiled opposition groups, and Uganda. Should Juba’s relations with either Hemedti or Burhan grow openly hostile, mediators should strive to limit the fallout and stop Sudan’s war from spreading.
In the meantime, unless it secures foreign-backed loans to keep affairs of state running, South Sudan is on shaky ground. It is unclear which country might be willing to lend the hefty sums that would make up for lost oil revenue, though in some cases there may be a bilateral rationale for doing so. Juba could talk with China, whose 41 per cent stake in the Dar Petroleum Oil Company might give it an incentive to keep South Sudan’s economy afloat. During the oil shutdown in 2012, Beijing helped Juba with loans. Still, China’s recent lending to African countries has dropped sharply – and it has substantially reduced its dependence on South Sudanese oil in recent years.
The pipeline disruption appears to have disrupted negotiations for a multi-billion dollar [UAE] loan.
South Sudan is also trying to secure loans from the UAE, which has made massive investments in the region and has rising influence. The pipeline disruption appears to have disrupted negotiations for a multi-billion dollar loan, which started in late 2023, but Juba hopes to revive those talks while obtaining smaller, short-term loans to tide over the administration in the meantime. Any negotiations with the UAE are likely intertwined with South Sudan’s discussions with the RSF about repairing the pipeline, given Abu Dhabi’s close ties to Hemedti’s force. In all these scenarios, however, creditors will worry about South Sudan’s capacity to remain solvent until it is clear when the damaged pipeline will be fixed. South Sudan’s chequered history paying its debts may also give them cold feet.
If President Kiir is unable to secure alternative revenue, outsiders should be wary of bailing out a system rotten to the core. If called on to shore up the country’s finances, institutions like the IMF should consider stopgap support only if South Sudan’s government ensures that more of its oil revenue enters the public coffers, where it could be used to rebuild basic administrative capacity as a first step toward reducing chronic violence and hardship throughout much of the country. Otherwise, the prevalence of slush funds drawing on oil revenues means elites will continue to jostle with one another for a cut of the pie, fuelling violence, even as foreign donors try to meet South Sudanese people’s basic needs.
So long as South Sudan’s financial straits are worsening and its political tensions heightening, donors and countries mediating in its neighbour’s conflict should remain on high alert. While outsiders should continue to support the South Sudanese people’s desire for elections, they should recognise that the current timetable appears non-viable. Pressing ahead with the present calendar runs too high a risk of further dangerous ruptures among the country’s cash-starved elites, absent a new agreement on the path forward. Donors also need to keep a watchful eye on the immediate threat of famine in Sudan and South Sudan, and hike their support for international agencies, including the World Food Programme, which currently lack the funds to meet the overwhelming humanitarian needs in the region. Until mediators manage to halt the war in Sudan, stepped-up efforts to protect South Sudan from the collateral effects of that conflict are fast becoming an additional imperative.
Source link : https://www.crisisgroup.org/africa/horn-africa/south-sudan/south-sudan-edge-its-neighbours-war-disrupts-oil-exports
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Publish date : 2024-05-15 07:00:00
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