Sudan and South Sudan: low crude oil prices reignite the dispute

Sudan and South Sudan: low crude oil prices reignite the dispute

Marco Malvestuto
The dispute concerns the management and sharing of proceeds from oil produced in South Sudan, destined its northern neighbor'ss refineries of its. The disagreement, which started in 2011, has so far not found a definitive solution

The collapse of oil prices on the international market, albeit attenuated in recent weeks, has reignited the age-old dispute that has for years divided the governments of Sudan and South Sudan, involving the management and sharing of proceeds from crude oil produced in South Sudan, destined for its Northern neighbor’s refineries . The disagreement, which began with the independence of Juba in 2011, has so far not found a definitive solution, even if, on paper, the formation of a national unity government in South Sudan would to help reach an agreement to that effect.

No longer a fixed fee but a rate that fluctuates with the prices

Precisely following the fall in oil prices on the international markets, and renewed discontent on the part of the South Sudanese authorities due to a tax on crude oil considered too greedy, in February, the governments of Khartoum and Juba reached an agreement in principle that essentially provides for a new financial mechanism no longer based on a fixed fee, as agreed in the bilateral cooperation agreements signed in September 2012, but rather on a rate that fluctuates according to global oil prices. Under the agreement signed in 2012, in fact, Juba was required to pay Khartoum a tax fee of $9.1 per barrel for transporting crude oil produced in the Upper Nile through the Sudanese oil pipelines, and a fee of $11 per barrel for that produced in the Unity State, as part of a compensation package of $3 billion, intended to cover the loss of revenue caused by the secession of South Sudan in 2011. The issue was also addressed by Sudanese Foreign Minister Ibrahim Ghandour who, in an interview with Agenzia Nova specified that "there has been no agreement," but that Khartoum had put forward the proposal to revise the price of transport to the benefit of South Sudan.
"At the time of the secession of Juba in 2011, we had proposed to charge a percentage on per-barrel prices, which at the time amounted to $112. South Sudan rejected the proposal and insisted on paying a fixed price, instead of a percentage. Now, with the collapse in oil prices, the fixed tax fee has become very high and they have begun to complain," said Ghandour, emphasizing that "Sudan has made the decision, of its own free will, to revise the price of oil transport to the benefit of Juba which, apart from oil, has no other natural resource to exploit."

What South Sudan lost after the independence

After the secession of South Sudan, which took place in July 2011, Sudan lost control of 75% of its oil fields, which are located in the South of the country and which are now under the control of Juba. For its part, although it can manage a substantial amount of oil and mining facilities, South Sudan has almost non-existent infrastructure. Moreover, following the formation of the new national unity government, called to accompany the country during the transition phase to end the civil conflict, the Juba authorities expressed their intention to "significantly" increase oil production within the month of July, as recently announced by the Minister of Petroleum Dak Duop Bichiok, who commissioned a team of 21 experts to lay the foundations for increased oil production in the country. Oil production in South Sudan has in fact reduced significantly since the beginning of the civil conflict; between January 2012 and May 2013, almost all oil fields located in the Unity State were closed, as were others located in the Upper Nile state. Overall, domestic production grew from approximately 300,000 b/d in 2011 to approximately 165,000 b/d in 2014.